Bessent Won't Rule Out DOJ Probe of Fed Nominee Warsh

The Canadian government, under Prime Minister Mark Carney, announced Wednesday it is scrapping a national electric vehicle (EV) sales mandate. This policy reversal marks a significant pivot away from direct climate action targets, following earlier decisions to drop an emissions cap for the oil and gas sector and cancel regulations for clean electricity.

The previous policy, established in 2023 under then-Prime Minister Justin Trudeau, had mandated that 20% of all vehicles sold by 2026 must be emissions-free. This approach was unpopular with automakers who argued it created unsustainable costs and faced pressure after the new U.S. administration scaled back its own support for EVs.

In place of the mandate, Canada will introduce stronger emissions standards for vehicle model years 2027-2032. The government stated these new standards are designed to help achieve its long-term goals of 75% EV sales by 2035 and 90% by 2040.

A New Focus on Emissions Over Mandates

Prime Minister Carney framed the decision as a pragmatic shift intended to protect the country's auto sector. He stated that replacing the sales mandate with tougher emissions standards "focuses on the results that matter to Canadians, while avoiding undue burdens on the Canadian auto industry."

Despite the change, Carney insisted that Canada remains "a leader on climate change" and confirmed that a national climate competitiveness strategy would be released in the coming weeks.

This move follows other recent policy changes aimed at boosting energy production. Last November, the federal government abandoned a planned emissions cap on the oil and gas industry and dropped proposed rules for clean electricity, citing the need to encourage investment.

Divided Reactions to the Policy Shift

The announcement has drawn both praise from industry allies and sharp criticism from environmental groups, reflecting a deep divide on the best path forward for Canada's economy and climate goals.

Support from Industry and Provincial Leaders

Ontario Premier Doug Ford applauded the federal government's new auto strategy, describing it as a "pivotal" moment. He argued that the move helps the Canadian auto sector compete and protects jobs, particularly as the nation's economy faces pressure from U.S. President Donald Trump.

"I'm pleased to see the federal government take the important step of ending its mandate," Ford said in a statement.

The Consumer Choice Center, an advocacy group, also welcomed the news, adding that "it was always wrong for the government to try to dictate to Canadians what type of car they ought to buy."

Concern from Environmental Advocates

Sam Hersh of the advocacy group Environmental Defence called the new EV strategy "a huge setback." He warned that the policy change could have severe long-term consequences for the Canadian auto industry.

"This may be framed as short-term relief for automakers, but it will lead to long-term pain and put the industry on an inevitable path to decline," Hersh stated.

Navigating Global Trade and Competition

Canada's policy shift aligns with recent international developments and is part of a broader strategy to navigate a complex global trade environment, especially concerning the highly integrated North American auto market.

Following a European Precedent

The move mirrors a similar decision by the European Commission in December, when the 27-member bloc dropped its planned ban on new combustion-engine cars from 2035.

New Incentives and Trade Deals

Carney's government is also rolling out new programs to support the auto sector and diversify trade. A new C$2.3 billion ($1.68 billion) program will offer incentives of up to C$5,000 for EVs made in countries that have free-trade agreements with Canada. An additional C$1.5 billion is promised to upgrade the national EV charging network.

In response to U.S. tariffs, Canada will maintain its counter-tariffs on auto imports from the United States while seeking ways to boost domestic production and investment.

Furthermore, Canada struck an initial trade deal with China last month to lower tariffs on EVs. The agreement allows up to 49,000 Chinese EVs to enter Canada at a 6.1% tariff. This quota is set to increase to approximately 70,000 within five years. However, Carney confirmed that Chinese-made EVs will not be eligible for the new government incentives.

($1 = 1.3679 Canadian dollars)

Bank of Canada Governor Tiff Macklem has issued a stark warning: the Canadian economy is facing a multi-year restructuring that could be painful. Speaking to the Empire Club in Toronto, Macklem outlined major challenges that will require significant adjustment from policymakers and businesses alike.

He cautioned that this transition will be measured in years, not quarters, and that economic growth will be modest throughout the process. "The transition could be faster than we expect," Macklem noted, "but it could also be more painful than we'd like."

Three Headwinds: Tariffs, Demographics, and AI

Macklem identified three primary forces driving this necessary economic overhaul:

• U.S. Tariffs: Ongoing trade friction requires Canada to adapt its economic structure.

• Slower Population Growth: Changing demographics will impact the labor force and overall potential.

• Artificial Intelligence: The rise of AI presents both opportunities and disruptions that the economy must navigate.

He stressed that failure to adapt is not an option and urged leaders to do everything possible to manage these new realities. The situation could become particularly difficult if "the trade situation darkens or other shocks disrupt the economy."

The Central Bank's Policy Dilemma

This complex outlook creates a challenge for the Bank of Canada. The central bank recently held its key policy rate at 2.25% for the second consecutive time, stating that rates would remain steady as long as the economy performs as expected. However, Macklem acknowledged an unusually high level of uncertainty clouds this forecast.

A key difficulty for the bank is distinguishing between structural economic change and cyclical fluctuations. Misdiagnosing the cause of economic weakness could lead to policy errors.

For instance, lowering interest rates to combat what appears to be a cyclical downturn in demand could accidentally stoke inflation if the weakness is actually due to a lower productive capacity—a structural problem. Macklem added that overstimulating demand when the issue is structural could simply delay necessary and unavoidable economic adjustments.

Labor Market and AI's Long-Term Impact

Despite the headwinds, Macklem said he does not expect the jobless rate to trend higher. The Bank of Canada's forecasts suggest the nation's labor force will experience very little growth over the next few years.

Regarding artificial intelligence, Macklem noted that while it has the potential to significantly boost the economy, its adoption by Canadian companies remains modest. "It may be a while before we see a significant impact," he concluded.

Senator Elizabeth Warren is set to ask the Senate to condemn and reverse a major sale of 500,000 advanced artificial intelligence chips to the United Arab Emirates. The move follows reports of a significant financial transaction between a prominent UAE sheikh and the Trump family that occurred just before Donald Trump’s inauguration.

Warren’s resolution, shared with CNBC, directly challenges the chip deal in light of a Wall Street Journal report. The report detailed how Sheikh Tahnoon bin Zayed Al Nahyan, a key figure in the UAE, secretly acquired a 49% stake in World Liberty Financial, a Trump family company. This deal allegedly directed approximately $187 million to Trump family entities just four days before Trump took office.

Figure 1: Senator Elizabeth Warren (left) is challenging an AI chip deal involving entities linked to UAE's Sheikh Tahnoon bin Zayed Al Nahyan (right).

The AI chip sale was approved months after this investment, raising allegations of bribery. Sheikh Tahnoon's own AI enterprise, G42, is slated to receive the chips.

"Why in the world was Donald Trump trying to ship off our state-of-the-art chips to the UAE — and China — when American startups, universities, and small businesses need them here at home?" Warren is expected to state on the Senate floor. "Well, now we know that the UAE greased the skids months earlier when it secretly agreed to pour hundreds of millions of dollars into a Trump family crypto venture."

National Security and the China Factor

The deal would send 500,000 of Nvidia's most advanced chips to the UAE annually. This has triggered national security alarms, as previous U.S. administrations have warned against selling such technology to the UAE over fears it could fall into China's hands. The United States is in a fierce competition with China for AI dominance and strictly controls its semiconductor technology.

"Trump is profiting from decisions that make it easier for countries like China to get their hands on some of our most sensitive and advanced technology," Warren, who serves as the top Democrat on the Senate Banking Committee, plans to argue.

Figure 2: Former President Donald Trump met with Tahnoun bin Zayed Al Nahyan, the UAE's National Security Advisor, whose AI firm is set to receive the chips.

Warren's Resolution Aims to Force a Vote

If passed, the resolution would formally state that the Senate "Condemns Donald Trump's decision to allow the sale of advanced AI chips to the United Arab Emirates and calls for the reversal of this decision."

While any single senator can block the resolution, Warren's push is designed to put political pressure on Republicans, who have also expressed concerns about advanced AI technology reaching China.

"Congress needs to grow a spine," Warren is expected to add. "We cannot allow American national security to be sold to the highest bidder."

The Trump administration has consistently denied any wrongdoing concerning Sheikh Tahnoon's investment or the subsequent chip deal. When asked about the arrangement this week, Trump commented, "Well, I don't know about it."

The UK is on track to hit its 2% inflation target ahead of schedule, according to Bank of England Governor Andrew Bailey, but the positive economic news is shadowed by growing political uncertainty.

In a conversation with CNBC, Bailey confirmed that the Monetary Policy Committee (MPC) expects inflation to reach the bank's target by spring, sooner than previously anticipated. However, he stressed that the key challenge is ensuring it stays there.

"The critical thing now, though, is, of course, that it stays there," Bailey said.

BoE Holds Rates Steady Amid Internal Division

The governor's comments followed the central bank's decision to leave interest rates unchanged at 3.75%. While the move was widely expected, it revealed a sharp 5-4 split within the nine-member MPC.

According to Bailey, the division reflects a core debate over how to manage inflation sustainably. While falling energy prices are providing downward pressure, some committee members remain concerned about persistent inflation lingering from past economic shocks. This debate over the right policy level to lock in the 2% target was "the focus" of the meeting.

"I'm encouraged by what we are seeing, but I do want to see some more evidence," Bailey added, highlighting the need for progress in areas like services inflation and wage setting to ensure the target is met "sustainably."

Analysts interpreted the close 5-4 vote as a signal of a more dovish stance. Thomas Pugh, chief economist at RSM U.K., predicts the next interest rate cut could come as early as April, when inflation is projected to be under 3% and wage growth has cooled further. He also suggested another cut could be on the table in the second half of the year.

Political Storm Clouds Gather Over UK Markets

Thursday's rate decision coincided with renewed uncertainty surrounding the leadership of Prime Minister Keir Starmer, creating a new layer of risk for UK assets.

Market analysts are closely watching the political developments. Dominic Bunning, head of G10 FX strategy at Nomura, pointed out that increased pressure on Starmer poses a risk to the UK's fiscal trajectory. He noted that during past political challenges, sterling and long-end gilt yields have shown a negative correlation.

Bunning argued that there are few, if any, potential successors to Starmer who would be considered more market-friendly, as his political bias is "firmly towards the centre rather than the left of the party." A change in leadership would likely mean a new finance minister, "creating the risk of negative fiscal sentiment returning."

Pugh of RSM U.K. echoed these concerns, stating that a potential leadership challenge is now the biggest risk to gilt yields. "The odds of Kier Starmer not being Prime Minister by the end of the year have jumped from around 50% yesterday to over 60% today," he noted.

Global Economy Shows Resilience, But Uncertainty Remains

When asked about the UK's political situation, Bailey declined to comment on specific matters but acknowledged that the central bank is carefully monitoring a "heightened level" of global uncertainty.

He observed that the world economy has proven more resilient than anticipated over the last year.

"The world economy has been more robust, frankly, looking back, than we thought it would be a year ago, looking forwards," Bailey said.

However, he cautioned that this does not guarantee a smooth path ahead. "That doesn't mean that therefore it follows naturally that we will just sort of sail through all of this uncertainty around the world unaffected," he concluded, reaffirming that the BoE will continue to watch developments closely.

Source: decrypt

The European Central Bank (ECB) has decided to keep its key deposit rate steady at 2.00%, a move widely anticipated by markets and analysts. In her statements, President Christine Lagarde chose to highlight the economy's bright spots, such as low unemployment, while downplaying concerns over slowing inflation and a stronger euro.

This analysis maintains the forecast that the ECB will hold the deposit rate at 2.00% through both 2026 and 2027.

Economic Strengths Over Inflation Worries

The ECB's official press release was brief and echoed its December guidance. The bank's commentary focused on positive economic indicators, including robust private balance sheets, rising public spending, and a tight labor market. This optimistic framing came even as inflation fell to 1.7% in January.

During the subsequent press conference, Lagarde continued this narrative, giving little attention to negative factors like trade tariffs. She attributed the recent drop in inflation primarily to energy base effects and other one-off factors. Lagarde stressed that underlying inflation indicators remain stable and that most medium-term inflation expectations are anchored at the 2% target.

She also noted that the ECB has long projected inflation to be below 2% in 2026. The 1.7% figure for January, while lower than December's projection, was consistent with September's staff forecasts. This signals a clear preference for maintaining the current deposit rate, even with inflation currently below target.

Figure 1: Eurozone inflation trends show headline inflation dipping below the ECB's 2% target, a key factor in the bank's recent policy discussions.

Lagarde Unfazed by Stronger Euro

Addressing the euro's exchange rate, Lagarde clarified that the ECB does not target specific rates but does acknowledge their impact on inflation. She confirmed that the governing council had discussed the euro's movements, particularly against the U.S. dollar.

However, she observed that the appreciation has been ongoing since March and that recent developments have not triggered any specific concerns. Lagarde stated that the impact of a higher EUR/USD is already incorporated into the bank's baseline projections. Her overall tone on the currency's strength was neutral, effectively downplaying its significance as expected.

What's Next? Repo Line Reforms on the Horizon

Lagarde also signaled that the ECB is preparing to reframe its repo lines, with a formal announcement expected within days. The goal is to improve access and make these facilities more attractive to national central banks located outside the euro area and Europe, enhancing their global utility.

Forecast: No Rate Changes Through 2027

Looking ahead, the forecast remains for the ECB to hold its deposit rate at 2.00% throughout 2026 and 2027. The combination of better-than-expected growth and declining unemployment reduces the pressure for rate cuts in 2026, despite inflation running below the bank's target.

Figure 2: A steady decline in the unemployment rate underpins the ECB's confidence in the economy's underlying strength.

At the same time, with inflation also projected to stay below target in 2027, rate hikes are considered unlikely. From a strategic perspective, this outlook—combining a positive growth forecast, a tight labor market, and increased public spending in countries like Germany—supports a payer bias in the short end of the EUR swap curve.