ON DECK FOR WEDNESDAY, FEBRUARY 19
KEY POINTS:
- Trump’s latest tariff tantrum mildly impacts risk appetite
- Threatening 25% tariffs on autos, pharma and chips lacks credibility…
- …by imposing great pain upon the US itself
- DOGE scam alert!
- BoE pricing slightly trimmed post-CPI
- RBNZ cuts 50bps, revised forward guidance has little effect
- Aussie wage growth merely teases ahead of jobs
- China’s ebbing pace of tumbling home prices
- No surprises this time from Bank Indonesia
Trump’s latest attention-seeking huffing and puffing about applying 25% tariffs on autos, pharmaceuticals and chips is mildly weighing upon risk appetite this morning. N.A. equity futures are slightly lower and European cash markets are down by ¼% to ¾%. Sovereign bond yields are higher across the UK (post-CPI) and EGBs with the US curve slightly bear steepening. The dollar and yen are outperforming.
Get on With it Trump!
Quit the idle threats, you’re just making your country look ridiculous with threats that lack credibility. Do it. Get on with it. Don’t just damage c-suite confidence to invest by threatening to do it, do it! Dare ya. Double dare ya. Then we’ll see economic policy ineptitude on full display. Do it, and invite retaliation, watch US supply chains being thrown into turmoil on economic policy mismanagement, and let’s see layoffs, closures, soaring prices and tumbling confidence to invest in the wake of it all. There is no art of the deal beyond pushing around town councils to grant casino permits; the world of sovereigns that can push back and have many of their own policy options, tactics and experienced negotiators is profoundly different. Cutting your nose off to spite your own face is no road to riches for the US economy. It’s just pure and simple chaos caused by an attention-seeking US President who is out to impose great harm upon the US and world economies and from the perch of a country with some of the world’s most distorting anti-market policies.
DOGE Scam Alert!
So Musk’s DOGE is going to save US taxpayers from massive fraudulent waste and come to the rescue to make a trillion dollar plus contribution to fiscal plans. Right. Scam alert. It’s not happening so far as daily tracking of Treasury outlays shows in chart 1 by comparing fiscal year-to-date patterns this year to the prior two. Anything DOGE is doing so far is a total rounding error. Articles like this one, available to Bloomberg terminal subscribers, raise serious accounting issues and point to the minimal impact of the review. Add in court challenges and the turmoil in the wake of the efforts plus super sketchy math on the stated goals with so many untouchable parts and don’t hold your breath hoping for success.
BoE Pricing Trimmed a Touch Post-CPI
Gilts are underperforming with yields up 3–5bps in a mild bear steepener move this morning. The catalyst is UK CPI that reaffirmed pricing for no change at the March 20th BoE meeting but had little effect on May while slightly trimming full year expectations. Core CPI was relatively strong at -0.4% m/m NSA in January; January is normally a down-month for seasonally unadjusted prices with an average decline of -0.7% and this year’s dip was among the mildest on record (chart 2). The year-over-year rate moved up a half point to 3.7%, on expectations. Headline CPI was firmer than expected at -0.1% m/m (-0.3% consensus) and 3% y/y (2.8% consensus, 2.5% prior). Services CPI moved up from 4.4% to 5% y/y (5.1% consensus).
RBNZ Cuts, Revised Forward Guidance Has Little Effect
The RBNZ cut 50bps as widely expected. Its refreshed explicit forward guidance points to an Official Cash Rate falling to 3.1% by year-end and holding there until 2028 (chart 3). The front-loaded a little more of the easing into this year but had little effect on where markets were already priced. The kiwi rates curve sold off by 2–4bps in a very mild bear steepener and the NZ$ gained a touch to be among the outperformers to the dollar this morning.
Aussie Wage Growth Lands on the Screws Net of Revisions
Aussie wage growth continued to cool to 2.6% q/q SAAR in 2024Q4 (chart 4). The 0.7% q/q SA rise was slightly lighter than the 0.8% consensus but that was because of an upward revision to the prior quarter (0.9% instead of 0.8%). There was very little effect on the Australian rates curve or the A$ ahead of tonight’s jobs report. As inflation comes down and annualized wage growth remains relatively high, Australia is beginning to register real wage gains.
China’s Home Prices Steadily Falling for Nearly Two Years
China’s home prices keep falling with new prices down about -0.1% m/m and resale prices down -0.3% in January. Both measures have been falling in uninterrupted fashion since April/May 2023. The pace of decline has been ebbing but it will still take time to build confidence (chart 5).
No Surprises from the BI This Time
Bank Indonesia held its policy rate unchanged at 5.75% as widely expected after surprising last month.
FOMC Minutes to be Stale
How many times can you say patient? This afternoon’s FOMC Minutes (2pmET) will be stale in the wake of Powell’s two rounds of Congressional testimony, the prior FOMC presser, multiple rounds of Fed-speak, and data since the FOMC meeting. Maybe we’ll learn more about the dialogue on regulatory changes.
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