Futures Rise On Muted Chinese Response To Trade War

US equity futures are flat, recovering from earlier losses after China’s restrained response to US tariffs, and a last-minute reprieve for Canada and Mexico. As of 8:00am ET, S&P futures are flat, having dropped 0.5% earlier after China tariffs went into effect at midnight and China retaliated; Nasdaq futures rose 0.2% thanks to a bid for parts of the Mag7/semis complex (GOOGL +0.7%, AMZN +0.5%, AAPL -0.5%, MSFT flat, META +0.6%, NVDA +0.4% and TSLA +0.5%). Unlike yesterday, USD is weaker to start the session, dropping 0.2% as some traders flagged relief that the worst-case scenarios seem to be avoided. The bond market reaction is muted, with the yield curve bear steepening 1-2bps; the 10Y yield rose 2bps to 4.58%. Commodities are lower with energy getting hit and WTI crude oil futures falling more than 2% to YTD low. Today’s macro focus is on JOLTS and Factory Orders

In premarket trading, Chinese stocks listed in the US are broadly higher as analysts say Beijing’s retaliatation to Donald Trump’s tariffs is relatively measured and appears to be aimed at increasing its bargaining power at trade talks (Alibaba +1.5%, Nio +1%, PDD +2%). Palantir shares soared as much as 20% after the software company gave a forecast that is stronger than expected, citing demand for its AI products. For context, PLTR raised its 2025 revenue guidance by $200MM and its market cap grew by $30BN. Just don’t call it a bubble. Elsewhere, Merck, PepsiCo and Estée Lauder all declined on disappointing outlooks. PayPal tumbled 6% after posting fourth quarter results. Here are some other notable movers:

• Fabrinet (FN) declines 6% after the engineering and manufacturing services company reported its second-quarter results that showed weakness in the company’s datacom business.
• Grab (GRAB) climbs 6% as the company is weighing a takeover of rival GoTo Group.
• Illumina and Calvin Klein owner PVH Corp. decline after China placed the companies on a so-called blacklist of entities, among a series of retaliatory actions after new tariffs ordered by Trump took effect Tuesday. Illumina (ILMN) -5%, PVH (PVH) -4%
• Merck (MRK) falls 7% as the company is halting shipments of its cancer-preventing Gardasil vaccine to China, which is expected to last at least through mid-year.
• Palantir (PLTR) rises 21% after the software company gave a forecast that is stronger than expected. The company touted the demand it is seeing for AI products.
• PepsiCo (PEP) slips 2% after reporting sales that missed expectations and forecast sluggish growth for 2025 as North American shoppers pull back on purchases of snacks from the maker of Cheetos and Mountain Dew.
• Pfizer (PFE) climbs 1% as its fourth quarter beat expectations on strong sales of its Covid vaccine and pill.
• Silicon Labs (SLAB) rises 2% after providing a 1Q forecast.
• Sirius XM (SIRI) rises 3% after Berkshire Hathaway reported insider transactions in the firm worth $54 million.
• Spotify (SPOT) advances 8% after the audio-streaming company’s first-quarter forecasts for monthly active users, revenue and operating income topped estimates.
• Super Micro Computer (SMCI) rises 5% after the company said that it will give a business update on Feb. 11 following the market close.

A mixed bag of corporate results, meanwhile, did little to give the market direction. “The tariff issue is not going away as fast as one could have hoped for,” said Andrea Tueni, head of sales trading at Saxo Banque France SAS. “Sure, earnings are providing some oxygen but there’s a bigger game at play here. We’re only at the beginning of a long process so my advice is to proceed cautiously.” Traders are also awaiting results Tuesday from Alphabet, as well as data on US factory- and durable-goods orders.

The Stoxx 600 trimmed declines and traded up 0.1% last, revering a 0.4% loss, as traders point to China’s restrained response to US tariffs and as investors juggle the risk of a global trade war with a slew of positive earning reports from the region. Financial services and telecommunications shares are the biggest laggards, while technology and banking shares lead the outperforming sectors. UBS shares dropped as concern over a potential increase in capital requirements outweighed better-than-expected results. Vodafone fell after the communications firm noted worsening conditions in Germany. BNP Paribas rose on a surge in trading revenue, while Infineon Technologies AG jumped after the chipmaker forecast revenue that beat analyst estimates. Here are the biggest movers Tuesday:

• Infineon shares soar as much as 13%, the most since May, after the chipmaker raised FY revenue guidance, citing currency gains
• BNP Paribas shares advanced as much as 3.7%, the best performer on the Stoxx 600 Banks Index, after it reported what analysts say are a reasonable set of results
• Coloplast shares climb as much as 4%, the most since Nov. 14, after the medical-products maker reported results for the first quarter that were in line with expectations, which analysts found reassuring
• UBS shares reverse initial gains and trade about 6% lower as concern persists over a potentially substantial increase in capital requirements, outweighing better-than-expected results and a $3b buyback
• Vodafone shares fall as much as 6.5% as the telecommunications firm says Germany, which accounts for some 38% of its revenue, is expected to see weaker earnings in the second half of year
• Diageo shares fall as much as 3.8% before trimming the drop after the distiller withdrew its medium-term guidance due to geopolitical uncertainty, a move which analysts said showed that a recovery would take longer than expected
• Reckitt Benckiser shares drop as much as 2.5% after Barclays downgraded the household and personal care products maker to equal-weight, saying the stock is “not as cheap as it seems”

Earlier in the session, Asian equities pared gains in afternoon trading Tuesday, as the US imposed a 10% tariff on all Chinese imports and China retaliated to the new levies. The MSCI Asia Pacific Index was up 1.2%, trimming an earlier rise of about 1.5%. President Donald Trump’s earlier deals to delay 25% tariffs on Canada and Mexico for a month had given the market hope for a similar pause on the China duties, sending Hong Kong shares higher in the morning. China announced an investigation into Google and put new levies on a range of US products in an apparent retaliatory move, moments after the US tariffs of 10% kicked in. The Hang Seng China Enterprises Index was up 3.5%, after earlier having trimmed gains to 1.7%, as traders saw the measures as positioning for trade talks.

In FX, the greenback was up against all its Group-of-10 peers during the Asia session, yet lost traction after the Tokyo fix; China proxies like the Australian and New Zealand dollars lead declines. the Mexican peso and Canadian dollar are both little changed after Monday’s tariff reprieve boosted both currencies. The Swiss franc and Swedish krona are the best performing G-10 currencies. The yen falls 0.4%, pushing USD/JPY to 155.30.

In rates, treasuries hold small, long-end-led losses as the US trading day begins, steepening the yield curve. 10-year TSY yields are ~2bps cheaper on the day at ~4.58%, outperforming bunds and gilts in the sector by 1.5bp and 4bp; Canadian bonds extend Monday’s outperformance of Treasuries with 10-year sector richer by around 2bp on vs US 10-year. The 30-year yield is higher by nearly 3bp at about 4.82%, approaching Friday’s high, and 2s10s and 5s30s spreads also top Monday’s wides. Gilts lead a selloff in European government bonds as UK 10-year yields climb ~6 bps to 4.54%. French bonds spreads narrow for a third day. Focal points of US session also include JOLTS job openings data at 10am New York time.

On today’s calendar, we get the December JOLTS and factory orders (10am). Fed speaker slate includes Bostic (11am), Daly (2pm) and Jefferson (7:30pm).

Market Snapshot

• S&P 500 futures down 0.2% to 6,007.50
• STOXX Europe 600 down 0.3% to 533.29
• MXAP up 1.3% to 182.26
• MXAPJ up 1.6% to 573.53
• Nikkei up 0.7% to 38,798.37
• Topix up 0.6% to 2,738.02
• Hang Seng Index up 2.8% to 20,789.96
• Shanghai Composite little changed at 3,250.60
• Sensex up 1.9% to 78,641.72
• Australia S&P/ASX 200 little changed at 8,373.98
• Kospi up 1.1% to 2,481.69
• German 10Y yield little changed at 2.41%
• Euro little changed at $1.0347
• Brent Futures down 1.4% to $74.89/bbl
• Gold spot up 0.1% to $2,818.05
• US Dollar Index down 0.50% to 108.45

Top Overnight News

• China on Tuesday imposed targeted tariffs on American imports and put several U.S. companies, including Google, on notice for possible sanctions, in a measured response to the sweeping duties on Chinese imports imposed by President Donald Trump. Beijing’s limited counter to Trump’s imposition of a 10% tariff on all Chinese imports underscored the attempt by Chinese policymakers to engage Trump in talks that could avert an outright trade war between the world’s two largest economies. RTRS
• Fed’s Goolsbee (voter) said uncertainties likely mean that the Fed needs to be a little more careful and prudent on cutting rates, while he added there are risks that inflation could tick back up and if fiscal choices affect prices or employment, they have to think it through. Goolsbee also said there are concerns about inflation and the Fed might have to slow the pace of rate cuts amid uncertainty.
• El Salvador offered to accept US criminal deportees of any nationality “for a fee.” Bukele also offered to house in his jails criminals, including those with US citizenship or legal residency. Marco Rubio praised the offer as unprecedented without saying whether the Trump administration would accept it — or whether it would even be legal in the case of US citizens.
• US President Trump’s nominee Chris Wright was confirmed by the Senate as Energy Secretary through 59-38 votes.
• Narendra Modi has been invited to the White House for a meeting next week. The Indian PM has been swiftly making concessions to appease Trump and avoid a trade war. BBG
• Singapore’s top diplomat said he doesn’t expect the nation to be a target for US tariffs. Thailand may increase imports of American goods to cut its trade gap. BBG
• European leaders, bracing for a fight with President Trump over the world’s most valuable trading relationship, said they are ready to strike back but prefer cooperation. The EU has for months been preparing potential responses to Trump tariffs. WSJ
• France’s budget deficit narrowed by €17 billion in 2024 from the year earlier, providing the government with some relief as it clings to power after recent battles over public finances. BBG
• The Fed’s Austan Goolsbee said the central bank should be cautious in lowering rates due to mounting uncertainty introduced by Trump, echoing calls from two of his colleagues yesterday. BBG
• UBS shares dropped as concern about a potentially substantial increase in capital requirements outweighed a $3 billion buyback and strong earnings beat. Pretax profit at the investment bank was about seven times estimates. BBG
• Crypto is emerging as a key tariff pain trade, offering a risk sentiment proxy any time Trump speaks, even if stock markets are closed — as happened over the weekend. Ether shed more than a quarter of its value yesterday before staging a near-full recovery. BBG

Tariffs

• The new 10% tariff on all China exports to the US took effect after the deadline passed.
• China is to levy countermeasures on some US imported products with 15% tariffs on coal and LNG, as well as 10% tariff on oil, agricultural machines and some autos from the US, while China’s Finance Ministry said tariffs imposed are to counter 10% Trump tariff and will take effect on February 10th. China is also to probe Google (GOOGL) over alleged anti-trust law breaches and it imposed export controls on tungsten, tellurium, ruthenium, molybdenum, and ruthenium-related items.
• US President Trump said on Truth that Canada agreed to ensure the US has a secure Northern Border and the tariffs announced on Saturday will be paused for a 30-day period to see whether or not a final economic deal with Canada can be structured.
• Canadian PM Trudeau said he had a good call with President Trump who will pause the tariffs for at least 30 days and Canada will send almost 10,000 troops to protect the border, while Canada will also name a fentanyl czar.
• EU Commission President von der Leyen said that when targeted with unfairly or arbitrarily tariffs, the EU will respond firmly.

Earnings

• BNP Paribas (BNP FP) +1.9%: Q4 beat, EUR 1.1bln buyback.
• Diageo (DGE LN) +0.8%: H1 beat, withdraws mid-term guidance.
• Infineon (IFX GY) +11.2%: Q1 beat, Q2 outlook beat and FY revenue guided higher.
• Siltronic (WAF GY) -13.6%: Q4 beat; Demand recovery delayed due to continued high inventories at chip manufacturers and their customers
• UBS (UBSG SW) -5.7%: Q4 Net beat, Revenue slight miss. USD 3bln buyback.
• Vodafone (VOD LN) -6.8%: Q3 beat, reiterates guidance.
• NXP Semiconductors (NXP) +1.9% pre-market: Q4 beat, Q1 guide soft.
• Palantir Technologies (PLTR) +18.6% pre-market: Q4 beat on AI growth. Q1 & FY guides strong.
• Nintendo (7974 JT) : 9-month lower Y/Y, cut FY guidance.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks traded higher as the region reacted to US President Trump’s delay of tariffs against Canada and Mexico for a month, while the additional 10% tariffs on China took effect and prompted an immediate retaliation by China. ASX 200 was initially led higher by strength in tech and miners but ultimately settled flat owing to the US-China tariff frictions. Nikkei 225 briefly climbed back above the 39,000 level with the biggest gainers and losers dictated by earnings releases. Hang Seng surged amid hopes that China would also reach a tariff deal with the US after President Trump stated that he would probably speak with China within 24 hours, but then briefly wobbled after China announced tit-for-tat tariffs against the US.

Top Asian News

• US President Trump commented on Truth „GREAT INTEREST IN TIKTOK! Would be wonderful for China, and all concerned”.

European bourses (Stoxx 600 -0.3%) began the day mixed, and traded modestly on either side of the unchanged mark, despite a mostly positive APAC session. Price action today has been very choppy, with sentiment initially slipping into the morning, before bouncing back to display a mixed picture in Europe. European sectors hold a slight negative bias, with only a handful of industries holding in the green. Tech is outperforming today, as it pares back some of the significant Trump-induced losses seen in the prior day. The sector has been propped up by strength in Infineon (+11.2%), which soared at the open after it reported strong headline metrics and lifted its Q1 guidance above expectations. Financial Services underperforms today, weighed on by losses in UBS (-5.7%); the Swiss bank reported a Q4 profit beat and a USD 3bln share buyback.

Top European News

• Polish PM Tusk said all 27 EU leaders confirmed readiness to minimise the negative effects of Brexit for both sides, while he noted EU leaders’ unanimity in support of Denmark’s territorial integrity was very important.
• Kantar Grocery Update, 12 weeks to Jan 26th: UK grocery inflation 3.3% (Prev. 3.7%).
• Riksbank Minutes: December policy guidance (possibly at terminal) holds but members stress the need to see a recovery over the coming months.

FX

• DXY is flat. Once again, trade is continuing to dominate the narrative for the US. To recap, Trump was able to strike a deal yesterday with Canada and Mexico to delay the implementation of tariffs by one month. However, optimism on the trade front was dealt a blow overnight after the new 10% tariff on all China exports to the US took effect after the deadline passed. In response, China is to levy countermeasures on some US imported products. Today’s data docket sees the latest JOLTS report ahead of Friday’s NFP print. DXY currently sits towards the lower end of Monday’s 108.33-109.88 range.
• EUR is resilient vs. the USD after yesterday bouncing off a 1.0209 low to close at 1.0343 alongside relief that Trump was able to strike a deal with Canada and Mexico. That being said, the EU is far from out of the woods with the Telegraph reporting that Trump is reportedly considering plans to impose a 10% tariff on the EU.
• JPY is a touch softer vs. the USD after a choppy session yesterday which saw initial haven demand for the JPY unwound as Trump struck deals with Mexico and Canada. In terms of Japanese-specific updates, BoJ Governor Ueda said the BoJ is aiming to achieve 2% inflation as measured by overall CPI, on a sustainable basis. USD/JPY is currently tucked within Monday’s 154.01-155.88 range.
• GBP is softer vs. the USD but once again to a lesser extent than most peers on account of the UK not being directly in the firing line of Trump tariffs (for now) on account of the UK’s small trade exposure to the US. Furthermore, some positivity is also being attributed to the overtures of the Starmer government to develop a closer relationship with the EU. Cable is currently towards the top end of yesterday’s 1.2250-1.2455 range.
• Antipodeans are both softer vs. the USD as the latest retaliatory trade measures by China act as a drag. On Monday, NZD/USD managed to pick itself up from a 0.5516 trough which was the lowest level since October 2022 but is back in the red today.

Fixed Income

• USTs are essentially flat. Has a very mild bearish bias but this is minimal in nature with USTs at the mid-point of a slim 108-23 to 109-00 band; one which is entirely within Monday’s much more expansive 108-21+ to 109-15+ parameters. Treasuries picked up as US tariffs on China came into force, at which point China almost immediately retaliated with measures of its own on the US and an investigation into Alphabet’s Google. Amidst this, USTs lifted by around six ticks to print the above session high. Traders will keep a keen eye out for the readout from Trump-Xi’s call; US JOLTS Job Openings and Fed speak also due.
• Bunds are pressured, as the region awaits any update on potential US tariffs on the EU. As a reminder, Trump described the EU as an “atrocity” on trade in remarks over the weekend. Bunds are off lows and holding just under 133.00 in a 132.72-133.16 band.
• Gilts are softer and currently marginally underperforming with the potential inflationary-impacts of Trump’s already announced tariffs and the possibility of measures on the EU and/or the UK lifting yields in the region. At a 92.67 low, with support below at Monday’s 92.53 trough. Additionally, and another possible driver of yields, are reports in Politico that the Treasury and OBR have been having some heated conversations over how much of the government’s growth policies can be “scored” (i.e. accounted for in OBR forecasts) in the 26th March update.
• OATs are on the backfoot, but to a lesser degree vs peers. PM Bayrou triggered Article 49.3 twice for two components of the budget on Monday, the debate on it was brief and immediately, but unsurprisingly, overshadowed by La France Insoumise (LFI) and the Democratic and Republican (GDR) each tabling no-confidence (censure) motions against Bayrou’s government.

Commodities

• Softer trade across crude after the US reached a deal with Mexico and Canada to delay tariffs. WTI sees deeper losses after experiencing larger gains on the initial US tariff announcement. Elsewhere, the new 10% tariff on all Chinese exports to the US took effect after the deadline passed. In response, China imposed 15% tariffs on US coal & LNG, and 10% tariffs on US oil, agricultural machines, and some autos. WTI Mar resides between USD 71.54-72.48/bbl.
• Precious Metals are taking a breather following the prior day’s price action, which saw spot gold hit a record high, whilst a deal delaying US tariffs on Canada and Mexico by at least a month provided some relief but did not erase uncertainty.
• Mostly lower trade across base metals after the aforementioned Chinese retaliation against the US tariffs. 3M LME copper awaits the Trump-Xi call and resides in a narrow USD 9,107.65-9,177.30/t range.
• Equinor’s (EQNR NO) Sverdrup (755k/bpd) oil field shut due to power outage; earlier estimates had the outage lasting for eight hours.
• Kazakhstan said it will fulfil its OPEC+ obligations in 2025-2026 and will compensate for overproduction in 2024.
• Fire reported at the waste warehouse of Iran’s Marun Petrochemical Refinery, according to IRNA.
• South Africa petrol pump prices to rise 82 cents/L, diesel price to rise by 105 cents/L from Feb 5th.

Geopolitics: Middle East

• US President Trump is to host a bilateral meeting with Israeli PM Netanyahu on Tuesday, according to the White House.
• US reportedly readied a new USD 1bln arms sale to Israel, according to WSJ.

Geopolitics: Ukraine

• US shipments of arms to Ukraine were briefly paused last week but resumed on the weekend, according to Reuters citing sources.

Geopolitics: Other

• US Secretary of State Rubio said there are no talks to recognise Maduro as the legitimate leader of Venezuela and commented that they cannot continue to have the Chinese exercising control of the Panama Canal area.
• Philippine Air Force spokesperson said Philippines and US joint air patrol exercises were underway in the South China Sea.

US Event Calendar

• 10:00: Dec. Durable Goods Orders, est. -2.2%, prior -2.2%
  • Dec. Durables-Less Transportation, est. 0.3%, prior 0.3%
• 10:00: Dec. Cap Goods Ship Nondef Ex Air, est. 0.6%, prior 0.6%
  • Dec. Cap Goods Orders Nondef Ex Air, est. 0.5%, prior 0.5%
• 10:00: Dec. Factory Orders, est. -0.8%, prior -0.4%
  • Dec. Factory Orders Ex Trans, prior 0.2%
• 10:00: Dec. JOLTs Job Openings, est. 8m, prior 8.1m
  • Dec. JOLTS Layoffs Level, est. 1.74m, prior 1.77m
  • Dec. JOLTS Quits Level, est. 3.11m, prior 3.07m

DB’s Jim Reid concludes the overnight wrap

If you’re feeling dizzy this morning I can’t blame you as the past 24 hours have seen a big roundtrip for many assets classes as strongly negative sentiment gave way to a relief rally on news that the planned 25% tariffs against Mexico and Canada would be delayed.

That turnaround started shortly after the US open, as it was confirmed that the tariffs on Mexico would be delayed by a month, with a similar step then confirmed for Canada shortly after the US equity close. The S&P 500 had been down as much as -1.93% before comments on the Mexico tariff delay, but the index rose about 1% immediately after and finished the day down -0.76%. This morning in Asia, S&P (-0.27%) and NASDAQ 100 (-0.40%) futures have reversed initial gains as tariffs on China have gone ahead with China already announcing retaliation (more below).

The swings have been much more extreme for the likes of the Mexican Peso, which surged from almost -3% at the session’s lows to close +1.03% stronger on the day, and Canadian 10yr yields, which went from trading -18bps lower to close +1.1bps higher at 3.07%.

The tariff delays came as leaders of Canada and Mexico announced new border measures, following calls with Trump. The Mexican President had agreed to supply 10,000 soldiers to the US border, which Trump posted “will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country.” Towards the end of the post, he also said that there would be negotiations, saying “I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a “deal” between our two Countries.” Similarly, Canada’s PM Trudeau announced several security steps on top of a recent $1.3bn border plan, including appointment of a Fentanyl Czar, a new US-Canada joint strike force and $200m on a “new intelligence directive on organized crime and fentanyl”. Again, Trump posted that the delay would be used “to see whether or not a final Economic deal with Canada can be structured”. New executive orders formally delay the tariffs until March 4th.

Although US futures have dipped, along with the rest of Asia after China’s immediate retaliation came though, markets remain higher and are rebounding from yesterday’s sell off. The Hang Seng (+1.80%) is leading the way even after trimming its opening gains of almost +4.00%. Elsewhere, the Nikkei (+0.76%) and the KOSPI (+1.13%) are also higher with the S&P/ASX 200 flat. Meanwhile, Chinese markets remain closed due to the Lunar New Year holiday and will reopen tomorrow. Headlines are coming through as I type but China’s countermeasures include an investigation against Google for alleged anti-trust violations, imposing export controls on Tungsten related materials, and a 10% tariff on many US goods. It seems they will start on February 10th so there may be time for negotiation.

While markets are generally breathing a sigh of relief, relative to where we were over the weekend, the past few days have raised ongoing questions over Trump’s tariff policy plans. Some immediate concessions on the border issues have avoided immediate severe escalation, but Trump’s comments suggest that he will look to use the delay to leverage broader economic concessions. Indeed, with tariffs being arguably the strongest economic tool that is almost fully at the President’s discretion, we should surely expect that these will continue to be used to both create negotiating leverage and pursue different objectives such as supply security, revenue generation and trade deficit reduction. And some of these, notably using tariff revenue to help fund offset tax cuts, would require actual implementation of new tariffs. So there are reasons to expect lingering uncertainty in markets, and we are seeing this to some extent. Notably, while the Mexican Peso and Canadian Dollar are now virtually in line with their levels before the more firm tariff news started to break last Friday, S&P 500 futures are still more than -1.5% lower than they were at the time. It’s unlikely that this is the end of the story.

Recapping some of the broader moves from yesterday now and there were still sizable declines for the headline indices, including the S&P 500 (-0.76%) and the STOXX 600 (-0.87%), but it was the trade-exposed sectors where the biggest losses occurred. For instance, European automakers slumped, with the STOXX Automobiles & Parts Index down -2.22%, with major losses for the likes of Volkswagen (-4.03%). To be fair, some of the more defensive sectors fared relatively better, with gains for healthcare (+0.40%), energy (+0.42%) and consumer staples (+0.68%) in the S&P 500.

When it came to FX there were also some pretty clear moves, with the dollar index initially surging by as much as +1.2%, but then paring back those gains almost all the way back to Friday’s close levels. In addition to swings for the Mexican peso and Canadian dollar, the US dollar strength came as the Euro weakened by -0.79% on the day to $1.0280 at the European close yesterday, though it is now back up to $1.0313. That came in part as markets were anticipating future tariffs against the EU as well, with The Telegraph reporting that among the Trump administration “some want to put a 10 per cent tariff” on all EU imports though there’s no broad agreement on this yet.

For US Treasuries, there was a sizeable curve flattening yesterday, which came as investors priced in stronger near-term inflation and dialed back their expectations for Fed rate cuts, with the move partially reversing as the tariff delay news came through. The 1yr inflation swap jumped from 2.65% on Friday to as high as 2.82% before retreating to 2.73% by the close. And fed funds futures are now pricing 41bps of cuts by the December meeting, down from 47bps before the weekend. In turn, that led to a notable rise in front-end Treasury yields yesterday, with the 2yr yield up +5.1bps to 4.25%. The 10yr yield was up +1.6bps to 4.56% after falling as low as 4.46% intra-day.

Whilst the tariff news dominated the agenda yesterday, there was some positive data from the US with the ISM manufacturing print for January. That moved up to 50.9 (vs. 50.0 expected), marking its highest level since September 2022. The subcomponents were also fairly good, with employment back in expansionary territory at 50.3, whilst new orders moved up to the highest since May 2022, at 55.1.

The other main data print yesterday was the flash Euro Area CPI for January, which was a bit higher than the consensus expected. It showed headline inflation coming in at +2.5% (vs. +2.4% expected), whilst core inflation remained at +2.7% (vs. +2.6% expected). However, when it came to European sovereign bonds, the tariff news dominated the agenda, meaning that yields on 10yr bunds (-7.6bps), OATs (-9.5bps) and BTPs (-5.1bps) all fell back.

Finally in France, the Prime Minister François Bayrou used article 49.3 of the constitution in order to force through the budget without a vote. The far-left France Unbowed have said they’d file a no-confidence motion, but the Socialists said they wouldn’t support it.

To the day ahead now, and data releases from the US include the JOLTS report of job openings for December, along with factory orders for December. From central banks, we’ll hear from the ECB’s Villeroy, along with the Fed’s Bostic and Daly. Finally, today’s earnings releases include Alphabet, Pfizer and PayPal.