Italy's Economy Earns Positive Outlook from S&P

Russia and Ukraine have paused attacks on each other's energy infrastructure in a temporary de-escalation, but the two sides have offered conflicting timelines for the agreement, casting doubt on the next steps in negotiations to end the nearly four-year war.

The move follows a request from U.S. President Donald Trump, which the Kremlin said it accepted. However, while Kyiv sees the moratorium lasting a week, Moscow has indicated it could end as soon as Sunday, February 1.

A Fragile Truce with Conflicting Timelines

On Friday, Ukrainian President Volodymyr Zelenskiy confirmed that Russia had conducted virtually no strikes on energy facilities in the past 24 hours. He stated the moratorium went into effect at midnight on Friday for a full week.

"In all our regions, there were indeed no strikes on energy facilities from Thursday night to Friday," Zelenskiy said. "Ukraine is ready in reciprocal terms to refrain from strikes and today we did not strike at Russian energy facilities."

The Kremlin's account differs. Spokesman Dmitry Peskov confirmed President Vladimir Putin agreed to Trump's personal request to halt the bombardment of Kyiv but suggested the measure would expire on Sunday. The stated goal was to create "favourable conditions" for peace talks. Both sides acknowledge this is not a formal ceasefire.

Kyiv Faces Deep Freeze as Infrastructure Reels

The temporary pause offers a critical reprieve for Kyiv's residents, who have endured weeks of Russian strikes that knocked out power and heating for hundreds of thousands of people as temperatures dropped below minus 15 degrees Celsius.

On Friday, 378 residential high-rise buildings remained without heating. The situation is set to become more severe, with weather forecasters predicting temperatures in the capital will plunge to as low as minus 26 degrees Celsius starting Sunday.

Figure 1: An emergency crew at a Kyiv apartment building damaged by recent Russian strikes, which have left hundreds of thousands without heat ahead of a severe cold snap.

Despite the halt in energy strikes, Ukrainian officials report that Moscow has merely shifted its strategy. Both Zelenskiy and Prime Minister Yulia Svyrydenko said Russia is now targeting logistical points, particularly railway junctions. Svyrydenko noted that Russia carried out seven drone attacks on railway facilities in the last 24 hours alone.

Diplomatic Deadlock Overshadows Talks

Diplomatic efforts to end the war remain stalled over fundamental disagreements. Two major unresolved issues stand in the way of progress:

• Territorial Control: Russia's demand that Ukraine cede all of the Donbass region.

• Nuclear Plant: Russia's control over the Zaporizhzhia nuclear power plant, the largest in Europe.

Zelenskiy has firmly ruled out surrendering territory. This impasse has left the diplomatic track without tangible results.

The next round of talks, originally scheduled for Sunday in the United Arab Emirates between Russian, Ukrainian, and U.S. negotiators, is now uncertain. Zelenskiy suggested a delay, citing external factors. "The date or the location may change – because, in our view, something is happening in the situation between the United States and Iran. And those developments could likely affect the timing," he said.

Meanwhile, two sources in Moscow told Reuters that Putin's special envoy, Kirill Dmitriev, would travel to Miami on Saturday for meetings with members of Trump's administration. Adding to the uncertainty, U.S. Secretary of State Marco Rubio said that Trump's top envoys, Steve Witkoff and Jared Kushner, would not participate in the scheduled Abu Dhabi meeting.

Ukraine's Strained Air Defenses and Public Skepticism

President Zelenskiy also revealed that Ukraine's air defenses have been depleted, blaming delayed payments from European allies under the U.S.-led PURL weapons purchase program. He said this delay meant U.S. Patriot air defense missiles did not arrive before heavy Russian airstrikes that crippled power across Kyiv this month.

On the streets of the capital, residents expressed doubt that the truce would last.

"I trust neither Putin nor Trump, so I think that even if he (Putin) complies now, he will stockpile missiles and will still keep firing," said Kostiantyn, a 61-year-old pensioner. "Putin's goal is the destruction of Ukraine, and all we can do is resist."

The grim reality of the ongoing conflict continues. The Ukrainian Air Force reported that in the latest overnight attacks, Russia launched one ballistic missile and 111 drones. Zelenskiy said the missile struck and damaged warehouses owned by the U.S. company Philip Morris in the northeastern Kharkiv region. All the while, Russian troops continue their grinding advance in the eastern Donetsk region.

Australia's latest inflation data has put policymakers and investors on high alert, with a key measure of underlying price pressure surging past the central bank's target range. Markets are now pricing in a high probability of a February interest rate hike, setting the stage for a sharp policy pivot just months after the Reserve Bank of Australia's last rate cut.

Core Inflation Breaks Through RBA's Target Range

The RBA's preferred gauge of inflation, the trimmed mean, rose to 3.4% year-on-year in the fourth quarter. This figure not only surpassed market expectations of 3.3% but also breached the upper limit of the RBA's 2–3% target band, signaling that underlying price pressures are more persistent than previously thought.

On a quarterly basis, core inflation registered a 0.9% increase, which was in line with forecasts. However, the acceleration in the annual rate suggests the path back to stable prices may be challenging.

Headline CPI Reveals Broad-Based Price Pressures

Headline inflation figures also point to mounting price pressures across the economy. The Consumer Price Index (CPI) rose to 3.8% year-on-year in December, an increase from 3.4% the previous month.

The primary drivers behind this increase include:

• Housing: +5.5%

• Recreation and Culture: +4.4%

• Food and Non-alcoholic Beverages: +3.4%

Figure 1: Australia's annual inflation rate surged to a peak near 8% in early 2023 before declining, but recent data shows a rebound that has pushed it back toward 4%.

A closer look at the data reveals particularly stubborn inflation in the services sector, which accelerated to 4.1% year-on-year from 3.6%. This typically indicates strong domestic demand and persistent wage pressures. Meanwhile, goods inflation stood at 3.4%, with a notable 21.5% surge in electricity prices adding further complexity for the RBA.

Strong Labor Market Fuels Policy Dilemma

Compounding the inflation challenge is Australia's tight labor market. With unemployment hovering around 4%, demand in the economy remains robust. This combination of high inflation and low unemployment significantly constrains the central bank's options and raises the risk of price pressures becoming entrenched.

This situation is particularly delicate for the RBA, which cut interest rates as recently as August. By December, the bank had already signaled that its next move could be a hike if inflation data proved troubling.

Markets Bet on an Imminent RBA Rate Hike

Financial markets have reacted swiftly to the latest data. Overnight Index Swaps (OIS) now indicate a roughly 76% probability of a rate hike at the RBA's meeting on February 2–3.

Major financial institutions are aligning with this view. Both Westpac Banking Corp. and ANZ Bank are forecasting a 25-basis-point rate hike, which would lift the cash rate to 3.85%. However, Westpac noted that such a move would not necessarily signal the start of a prolonged tightening cycle, leaving a "wait-and-see" approach on the table if inflation eases in the coming months.

Interestingly, three-year government bond yields fell to 4.28%, suggesting some investors may believe the inflation spike is temporary or that the RBA will only implement a single tightening move.

Australian Dollar Rallies on Hawkish Bets

The prospect of higher interest rates has provided a significant tailwind for the Australian dollar. The currency has appreciated by over 4% since the beginning of the year, making it the second-best performer among G10 currencies. This strength reflects both rising rate expectations and investor confidence in the Australian economy's relative resilience.

Figure 2: The AUD/USD daily chart shows a strong upward trend, breaking past previous resistance as the Relative Strength Index (RSI) moves firmly into overbought territory.

February Meeting: A Defining Moment for the RBA

The upcoming RBA meeting is more than just another rate decision. It represents a critical test of the central bank's credibility. Policymakers must decide whether to pivot decisively to combat rising inflation or to treat the latest data as a temporary blip. The decision made in early February will likely set the tone for Australian monetary policy for the rest of the year.

The Senate is set to vote Friday on a crucial funding package aimed at keeping federal agencies open, with a partial government shutdown just hours away.

Even if the measure passes the Senate, a brief shutdown seems almost certain. The House of Representatives is not scheduled to return to Washington until Monday, and both chambers must approve the legislation before it can be signed into law by President Donald Trump.

Without final congressional action, a partial shutdown of federal operations will begin at 12:01 a.m. ET Saturday.

Graham's Last-Minute Demands Delayed Vote

The vote was delayed after Senator Lindsey Graham, a Republican from South Carolina, placed a hold on the legislation, preventing a quick consideration of the package.

Graham announced on the Senate floor earlier Friday that he would not lift his hold without a guaranteed vote on his bill to criminalize "sanctuary city" policies. The legislation seeks to impose criminal penalties on state and local officials who interfere with federal immigration laws.

He also demanded a vote on an amendment connected to the "Arctic Frost" investigation led by then-special counsel Jack Smith. This amendment would require officials to notify senators if their phone records are obtained in a criminal investigation.

Graham had previously criticized House Speaker Mike Johnson for including language in the spending package that repealed a law allowing senators to sue for up to $500,000 if their records were obtained during that investigation.

How a Compromise Unlocked the Stalemate

The deadlock broke after Graham received assurances from Senate Majority Whip John Thune. In a statement Friday afternoon, Graham confirmed that Thune supports his efforts to bring the sanctuary cities bill to a future vote.

Graham added that Thune "also supports, at a time to be determined, a vote on creating the ability for groups and private citizens, not members of Congress, that may have been harmed by Jack Smith and the Biden DOJ [Department of Justice] to have their day in court."

Following these assurances, Graham concluded, "I will lift my hold and vote for the package." The Senate is now scheduled to vote on a series of amendments before a final vote to pass the funding deal.

What's Inside the Spending Deal?

The agreement is designed to fund most of the federal government through the end of the fiscal year on September 30.

However, the deal separates funding for the Department of Homeland Security (DHS). The DHS, which has faced criticism from Democrats over its immigration enforcement actions, will be funded temporarily by a stopgap measure. The question of its long-term funding will be addressed later.

The funding package received a notable endorsement from former President Donald Trump, who encouraged lawmakers in a Truth Social post to support it.

As tensions escalate between the United States and Iran, reports of an impending military confrontation are gaining traction. President Trump has signaled that Iranian leaders are aware of a looming deadline, while the U.S. has simultaneously bolstered its military presence in the Middle East, fueling speculation of a potential conflict.

Unpacking Reports of a US Military Offensive

A significant report from Drop Site News, citing unnamed U.S. and Arab sources, alleges that a U.S. offensive on Iran could be scheduled for this Sunday. While the claims lack definitive evidence, the precedent of last year's abrupt attack lends them a degree of credibility.

According to sources who spoke with Drop Site News, top U.S. military officials have briefed a key ally in the region on the situation. The briefing suggests President Trump may soon authorize military action, and the allied nation is reportedly preparing for strikes to commence on Sunday.

The Strategic Goal: Regime Change Over Nuclear Threats?

An adviser to several Arab governments claims the primary U.S. objective is not neutralizing nuclear threats but instigating a change in the Iranian regime. This perspective appears to align with President Trump’s recent comments about supporting resistance movements and potentially sending aid, suggesting that the goal of regime change may be a core part of the administration's strategy.

Further intelligence suggests the Trump administration believes a successful military intervention could trigger internal protests within Iran, ultimately leading to the collapse of the current government.

Assessing Credibility and International Support

The credibility of these reports remains a key question, as major leaks would typically be confirmed by more established media outlets. With Iran supposedly aware of the deadline, observers are closely monitoring official channels for credible information. Some analysts suggest the "final deadline" might simply refer to the end of January.

Former intelligence officials have noted that Israeli Prime Minister Netanyahu anticipates an attack and has assured President Trump of Israel's support in establishing a new, friendly government in Iran. High-level Arab intelligence sources have also indicated to Drop Site News that a U.S. strike may be forthcoming.

Potential Market and Geopolitical Fallout

Should a military assault materialize, the repercussions could be widespread and severe. The most likely outcomes include:

• Bitcoin Market Volatility: The cryptocurrency market could see fluctuations similar to trends observed during last year's geopolitical events.

• Heightened Regional Instability: The entire Middle East would likely experience a sharp increase in instability.

• Long-Term Disruption: The conflict could trigger lasting disruptions across the region with serious global implications.

As the reported deadline approaches, both Iran and the international community remain on high alert. The possibility of military action continues to cast a shadow over the geopolitical landscape.

The de-escalatory remarks From Trump aren’t necessarily new, but heading into the weekend, the market is trying to gauge where Trump’s head is at, said Rebecca Babin, a senior energy trader at CIBC Private Wealth Group. “Any signal that he may lean toward diplomacy rather than military action creates immediate selling pressure,” she added.

Source: Bloomberg

A new Dutch government is rapidly taking shape after the social liberal D66, Christian Democrats (CDA), and liberal conservative VVD parties reached a coalition agreement. With the cabinet expected to be assembled and in place by the end of next month, this formation period is proving significantly faster than in previous election cycles.

However, the incoming government faces a major hurdle from day one. Holding only 66 of the 150 seats in parliament, it will operate as a minority government—a new dynamic for Dutch politics. This setup means the coalition must build a majority by winning over opposition parties for every policy it wants to pass.

A Pro-Business Playbook for Growth

The coalition's economic agenda is firmly pro-business, even with tax increases planned to fund higher defense spending. Key pillars of the plan include:

• Lowering energy costs for Dutch manufacturers.

• Providing subsidies to support the transition to green energy.

• Allocating additional funds for housing to boost the construction sector.

• Tackling high nitrogen emissions through financial support for farmers who voluntarily cease operations.

The government also intends to cut regulatory burdens for businesses and maintain favorable conditions for expats. By reversing previous cuts to the science and education budget, the agenda supports long-term innovation. The coalition is actively targeting a structural GDP growth rate of 1.5%.

Balancing the Books: Defense Up, Social Spending Down

Despite significant new spending on defense, the Netherlands is on track to keep its budget deficit within the EU's 3% of GDP limit. Government debt is already well below the 60% debt-to-GDP target, positioning the Dutch as one of Europe's most fiscally disciplined nations.

This fiscal balance comes at a price. To offset the increased defense expenditure, the government plans large cuts to healthcare spending, primarily through higher co-payments. Social security will also see reductions, while both households and businesses will face higher taxes. Longer-term spending plans are also expected to add budgetary pressure beyond the upcoming government period.

A More Cooperative Stance on Europe

The incoming government is poised to adopt a more positive and cooperative approach toward the European Union. While it still denounces Eurobonds, its definition is narrow, focusing only on the pooling of national public debt.

Crucially, the coalition remains constructive toward existing common financing instruments—a notable shift from the previous government. It also expresses support for strengthening the capital market and banking unions.

An Ambitious Political Experiment

The Netherlands is set to have a new government in short order, armed with an ambitious agenda focused on business competitiveness, increased defense spending, and strict fiscal management. The coalition’s success, however, will hinge on its ability to negotiate and win support from the opposition. A new political experiment is just beginning.