Key Events: Tariffs Trump the Data

Key Events

G10

In the US, these are the highlights:

1. 25% tariff on Mexican and Candian imports – Saturday. As of this writing (Friday), negotiations were still underway for a last-minute deal. If a deal is not found, we think these are the likely market impacts.
2. NFP – Friday. The release will incorporate both the annual benchmark revisions of the payroll survey as well as updated population estimates from the BLS. Consensus expects 150k, down from 256k in December, with an unchanged unemployment rate which could reflect in part decreased immigration.
3. PMIs – Monday, Wednesday. These are more trading than economic events. For market impact please see our Event Monitor.

In the Eurozone and UK, the main events will be:

1. January Eurozone preliminary CPI (Monday). We watch for signs services inflation was stronger than typical in January. This is one reason we are hawkish on the ECB. So far, the evidence has been mixed, with French services inflation coming weaker than typical, but German stronger.

Elsewhere in G10:

1. New Zealand labour force survey – Tuesday. The unemployment rate is expected to creep to 5.1%, from 4.1%, while employment is expected to contract over the quarter. We, however, see signs of a hawkish beat.
2. Canada Unemployment – Friday. Last month’s labour market data showed a pick-up in hiring across sectors. With job openings rising again, we think the trend is towards an easing of labour market looseness.

EM

1. Turkey inflation – Monday. YoY inflation is set to drop further (although the MoM gain will be up from the December low), allowing continued rate cuts from the CBRT.

Central Banks in Action

1. BoE to cut 25bp on Thursday and release updated MPR forecasts. We expect a somewhat dovish tone. With the market only pricing three cuts this year, versus growing evidence that the BoE is looking for 100bp (I think they can do more), they may stress the need for more easing now.
2. Ten Fed speakers this week. We focus on VC Jefferson (dove, voter, Tuesday) and Presidents Musalem (voter, hawk, Monday), Bostic (non voter, dove, Monday), Daly (non voter, dove, Tuesday), Logan (non voter, hawk, Thursday).
3. NBP to remain on hold – Wednesday. Above-target inflation will keep the MPC firmly on hold.
4. CNB to resume rate cuts – Thursday. Likely disinflation and recent comments from Governor Michl point to a resumption in rate cuts.
5. RBI to commence easing – Friday. Disinflation and slowing growth should be enough for a first 25bps rate cut from the RBI.

Markets to Watch

• The dollar is likely to gyrate next week. Trump’s tariffs could see it rally, hurting our short USD trade.
• EUR/JPY could prove a good hedge, however. JPY would rally as risk sours, while markets have favoured EUR/JPY calls over the past month.
• AUD/NZD may see continued reason to decline, if the New Zealand labour market comes out stronger than expected, in line with our expectations. We remain short AUD/NZD.
• GBP could move on the BoE, especially if they come out dovish as we expect. We stay long SONIA Z5.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)