Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus

Economic

Summary:

After Powell and CPI data, dollar traders turn to Fed minutes.RBA to cut rates by 25bps, focus on forward guidance.RBNZ may opt for a third consecutive 50bps rate cut.UK, Canadian and Japan’s CPI data also in focus.

Will the minutes confirm hawkish Fed bets?

The US dollar started the week on a strong footing after Trump announced 25% tariffs on steel and aluminum imported to the US and signaled his intention for “reciprocal tariffs” on every nation that imposes duties on the US. Then, while testifying before Congress, Fed Chair Powell reiterated the message that the Fed is no rush to further lower interest rates, while on Wednesday, the US CPI data revealed that inflation was stickier-than-expected in January, allowing for some further strength.

Even though the greenback pulled back on Thursday and Friday, all these developments came on top of a strong NFP report for January and thus prompted investors to price in only 30bps worth of rate reductions this year, a more hawkish view than the Fed’s own projection of 50bps cuts. In other words, traders are fully pricing in only one quarter-point cut by December.

Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus_1

With that in mind, investors may pay extra attention to the minutes of the latest FOMC decision, due out on Wednesday. Although the aforementioned events occurred after the meeting, traders may be eager to scan the report for clues and hints on how willing policymakers were to reconsider their policy path should upside risks to inflation increase. A hawkish flavor could benefit the US dollar and send Treasury yields higher, while hurting equities due to concerns about higher borrowing costs for longer.

A set of robust flash S&P PMIs for February on Friday could add more credence to that view.

RBA to begin its easing cycle

On Tuesday, the RBA will announce its first monetary policy decision for 2025. At its last meeting for 2024, the Reserve Bank of Australia decided to leave its cash rate target unchanged at 4.35%, noting that longer-term inflation expectations have been consistent with the inflation target and that the Board is gaining confidence that inflation is moving sustainably towards their objective.

And all this was even before Trump’s inauguration and the imposition of tariffs on China, Australia’s main trading partner, as well as duties on steel and aluminum coming to the US from any nation. Steel is made by mixing carbon and iron, and iron ore is Australia’s top export. Aluminum is also one of Australia’s top 20 exporting materials.

Combined with the further slowdown in the CPI data for Q4, concerns about how tariffs could impact the Australian economy prompted investors to factor in nearly three quarter-point cuts for this year, with the first one largely expected at this gathering. Specifically, traders are assigning an 80% chance of a reduction now, and thus, a rate cut on its own is unlikely to shake the aussie much.

Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus_2

This will be the Bank’s first reduction in this cycle and thus, investors may be eager to find out how policymakers are planning to move thereafter. Anything suggesting that the RBA may embark on an easing cycle more aggressively than investors are currently expecting could weigh on the aussie, while the opposite may be true if officials maintain data dependency, without providing clear signals about their way forward.

RBNZ: To cut by 50 or 25bps?

On Wednesday, the central bank torch will be passed to the RBNZ. In contrast to the RBA, the RBNZ has already cut interest rates three times, with the latest two decisions being 50bps worth of reductions.

The prior meeting was held on November 27 and since then, GDP data revealed that New Zealand fell into deep recession in Q3, contracting 1% qoq after shrinking 1.1% in Q2. On top of that, the year-on-year CPI rate for Q4 held steady at 2.2%, very close to the midpoint of the RBNZ’s 1-3% target range, while the unemployment rate rose to 5.1% from 4.8% and the Labor Cost Index for the same quarter slowed to 2.9% y/y from 3.4%.

Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus_3

All these numbers prompted investors to scale up their rate cut bets. They are currently anticipating 110bps worth of rate cuts this year, while they are split on whether the Bank should proceed with another 50bps reduction at this gathering or slow the pace to 25bps. Ergo, another bold move and signals that there is more easing to come could hurt the kiwi, which may continue to underperform even against its Australian counterpart.

UK data to shape BoE policy expectations

In the UK, the employment report for December will be released on Tuesday, followed by the all-important CPI data for January on Wednesday. Retail sales for January and the preliminary PMIs for February are scheduled for Friday.

At the first BoE decision for the year, officials decided to cut interest rates by 25bps, as was broadly expected, revising down their growth projections and lifting up their inflation forecasts.

The direction of the revisions was also largely anticipated. What came as a surprise was the unanimous vote in favor of a rate cut, with two members preferring a 50bps reduction. What was even more striking was that the super-hawk Catherine Mann, who was the sole advocate for keeping rates steady in November, voted for a double reduction this time.

According to the UK Overnight Index Swaps (OIS), investors are now pricing in around 55bps worth of additional reductions this year, but should the CPI data echo the Bank’s concerns about sticky inflation moving forward, traders may reduce their bets, especially if, following this week’s better-than-expected GDP data for Q4, the PMIs point to further improvement in economic activity. This may allow the pound to extend its latest recovery a bit more.

Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus_4

Eurozone PMIs, Canada and Japan CPI data

Apart from the US and UK PMIs, Friday’s agenda includes Eurozone’s preliminary prints as well. Although the ECB is expected to lower interest rates by another 80bps this year, the euro has been the best performer this week, perhaps driven by the prospect of a de-escalation in the Ukraine war. A set of improving PMIs could help the common currency gain some more ground.

The Canadian dollar held strangely well against its neighboring greenback this week, despite Trump’s tariffs on steel and aluminum. It is worth mentioning that around 80% of aluminum imports to the US come from Canada.

Following Friday’s better-than-expected Canadian jobs report for January, traders are assigning around a 55% chance for the BoC to take the sidelines at its upcoming gathering on March 12, but this probability could well be shaken on Tuesday, when the Canadian CPI numbers are scheduled to be released. Inflation in Canada has already dropped below 2%, and another month of cooling price pressures may encourage some investors to reconsider whether the BoC should pause its rate cuts so soon. If the probability for a rate cut in March rises, then the loonie may slide somewhat. Canada’s retail sales for December will be released on Friday.

Week ahead – Fed Minutes, RBA and RBNZ Decisions in Focus_5

Japan’s Nationwide CPI numbers will be released during the Asian session on Friday and given the latest choice of market participants to bring forward expectations of when the BoJ is likely to raise interest rates again, the data may attract special attention by yen traders.

Source:XM

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Alex

Economic

Dollar’s selloff is accelerating as the week draws to a close, with investors continuing to react to the evolving trade policy stance from the White House. Wall Street posted broad gains overnight, as markets took relief in the fact that US President Donald Trump’s much-anticipated reciprocal tariff plan did not impose immediate trade restrictions. Instead, the administration will conduct a detailed review of tariff disparities before deciding on specific measures.

Despite the optimism in US equities, risk-on sentiment was not fully carried over into Asian session. While Hong Kong stocks extended recent strong gains, other major indexes struggled for direction, reflecting lingering caution. Investors remain wary of how the tariff situation will unfold, particularly as Trump’s trade team begins its assessment of countries with large trade surpluses with the US. This process is expected to take weeks, leaving room for further volatility in global markets.

The immediate focus now shifts to US retail sales data for January, which will provide fresh insights into consumer spending. Yet the figures are unlikely to have a significant impact on Fed expectations even with a major surprise. Fed has emphasized that its next move will be dictated by sustained trends rather than single data points. As a result, the Dollar’s downside pressure may persist, with market sentiment favoring risk assets.

Among major currencies, New Zealand Dollar is leading the pack, buoyed by surprisingly strong manufacturing data. The economy is responding well to RBNZ’s aggressive rate cuts last year. While the central bank is still expected to deliver another 50bps reduction next week as the march to neutral continues, the resurgence in manufacturing could mean the central bank may not need to push rates into stimulatory territory.

Technically, as NZD/USD rebounds, focus is now on 0.5701 resistance. Firm break there will resume the rise from 0.5515, as a correction to fall from 0.63780. Further rally should then be seen to 38.2% retracement of 0.6378 to 0.5515 at 0.5848.

In Asia, at the time of writing, Nikkei is down -0.35%. Hong Kong HSI is up 2.48%. China Shanghai SSE is up 0.25%. Singapore Strait Times is down -0.17%. Japan 10-year JGB yield is up 0.0018 at 1.351. Overnight, DOW rose 0.77%. S&P 500 rose 1.04%. NASDAQ rose 1.50%. 10-year yield fell -0.0112 to 4.525.

S&P 500 nears record high as Trump’s reciprocal tariff plan delays immediate action

U.S. stocks closed higher overnight as President Donald Trump unveiled his long-awaited reciprocal tariff plan without enforcing immediate measures. The market responded favorably to the lack of fresh tariffs, easing concerns about an abrupt escalation in trade tensions. In turn, Treasury yields and the U.S. dollar moved lower, reflecting a shift in sentiment away from safe-haven assets.

Trump’s directive instructs his administration to begin assessing tariff discrepancies between the US and its trading partner, including evaluation of non-tariff barriers. Also, the White House appears to be taking a targeted approach, prioritizing countries with large trade surpluses and high tariff rates on US exports.

Howard Lutnick, Trump’s nominee for Commerce Secretary, will lead the study, with findings expected by April 1. This extended timeline gives markets some breathing room and suggests that while trade tensions remain a concern, abrupt disruptions are unlikely in the near term.

Equities responded positively to the development, with S&P 500 rebounding strongly and edging closer to its all-time high of 6128.18. Technically, firm break of 6128.18 will resume the long term up trend, with 618% projection of 5119.26 to 6099.97 from 5773.31 at 6379.38 as next target.

NZ BNZ manufacturing rises to 51.4, first expansion in nearly two years

New Zealand’s manufacturing sector finally returned to expansion in January, with BusinessNZ Performance of Manufacturing Index surging from 46.2 to 51.4. This marks the first expansion in 23 months and the highest reading since September 2022. While the rebound is a positive sign for the economy, the index remains below its long-term average of 52.5, suggesting that the sector has yet to regain full strength.

Encouragingly, all sub-indexes entered expansionary territory. Production saw a significant jump from 42.7 to 50.9. Employment also rose from 47.7 to 50.2. New orders climbed from 46.8 to 50.9, while finished stocks and deliveries improved to 51.9 and 51.7, respectively.

BNZ’s Senior Economist Doug Steel highlighted the significance of the data, noting that the sector is “shifting out of reverse and into first gear.” He acknowledged the improvement as a relief after two difficult years but cautioned that the PMI still lags behind its historical average.

USD/CAD Daily Outlook

Daily Pivots: (S1) 1.4147; (P) 1.4229; (R1) 1.4274;

USD/CAD’s fall from 1.4791 resumed by breaking through 1.4260 cluster support decisively. The development suggests that deeper corrective is underway and turn intraday bias to the downside for 1.3946 cluster support (61.8% retracement at 1.3942). For, risk will stay on the downside as long as 1.4378 resistance holds, in case of recovery.

In the bigger picture, long term up trend is tentatively seen as resuming with breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Economic Indicators Update

GMT	CCY	EVENTS	ACT	F/C	PP	REV
21:30	NZD	Business NZ PMI Jan	51.4		45.9	46.2
07:30	CHF	PPI M/M Jan		0.10%	0.00%
07:30	CHF	PPI Y/Y Jan			-0.90%
10:00	EUR	Eurozone Q/Q Q4 P		0.00%	0.00%
13:30	CAD	Manufacturing Sales M/M Dec		0.60%	0.80%
13:30	CAD	Wholesale Sales M/M Dec		0.40%	-0.20%
13:30	USD	Retail Sales M/M Jan		-0.20%	0.40%
13:30	USD	Retail Sales ex Autos M/M Jan		0.30%	0.40%
13:30	USD	Import Price Index M/M Jan		0.50%	0.10%
14:15	USD	Industrial Production M/M Jan		0.30%	0.90%
14:15	USD	Capacity Utilization Jan		77.80%	77.60%

Source: ACTIONFOREX

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Justin

Economic

As Germany heads to the polls next week, the message from investors is clear: it is the one big economy with room to spend more to boost growth and it won't be punished by financial markets if it chooses to do so.

For now they are unconvinced that Germany's next governing coalition - whichever parties it contains - will take a radical step on spending and borrowing.

But the case for change is strong.

Germany's once-mighty economy has flatlined since 2019, while the rest of the euro area has grown by 5%, and the U.S. 11%, Goldman Sachs estimates.

However, it is also the only G7 economy with debt well under 100% of output and, in contrast to concerns about high debt in the U.S., Britain and France, investors want to see Germany borrow more to boost its growth potential.

Markets are watching to see if Germany will loosen a 'debt brake' rule that has stamped out new borrowing, an even more pressing concern now that U.S. tariffs threaten to hurt its ailing economy further and it needs to raise defense spending.

"If there's one country where actually, potentially you could (raise borrowing), that would be Germany," said Nicola Mai, who leads sovereign credit research for bond giant PIMCO in Europe, referring to the debt brake as a 'straightjacket.'

Until Germany tackles its deep-seated problems, especially deteriorating competitiveness, questions about the status of the former powerhouse will linger.

So, while political uncertainty could weigh in the short term, a battered euro and long-lagging European stocks have much to gain from a meaningful rise in spending.

That doesn't seem to be on the cards, with just under two thirds of investors in a poll BofA published in January expecting only a minor debt brake relaxation.

Mai, who also doesn't expect a change that would be a "huge deal", said PIMCO favours taking interest rate risk in European bonds, betting rate cuts, not spending, will drive markets.

Markets need convincing that German election will bring spending boost_1

Conservative leader Friedrich Merz, expected to head the next government, has shown openness to limited debt brake reform.

Expectations are muted, with European Union deficit limits also constraining spending potential.

The debt brake currently constrains structural deficits to 0.35% of output.

A December poll by Citi showed clients saw the ceiling rising to 1% as the most likely outcome. That's likely not enough considering that just making up the last decade's underinvestment requires investments of around 1.5% of output annually for 10 years, ING estimates.

Danske Bank reckons debt brake reform will raise growth by around 0.2 percentage points annually in the coming years.

The risk of no reform at all is real if the far-right Alternative for Germany and the neoliberal Free Democrats gain enough seats to block a constitutional change. Reforming the debt brake or another option - launching special funds to raise spending outside the brake - requires a two-thirds parliamentary majority.

German 10-year government bond yields exceeded the rate on interest rate swaps for the first time last year (DE10IRS10Y=RR), partly on expectations of higher issuance after its government collapsed in November.

But bond yields (DE10YT=RR) have barely risen since then, a sign that higher spending is seen as manageable.

Elsewhere, the question is whether spending rises enough to halt European underperformance.

The euro is down 17% from a peak $1.25 in 2018, and neared $1 earlier in February.

Societe Generale's head of FX strategy Kit Juckes said European policy choices promoting less growth than in the U.S, which has spent much more, have been one key reason behind that fall, with Germany a big part of that.

He said he did not see enough signs of a policy shift to change his $1.04 euro target for the first half of this year.

Andreas Koenig, head of global FX at Europe's largest asset manager Amundi, agreed, continuing to favour the dollar.

Markets need convincing that German election will bring spending boost_2

At first sight German stocks look to have been spared with the blue-chip DAX index's 45% return beating U.S. stocks over the last three years. Yet relative to forward earnings, it trades at a 38% discount to the S&P 500.

Driven by international earnings, the DAX masks the pain in companies with higher home exposure. Mid-cap and small-cap stocks have lost 18% and 2% over that time period. Carmakers, once central to Germany’s powerhouse, have slid 35%.

Rameez Sadikot, portfolio manager at Antipodes Partners, said a new government could potentially lead to a "multiple re-rating" in European equities if it started to ease concerns around low productivity.

But for now, he was "cautiously optimistic", citing the risk of gridlock.

Dealmakers would also welcome more spending, given Germany has seen the lowest volume of mergers and acquisitions year-to-date since before 2010, according to Dealogic.

They are in 'wait and see' mode for now, according to bankers and lawyers, although Alexander Kutsch, managing partner at advisory firm Roedl & Partner said debt brake reform would support activity.

Markets need convincing that German election will bring spending boost_3

The question remains whether a new government can address Germany's key structural issue, a decline in competitiveness, quickly.

Fidelity International's global head of macro and strategic asset allocation Salman Ahmed said it would take much more spending than expected to change Germany's economic model, adding he saw "no consensus yet" to improve competitiveness.

Source:Reuters

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Justin

Economic

Oil Prices Set to Reverse Losing Streak_1

Crude oil prices were on course to end the week with a gain, snapping a three-week string of losses as Trump signaled reciprocal tariffs for U.S. trade partners will not come into effect until at least April.

At the time of writing, Brent crude was trading at $75.17 per barrel, with West Texas Intermediate changing hands for $71.38 per barrel.

Earlier in the week, President Donald Trump ordered government officials to study the implementation of reciprocal tariffs for trade partners that already have import duties for U.S. products while the U.S. has no such tariffs on their respective goods. The deadline for the results of the study was set for April.

Traders took this as a signal that even if reciprocal action is taken on the part of the White House, it will not be immediate, which they interpreted as bullish for oil.

“Positive development on the trade front in light of U.S. tariff delays paves the way for some recovery in oil prices this morning, as the risk environment warms up to the prospects of further trade consensus being reached,” IG analyst Yeap Jun Rong told Reuters. “However, gains in oil prices may seem limited as market participants have to digest the prospects of Russian supplies being brought back on the market amid potential Ukraine-Russia peace talks,” he added.

“Any further escalation in trade tensions, particularly related to new tariffs or retaliatory measures, could impact global economic growth and, by extension, oil demand,” Phillip Nova analyst Priyanka Sachdeva wrote in a note following the news, as quoted by Bloomberg.

A Reuters report suggesting Russia was curtailing oil production in response to refinery damage from Ukrainian drone attacks likely contributed to crude oil’s upward movement this week. A new IEA report revising oil demand growth higher for this year was another likely contributor to the rally.

Source: OILPRICE

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Owen Li

Economic

Singapore's exports returned to growth last year, rebounding in line with the global electronics recovery, but significant trade risks lie in store this year, a government agency said.

Growth in the city-state's non-oil domestic exports is likely to be modest this year, though the external outlook remains supportive of global trade, Enterprise Singapore said Friday.

Economic growth is expected for the majority of Singapore's major trading partners, including China and the U.S., boding well for trade.

"Nonetheless, significant uncertainties arising from ongoing trade frictions among major economies could result in a more challenging and competitive trade environment," the government agency said.

Enterprise Singapore continues to project exports growth at 1.0% to 3.0% this year.

Singapore's non-oil domestic exports grew by 0.2% last year, reversing the 13.1% contraction seen in 2023 due to higher shipments of electronic products, the data showed.

By destination, Hong Kong and Malaysia were the top markets for Singapore exports, while shipments to China swung to growth and those to the U.S. tipped into negative territory. Exports to Japan and the EU contracted further.

Electronics exports, a key driver of the city-state's economic growth, rose 8.2% in 2024, bouncing back from 2023's 19.7% contraction.

Shipments of non-electronic exports decreased 1.9% last year, primarily due to the volatile pharmaceuticals and ships & boats segments. That compared with a 11.1% drop in 2023.

Total merchandise trade climbed 6.6% in 2024, recovering from the 11.7% contraction recorded in the prior year, the government agency said.

Source：Dow Jones Newswires

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ING

Economic

Retail sales dragged down by weather and LA fires

We thought a soft January retail sales report was likely given the cold weather and the Los Angeles fires, but it is worse than even our pessimistic forecasts. Headline sales were down 0.9% month-on-month in nominal terms (consensus -0.2%) while the control group that excludes the volatile autos, food service, building materials and gasoline and supposedly better tracks broader consumer trends fell 0.8% (consensus +0.3%). As these are nominal value changes and we know prices rose 0.5% MoM according to the CPI report, this implies very weak volume sales growth. It is the volume measure that feeds through into GDP growth. There were some slight upward revisions to the history, but even so the market is going to be disappointed with 10Y yields down 6bp on the back of this.

Auto sales fell 2.8% MoM, largely because of a big unit volume drop, which we already knew about, while furniture dropped 1.7%, electronics fell 0.7%, health spending fell 0.3%, clothing down 1.2%, sporting goods dropped 4.6% and internet sales fell 1.9%. Surprisingly, eating and drinking out actually rose 0.9% – we had expected this to drop because of very cold weather and there was a sense that the Los Angeles fires would also have a depressing effect, but somehow this was one of the very few sources of strength.

Could tariff worries also have played a role?

In trying to rationalise this outcome, we know that consumer confidence did fall quite a lot in January, largely on a sense that prices were going to rise on tariffs (big rise in price expectations and the responses showing it was going to be a worse buying environment for big ticket items – which are often imported). My sense has been that we could see consumer durable purchases actually be very strong in the early part of the year as people buy their foreign made fridge freezers and washer/dryers etc ahead of tariff-related price hikes, but maybe people are getting confused on the tariff story. Perhaps they think tariffs are happening immediately and are therefore not even considering a purchase. Alternatively, many housheolds may feel under pressure – the Philly Fed reported a record 11% of credit card holdings are only making the minimum monthly repayment and the NY Fed reported a pick-up in credit card delinquencies in the fourth quarter of 2024 – with the threat of tariffs pushing up their food and energy bills some households may be considering cutbacks on other items ahead of time.

We will need to wait until the February data to see if this is the start of a more cautious consumer trend or indeed whether it was simply a weather-related pull back and we get a subsequent big gain.

Manufacturing output held back by the weather while utilities demand surged

Rounding out the week's US numbers, industrial production rose 0.5% MoM, above the 0.3% consensus prediction, but manufacturing output fell 0.1% rather than rise 0.1% as the market predicted. As with the retail sales report, weather-related factors probably weighed on the manufacturing sector and mining, which fell 1.2%, while the cold weather prompted a jump of 7.2% MoM in utility output as we tried to keep warm. Overall though today's US retail sales and manufacturing numbers suggests a very subdued start to 2025.

Source:ING

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Cohen

Economic

India's benchmark indexes reversed early gains on Friday as investors remained concerned about the implications of reciprocal U.S. tariffs.

The Nifty 50 and the BSE Sensex were down about 0.5% each, as of 11:45 a.m. IST.

Indian Prime Minister Narendra Modi offered to talk about easing tariffs, buying more U.S. oil and gas, combat aircraft and concessions, U.S. President Donald Trump said on Thursday after he met Modi at the White House.

Meanwhile, Trump is devising plans for reciprocal tariffs on every country taxing U.S. imports, raising worries of a global trade war. However, the imposition of the duties is likely to be delayed.

"While the delay in imposition led to a flat open in markets, it's not as if the tariff concerns have gone away, said Sanjeev Hota, vice president and head of research of wealth management at Mirae Asset Sharekhan.

"The worries still remain."

Investors continue to be concerned about the potential consequences of U.S. tariffs on the Indian rupee and U.S. rates, which will trigger further foreign outflows, Hota said.

India is expected to among the worst hit by reciprocal tariffs, multiple brokerages had said.

Twelve the 13 major sectors declined on the day, with drug makers , which have significant revenue exposure to the U.S., falling the most, down 2.7%.

High-weightage financials fell 0.7% after the Supreme Court dismissed a set of review petitions filed by telecom companies seeking to overturn the earnings order on calculation of dues.

Higher telecom dues significantly impact banks as this increases their credit risk exposure to telecom companies.

The broader, smallcaps and midcaps fell 2.9% and 2.2%, respectively and continued their downward trend on fears of slowing corporate earnings and stretched valuations.

They are currently trading at 21% and 19.5% lower from their record closing high levels in December and September, respectively.