On Tuesday, the US dollar index fluctuated downward to its lowest level since mid-October last year. As of now, the US dollar is quoted at 103.53.
US JOLTs job vacancies rose to 7.74 million in January, higher than the expected 7.63 million. Traders then increased their bets on the Fed's rate cut.
Trump threatened to impose a 50% tariff on all steel and aluminum products from Canada and destroy the Canadian auto industry through tariffs;
Ontario, Canada, immediately suspended the 25% surcharge on electricity exported to the United States;
White House officials said that the 50% tariff on Canadian steel and aluminum would be canceled; the two sides' trade war lasted about 6 hours.
Trump: I can't see a recession at all. The US economy will prosper. The market sell-off has nothing to do with me. The violence against Tesla dealers will be labeled as domestic terrorism.
British officials: The British government will not respond to the US steel tariffs. The government is continuing to communicate with the United States to seek exemptions from steel tariffs.
Joint statement of the US-Ukraine talks: Ukraine is willing to accept a 30-day temporary ceasefire, which can be extended but must be agreed and implemented by Russia. Resume intelligence sharing with Ukraine and reach a US-Ukraine mineral agreement as soon as possible;
Trump: I think I will have a dialogue with Putin this week, I hope Russia will accept a ceasefire, and invite Zelensky to return to the White House;
Zelensky: A ceasefire is a positive proposal, and Russia must show its willingness;
It is reported that Putin will talk to Trump on Friday, and it will not be just one call.
The Houthis in Yemen resumed their attacks on Israeli ships to demand the lifting of the aid blockade on Gaza.
According to the AXIOS website: Israel and Lebanon agreed to negotiate on resolving the land border dispute between the two countries.
Overall CPI annual rate: 2.87%, overall CPI monthly rate: 0.27%; core CPI annual rate: 3.21%, core CPI monthly rate: 0.29%
We expect the US core CPI monthly rate to be 0.29% in February and the annual rate to be 3.21%. The monthly rate of the overall CPI may fall back to 0.27%, pushing the annual rate back to 2.87%, mainly driven by a 0.2% increase in food and energy prices. This forecast is consistent with the 0.32% increase in core service prices (excluding rent and owner equivalent rent) and the forecast increase of 0.25% in the core PCE price index in February.
In this CPI report, there are three key trends worth noting: first, used car prices may rise by 0.6%, mainly driven by rising auction prices, while new car prices may only rise by 0.3% due to the weakening of dealer promotions; second, auto insurance costs may record a 1% increase; finally, due to seasonal factors, communication costs may be pushed up to 0.3%, and air ticket prices may record a 2.5% increase.
We believe that although the escalation of Trump's tariff policy may become a shackle on the process of inflation decline, the rebalancing of the auto market, the adjustment of the housing rental market and the changes in the labor market will drive the inflation level to continue to slow down in the next year.
Overall CPI annual rate: 2.9%, overall CPI monthly rate: 0.32%; core CPI annual rate: 3.2%, core CPI monthly rate: 0.29%
We expect the US overall and core CPI monthly rates to be 0.3% in February, with rounded readings of 0.32% and 0.29% respectively. Although we expect inflation to slow significantly compared to January, it is still in a sticky high range. Specifically, Trump's tariff policy will push up the prices of core goods excluding used cars, and although core service inflation has slowed, its growth rate continues to be higher than the Fed's target. Overall, this CPI data will reinforce our previous judgment on the changes in US inflation - the current process of cooling inflation has stagnated, core commodity prices are showing upward pressure due to the disturbance of trade policy, and service prices have fallen but to a limited extent. These two factors will constitute a substantial obstacle for the Fed to achieve its 2% inflation target.
The Bank of Japan is likely to decide to keep interest rates unchanged at its March meeting to support financial stability and avoid premature tightening of policies to curb domestic spending. Although GDP growth in the fourth quarter of 2024 is 2.2% (driven by exports), weak domestic demand will still threaten the sustainable recovery of the economy. The latest data show that industrial output fell 1.1% month-on-month in January, PMI continued to be below the boom-bust line, and real wages fell 1.8% year-on-year. Core inflation (excluding food and energy) has remained around 2.5% since July last year, which is higher than the Bank of Japan's desired target, mainly affected by the depreciation of the yen and high energy prices.
Long-term Japanese government bonds were sold off in large quantities due to market sentiment fluctuations, rising German government bond yields and seasonal factors at the end of the fiscal year, while the 10-year US-Japan bond yield spread fell below the low set in September 2024, indicating that there is still room for further decline in the US-Japan bond spread. Historical experience shows that the Bank of Japan's improper rate hikes have triggered economic slowdowns in 1990 and 2007, which is the main basis for our judgment that it will remain on hold at the March meeting. The next rate hike may be in the second quarter of 2025 to balance inflation risks with growth targets. However, an unexpectedly aggressive tightening may trigger a wave of yen carry trade liquidations and impact global markets. In addition, the Bank of Japan needs to strike a balance between responding to external pressures (such as US foreign policy) and maintaining domestic economic resilience, while avoiding market volatility through clear communication.
The euro has now broken above 1.09 against the US dollar, but it is too early to say that it will stabilize above this integer mark. I think it will be very interesting to see whether it can break through the key resistance of 1.0940 in the short term. If it can break through, the European and American currencies will release strong bullish signals and are expected to continue the recent strong rise. I think this round of gains is mainly driven by the continued narrowing of the US-German interest rate gap.
For now, although the market seems to be overextended, this round of gains may last longer than the market expects. In my opinion, it is too early to short the European and American currencies on a mean reversion trade because there are no obvious signs of weakness in price movements. The European and American currencies closed with a cross candle pattern on Tuesday, which only shows that long and short funds are slightly hesitant, and a meaningful correction has not yet appeared.