U.S. Indices closed in the red, albeit well off worst levels, as Trump tariff talk dominated markets to start the week. The Dollar saw Index hefty gains to the detriment of G10 FX (with the exception of both Sterling and the Japanese Yen) but saw a large range (108.57-109.88) amid mixed tariff talk. The week began with a gap lower in US equities and T-notes, a gap higher in the Dollar and notable strength in oil in the wake of Trump announcing 25% tariffs on all imports from Canada and Mexico, but Canadian energy products will face a 10% tariff. On China, there will be an additional 10% tariff on top of existing levies, with no exclusion. However, Mexican President Sheinbaum and Trump had a constructive debate whereby he agreed to delay tariffs a month, which saw a large paring of earlier moves with the Mexican Peso wiping out all earlier losses. Nonetheless, tariffs on Canada and China are still due to come into effect today, but at the writing Trump and Trudeau are currently speaking so we await any readout. Elsewhere, ISM Manufacturing Pmi was a strong report but took the backseat with focus on tariffs while the OPEC+ JMMC meeting was a non-event and went as expected. Ahead of QRA on Wednesday, the US Treasury announced it expects to borrow USD 815 billion in privately-held net marketable debt in Q1 25, below the USD 823 billion that was guided for Q1 25 in Q4 24. This is primarily due to a higher beginning-of-quarter cash balance but partially offset by lower net cash flows. On the Fed footing, Bostic and Collins spoke, both echoing Powell in not being in a hurry to cut rates again. Both also noted the uncertainty on US policies, with Collins suggesting tariffs should have an impact on prices. Bostic said there is an outcome where the Fed might look through tariff impact on prices, but also one where it could impact expectations and thus warrant a Fed response. U.S. Construction Spending for December rose 0.5%, above the prior and consensus for a 0.2% gain. However, given it is December data it is dated given we have already had Q4 GDP. Looking ahead, OxEco stresses that trade policy actions matter much more. The desk writes that they “modelled the new higher tariffs on Canada, Mexico, and China. Even if they are watered down this year and eventually lifted, new protectionist measures will cut growth in residential investment and business investment in structures by 1ppt and 1.6ppt, respectively, in 2025.” However, OxEco also add that no matter how the trade war unfolds, there will be pockets of resilience as spillovers from AI support data-centre construction and solid finances guard against the risks to state and local government investment. ISM Manufacturing rose back into expansionary territory in January for the first time in 26 months, as the headline printed 50.9, above the prior 49.2 and the expected 49.8. Within the release, the inflationary gauge of prices paid lifted to 54.9 from 52.5 (exp. 53.5), while employment and new orders soared to 50.3 (prev. 45.4) and 55.1 (prev. 52.1), respectively. Production, supplier deliveries, new export orders, and imports all lifted while the backlog of orders slightly declined. Despite a positive release, the big question is whether this upturn reflects a lasting improvement or a fleeting boost from purchases brought forward in anticipation of tariffs. Desks note pre-emptive purchases driven by worries about tariffs on imported goods from Canada, China, and Mexico surely will unwind sharply if extensive new tariffs are applied to those countries. Nonetheless, Pantheon Macroeconomics said it seems more likely that disruption to supply chains and a hit to demand from higher prices start to weigh heavily on US manufacturing soon. For the record, comments from panellists were also positive, though these would not include reactions to the recent tariff announcement. Elsewhere, Oil closed 1% lower while Gold ended Monday with a 0.6% gain following a volatile trading session that witnessed of two-way price action.
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