Markets await Trump's reciprocal tariffs

EU mid-market update: Geopolitical optimism battles sticky inflation fears; Markets await Trump's reciprocal tariffs; Earnings resilience offsets tariff risks for now; Energy markets pivot on supply sentiment.

Notes/observations

- European markets diverged, with STOXX 50 surging to fresh 25-year highs amid optimism over potential Ukraine peace talks following Trump’s announcement of immediate US-Russia negotiations. However, FTSE 100 underperformed, dragged down by weak corporate guidance: British American Tobacco (-8%) and Unilever (-6%) tumbled on cautious outlooks, while Barclays (-5%) fell despite strong earnings and a buyback. UK GDP surprised positively, rising 0.1% in Q4 (v -0.1%e) and 0.4% in December - its strongest monthly growth since March.

- European natural gas futures dropped 6.5% to under €52.5/MWh as Ukraine conflict de-escalation hopes and milder weather forecasts eased supply concerns. However, storage levels at 47.2% (lowest since 2022) raise refilling risks for winter. The EU’s proposed gas price cap (due Feb 26) adds further downside pressure.

- Euro strengthened to $1.04, a two-week high, buoyed by geopolitical optimism, though ECB-Fed policy divergence lingers. ECB faces pressure to ease while the Fed holds firm. Trade tensions simmer as the EU vows retaliation against potential US steel/aluminum tariffs, with Germany warning of an “immediate response.”

- Looking ahead, focus is on US PPI at 08:30 ET, expected at +0.3% MoM, following US Jan CPI which exceeded expectations, reinforcing Fed Chair Powell’s hawkish stance that “more work remains” to curb inflation. Markets now price the first Fed rate cut for December (vs. September earlier), aligning with economists’ expectations of an extended pause. Heightened focus remains on Trump’s pending reciprocal tariff announcement, which could exacerbate inflationary pressures.

- Asia closed mixed with KOSPI outperforming +1.4%. EU indices -0.8% to +1.2%. US futures -0.1% to +0.1%. Gold +0.4%, DXY -0.4%; Commodity: Brent -1.2%, WTI -1.4%; Crypto: BTC +0.1%, ETH +2.0%.

Asia

- Australia Feb Consumer Inflation Expectation Survey: 4.6% v 4.0% prior (matches Apr 2024 high).

- New Zealand Q1 Inflation Expectation Survey 2-year outlook: 2.1% v 2.1% prior. The 1-Year inflation expectation at 2.2%.

- Japan Jan PPI (domestic CGPI) M/M: 0.3% v 0.3%e; Y/Y: 4.2% v 4.0%e (highest since May 2023 of 5.1%).

- Japan PM Ishiba stated that had no plans to review Govt-BOJ accord at this time. Would not comment when asked whether FX was discussed during meeting with Trump.

Global conflict/tensions

- Trump moving to negotiate end to Ukraine war following his phone calls with Putin and Zelensky. Trump said both leaders want peace, praising Putin and eyeing a meeting with him in Saudi Arabia.

- Pres Trump stated that Ukraine had to make peace and was unlikely that it would get its land back. Did not believe it was practical for Ukraine to be a NATO member.

- China said to have offered its help to end the Ukraine conflict. Would Beijing-led Trilateral Summit with Trump and Putin,

Europe

- ECB’s Nagel (Germany): Must not cut rates too hastily with rates nearing neutral; did not see high probability of inflation undershoot. Closer towards the neutral rate, the more appropriate it becomes to take a gradual approach to cuts.

- BOE's Pill (chief economist) stated that he believe MPC could cut rates further but must remain cautious.

- UK Jan RICS House Price Balance: 22% v 28%e.

Americas

- President Trump stated that he would sign reciprocal tariff order.

- Elon Musk stated that US govt spending could be reduced by about $1T or more; That would mean no inflation in 2025-2026.

- Bank of Canada (BOC) Summary of Deliberations (Jan) Minutes noted that members agreed that a 25 basis point cut would be helpful to support growth and better balance inflation risks Would need to continuously gauge effects of a trade conflict in real time. The threat of tariffs had increased uncertainty.

- US Jan Federal Budget Balance: -$128.6B v -$94.8e.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.45% at 550.22, FTSE -0.83% at 8,734.40, DAX +1.22% at 22,412.65, CAC-40 +1.10% at 8,130.72, IBEX-35 +0.12% at 12,923.36, FTSE MIB +0.48% at 37,704.00, SMI +1.14% at 12,842.40, S&P 500 Futures -0.04%].

Market focal points/key themes: European indices open generally higher and managed to maintain the gains through the early part of the session; improved risk appetite being attributed to hope of a process to reach a peace deal in Ukraine; better performing sectors include consumer discretionary and industrials; lagging sectors include energy and financials; travel & leisure subsector supported while defense names impacted in the wake of Ukraine news; Castellum plans to take over Entra; reportedly Orkla in early talks to sell its India unit to ITC; earnings expected in the upcoming US session include GE Healthcare, Altice, Deere and Euronext.

Equities

- Consumer discretionary: Delivery Hero [DHER.DE] +6.5% (earnings).

- Consumer staples: Unilever [UNA.NL] -6.5% (FY results), Nestle [NESN.CH] +6.5% (FY results), British American Tobacco [BATS.UK] -8.0% (FY results).

- Financials: Commerzbank [CBK.DE] -1.5% (Q4 results), Barclays [BARC.UK] -5.0% (FY results).

- Healthcare: EssilorLuxottica [EL.FR] +3.5% (earnings).

- Industrials: Siemens [SIE.DE] +5.5% (Q1 results), Thyssenkrupp [TKA.DE] +10.5% (Q1 results), Rheinmetall [RHM.DE] -1.5%, Leonardo [LDO.IT] -1.5% (Trump-Putin talks to end Ukraine war), Michelin [ML.FR] +5.0% (earnings).

- Telecom: Nokia [NOKIA.FI] -1.0% (Cisco results), Telecom Italia [TIT.IT] +2.0% (earnings), Orange [ORA.FR] +2.5% (earnings).

Speakers

- ECB Economic Bulletin noted that the dsinflation process was progressing; inflation aligned with December 2024 projections, expected to hit 2% target in 2025.

- Sweden Central Bank (Riksbank) Jansson commented that risks to inflation were probably somewhat on the upside. Riksbank plans for interest rate seemed pretty reasonable at the moment.

- French Audit Court chief Moscovici stated that country could no longer repeat the same errors, and always putting off efforts to rein in the public finances was simply no longer an option.

- Russia govt spokesperson Peskov noted that Putin and Trump phone call discussed energy sector but sanctions were not brought up; Focused on personal meeting between the two leaders but could not talk about timeframe yet; Putin would make an announcement on Russian negotiator in Ukraine talks when it was decided.

- China PBOC Q4 Monetary Policy Implementation Report stated that it would implement 'appropriately loose' monetary policy (**Note: prior language was ‘moderately loose'). To keep interest rates and exchange rates in balance. Reiterated pledge to maintain CNY currency (Yuan) rate at reasonable and balanced level and maintain ample liquidity

- Philippines Central Bank Policy Statement noted it would await further assessment on global policy uncertainty and remain data despondent. Domestic growth prospects remained firm but saw upside pressures coming from utilities.

- Philippine Central Bank (BSP) Gov Remolona post rate decision press conference noted that would consider keeping policy steady at the next meeting and any cut would be only 25bps. BSP remained in an easing cycle but needed time to recalibrate models. Global uncertainties were tricky to analyze.

- IEA Monthly Oil Report (OMR) raised the 2025 global oil demand growth from 1.05Mbpd to 1.1M bpd (demand seen at 104.0M vs. 104.0M prior)while cutting the 2025 global oil supply growth from 1.8M bpd to 1.6M bpd (supply seen at 104.5M vs. 104.7M prior.

- Hamas stated that hostages would be released according to schedule.

Currencies/fixed income

- USD was on a soft footing in the session as war optimism eclipsed trade concerns. President Trump held phone call with Russia President Putin. Discussed Ukraine, the Middle East, Energy, Artificial Intelligence, the power of the Dollar, and various other subjects. Agreed to work together, Dealers noted that recent US CPI data that came above forecasts would do little to calm markets that were obsessed with tariffs.

- GBP/USD moved above the 1.25 level after UK Q4 GDP beat consensus. Market participants trimmed forecast of BOE rate cuts over the course of 2025 to ust over 5bps in total now. Nonetheless the UK underlying growth momentum remained weak and likely to expect sluggish growth through spring.

- USD/CHF was lower despite softer Swiss CPI data that Inflation that continued to vindicate the SNB on recent 'jumbo' rate cut back in Dec.

- EUR/USD at 1.0425 by mid-session.

- Bond yields were lower in the session with UK 10-year Gilt at 4.54%; US-10-year at 4.61% and German 10-year Bund at 2.46%.

Economic data

- (NL) Netherlands Jan CPI M/M: -0.2% v +0.1% prior; Y/Y: 3.3% v 3.3% prelim.

- (NL) Netherlands Jan CPI EU Harmonized M/M: -0.7% v -0.8% prelim; Y/Y: 2.9% v 2.9% prelim.

- (UK) Dec Monthly GDP M/M: 0.4% v 0.1%e.

- (UK) Q4 Preliminary GDP Q/Q: +0.1% v -0.1%e; Y/Y: 1.4% v 1.1%e.

- (UK) Q4 Preliminary Private Consumption Q/Q: 0.0% v 0.3%e; Government Spending Q/Q: 0.8% v 0.6%e; Gross Fixed Capital Formation Q/Q: -0.9% v -0.3%e; Exports Q/Q: -2.5% v -1.3%e; Imports Q/Q: 2.1% v 1.1%e.

- (UK) Q4 Preliminary Total Business Investment Q/Q: -3.2% v -0.5%e; Y/Y: -0.7% v +3.3%e.

- (UK) Dec Industrial Production M/M: 0.5% v 0.2%e; Y/Y: -1.9% v -2.1%e.

- (UK) Dec Manufacturing Production M/M: +0.7% v -0.1%e; Y/Y: -1.4% v -1.9%e.

- (UK) Dec Construction Output M/M: -0.2% v +0.2%e; Y/Y: 1.5% v 1.2%e.

- (UK) Dec Visible Trade Balance: -£17.5B v -£18.7Be; Overall Trade Balance: -£2.8B v -£4.1Be.

- (UK) Dec Index of Services M/M: 0.4% v 0.1%e; 3M/3M: 0.2% v 0.1%e.

- (DE) Germany Jan Final CPI M/M: -0.2% v -0.2% prelim; Y/Y: 2.3% v 2.3% prelim.

- (DE) Germany Jan Final CPI EU Harmonized M/M: -0.2% v -0.2% prelim; Y/Y: 2.8% v 2.8% prelim.

- (TR) Turkey Dec Current Account Balance: -$5.0B v -$4.0Be.

- (PH) Philippines Central Bank (BSP) left Overnight Borrowing Rate unchanged at 5.75%; not expected.

- (CH) Swiss Jan CPI M/M: -0.1% v -0.1%e; Y/Y: 0.4% v 0.4%e (slowest annual pace since 2021); Core CPI Y/Y: 0.9% v 0.6%e.

- (CH) Swiss Jan CPI EU Harmonized M/M: -0.1% v -0.1% prior; Y/Y: 0.2% v 0.4% prior.

- (PL) Poland Q4 Preliminary GDP Q/Q: 1.3% v 1.4%e v -0.1% prior; Y/Y: 3.2% v 3.3%e.

- (CZ) Czech Dec Current Account Balance (CZK): 15.2B v 7.4Be.

- (ZA) South Africa Dec Total Mining Production M/M: -3.9% v 0.0% prior; Y/Y: -2,4% v +1.8%e v -0.9% prior; Gold Production Y/Y: N-8.4% v -11.5% prior; Platinum Production Y/Y: -7.1% v 3.9% prior.

- (EU) Euro Zone Dec Industrial Production M/M: -1.1% v -0.6%e; Y/Y: -2.0% v -3.1%e.

Fixed income issuance

- (IT) Italy Debt Agency (Tesoro) sold total €5.75B vs. €4.75-5.75B indicated range in 3-year and 7-year BTP bonds.

- Sold €3.25B vs. €2.75-3.25B indicated range in 2.70% Oct 2027 BTP bonds; Avg Yield: 2.52% v 2.85% prior; bid-to-cover: 1.58x v 1.65x prior.

- Sold €1.25B vs. €1.0-1.25B indicated range in 3.15% Nov 2031 BTP bonds; Avg Yield: 3.18% v 3.49% prior; bid-to-cover: 1.83x v 1.63x prior.

- Sold €1.25B v €1.0-1.25B indicated range in 3.45% July 2031 BTP bonds; Avg Yield: 3.13% v 3.19% prior; bid-to-cover: 1.85x v 1.61x prior.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 12-month Bills.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (PT) Portugal Q4 Labour Costs Y/Y: No est v 8.4% prior.

- 06:00 (IL) Israel Jan Trade Balance: No est v -$3.1B prior.

- 06:00 (RO) Romania to sell RON600M in 7.9% Feb 2038 Bonds.

- 07:00 (BR) Brazil Dec Retail Sales M/M: -0.1%e v -0.4% prior; Y/Y: 3.1%e v 4.7% prior.

- 07:00 (BR) Brazil Dec Broad Retail Sales M/M: 0.0%e v -1.8% prior; Y/Y: 3.1%e v 2.1% prior.

- 07:00 (BR) Brazil CONAB Corn.

- 08:00 (RU) Russia Feb Gold and Forex Reserve w/e Feb 7th: No est v $620.8B prior.

- 08:00 (PL) Poland Dec Current Account Balance: -€1.5Be v -€0.5B prior; Trade Balance: -€2.1Be v -€1.6B prior; Exports: €25.1Be v €28.4B prior; Imports: €27.3Be v €30.0B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Jan PPI Final Demand M/M: 0.3%e v 0.2% prior; Y/Y: 3.3%e v 3.3% prior.

- 08:30 (US) Jan PPI (Ex Food and Energy) M/M: 0.3%e v 0.0% prior; Y/Y: 3.3%e v 3.5% prior.

- 08:30 (US) Jan PPI (Ex Food, Energy, Trade) M/M: 0.2%e v 0.1% prior; Y/Y: No est v 3.3% prior.

- 08:30 (US) Initial Jobless Claims: 216Ke v 219K prior; Continuing Claims: 1.88Me v 1.886M prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (DE) ECB's Nagel (Germany).

- 12:00 (NO) Norway Central Bank (Norges) Gov Bache.

- 12:00 (CA) Canada to sell 5-year Bonds.

- 13:00 (US) Treasury to sell $25B in 30-Year Bonds.

- 14:00 (AR) Argentina Jan National CPI M/M: 2.3%e v 2.7% prior; Y/Y: 84.7%e v 117.8% prior.

- 16:00 (KR) South Korea Jan Import Price Index M/M: No est v 2.4% prior; Y/Y: No est v 7.0% prior.

- 16:00 (KR) South Korea Jan Export Price Index M/M: No est v 2.4% prior; Y/Y: No est v 10.7% prior.

- 16:30 (NZ) New Zealand Jan Manufacturing PMI: No est v 45.9 prior.

- 16:45 (NZ) New Zealand Jan Food Prices M/M: No est v 0.1% prior.

- 18:00 (KR) South Korea Jan Unemployment Rate: 3.2%e v 3.7% prior.

- 18:00 (PE) Peru Central Bank Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.75%.

- 19:00 (SG) Singapore Q1 Final GDP Q/Q: 0.8%e v 0.1% prelim; Y/Y: 5.0%e v 4.3% prelim; Overall 2024 GDP Y/Y: 4.2%e v 4.0% prelim.

- 23:00 (MY) Malaysia Final Q4 GDP Q/Q: -1.3%e v +1.8% prelim; Y/Y: 4.8%e v 4.8% prelim; Annual 2024 GDP Y/Y: 5.1%e v 5.1% prior.

- 23:00 (MY) Malaysia Q4 Current Account Balance (MYR): 16.4Be v 2.2B prior.

- 21:00 (KR) South Korea to sell KRW700B in 50-year Bonds.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 22:35 (JP) Japan to sell 5-year JGB Bonds.