Morning Report
February 04, 2025
“Yesterday’s round of tariff turmoil saw markets chase the latest developments between the US and its biggest trade partners. The actual threat of implementation sent the dollar soaring, before last-minute deals for Canada and Mexico led to some relief.”
Sam Cornford – Head of Trading
USD
The tariff drama continued yesterday, and the dollar handed back some gains as Mexico and Canada traded border concessions for 30-day tariff reprieves. Trudeau and Sheinbaum agreed to allocate extra resources and to co-operate with the US on strengthening border defences against fentanyl flows, reigniting hopes that a trade war would eventually be averted. It seemed that the markets had appropriately priced the tariff risk after all, and the reversal to Friday’s valuations led to some intense swings – EUR/USD fell 2% at the open yesterday but crept higher throughout the day, while USD/CAD surged 1.7% to nearly 1.48 before dropping 2.7% and back to the 1.44-1.45 range. 4th March is the new conditional deadline for tariff implementation, with the order saying that ‘further time is needed, however, to assess whether these steps constitute sufficient action’. China is yet to make a deal and has hit back with some tariffs of its own, but Trump is set to talk to Xi Jinping in the next few days.
Today, the man data event is the JOLTS job openings figure for December, which estimates expect to cool slightly to 8M after ticking up in November. We also get speeches from the Fed’s Bostic and Daly, although it is the tariff story that will be key.
GBP
Sterling sat on the sidelines of the tariff scare and enjoyed some haven flows, unusually, thanks to the UK’s insulation from Trump’s threats. It climbed 0.6% against the euro – his next target – and GBP/EUR ticked above the 1.20 handle for the first time since the beginning of the year. The UK does not run a trade surplus in the US, at least according to US data, and very little of the trade flow is in goods. Trump also simply likes the UK and so far has had a surprisingly friendly relationship with Keir Starmer – how many leaders on the left can say that? No domestic data today, but markets have Thursday’s Bank of England decision to look forward to.
EUR
It was hard to notice amid all the tariff volatility, but there was a eurozone CPI print yesterday. Both the headline and core measures were 0.1% higher than expected, and services inflation remained anchored around the 4% mark. The stickiness in the core components is likely to encourage the more hawkish policymakers to begin ramping up the debate on when might be appropriate to cease cutting, but much of the recent rise is down to base effects. On tariffs, the EU looks like the next target and that may keep the euro subdued until markets get some clearer clues on what Trump has planned to tackle the ‘atrocity’ that is the US’ large trade deficit with the bloc.
Markets
Stocks fell broadly yesterday amid the tariff scare as analysts grew concerned about squeezed margins and a drag on growth. However, the S&P 500 only closed 0.8% lower, after initially falling nearly 2%. European indexes have opened relatively steady this morning, but the FTSE 100 is down 0.4%.
Main Economic Events (All Times CET)
4:00pm: US JOLTS Job Openings & Durable Goods Orders
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