Trade crosscurrents hit from Trump weighing tariff rollbacks

EU mid-market update: Equities hold and treasury yields climb ahead of US inflation as trade crosscurrents hit from Trump weighing tariff rollbacks.

Notes/observations

- Risk appetite remains fragile heading into key U.S. inflation data, with global equities mixed to lower. EU is flat, while Hang Seng led Asian declines ahead of the Lunar New Year holiday. US futures muted. Specifically, tech outperforms on the back of strong results from Applied Materials and Capgemini, while basic materials and consumer names lag. FTSE 100 helped by Relx, though housebuilders underperform. DAX and CAC 40 trade modestly lower, with L’Oréal down sharply on softer-than-expected Q4 growth, while Safran rallies after lifting medium-term guidance.

- Swiss January CPI was flat YoY at 0.1% and fell 0.1% MoM, briefly pressuring the franc, though the move was contained given the SNB’s reluctance to return to negative rates. EU sovereign bond spreads continue to compress versus Bunds amid steady issuance progress and a benign macro backdrop. Citi strategists see German 10-year Bund yields ending the year modestly higher near 3%, from roughly 2.76% currently.

- China-related data and trade headlines are adding complexity. Jan M2 money supply growth accelerated to 9.0% y/y, a two-year high, signaling supportive liquidity conditions. Reports suggest Pres Trump may extend the trade truce with China, potentially roll back certain metal and aluminum tariffs, and has shelved some tech restrictions ahead of an April meeting with Pres Xi. US and Taiwan signed a trade agreement, though tensions remain around arms sales and broader US-China relations. Separately, duties on Chinese battery-grade graphite were sharply reduced from prior proposals.

- Gold has rebounded after a sharp prior-session drop, rising back above $5,000/oz as dip buyers position ahead of US CPI; Silver has also staged a strong recovery. Bitcoin has stabilized after recent heavy selling, with modest gains as trade tensions ease, though volatility remains elevated.

- Trump administration is reportedly reviewing steel and aluminum levies with plans to exempt certain products and halt list expansions in favor of more targeted national security probes. This strategic pivot follows mounting political pressure on Republican lawmakers who face difficult re-election battles in the upcoming November midterms as voters grow anxious over rising costs for small businesses and consumers.

- Impending DeepSeek-V4 launch likely to signal a paradigm shift toward "Stabilized Scaling," utilizing structural innovations like mHC and Engram memory to decouple trillion-parameter intelligence from the brute-force hardware race. By weaponizing deflationary unit economics and verticalized agentic logic, the model may again threaten to commoditize the frontier, forcing a global transition from expensive generalist LLMs to efficient, high-fidelity autonomous utilities.

- Notable EU corp news: NatWest reported softer year-on-year Q4 profit but guided FY26 revenue above £17.2–17.6B, RoTE above 17%, and a CET1 ratio around 13%, while targeting further improvement into FY28. Safran delivered FY25 results broadly in line and guided low- to mid-teens revenue growth for FY26 with strong free cash flow, though buyback expansion was limited. Capgemini posted solid FY25 revenue growth and guided FY26 revenue up 6.5–8.5% with stable margins. L’Oréal’s Q4 growth undershot expectations amid weaker China and travel-retail momentum, complicating prospects for near-term sales acceleration.

- Asia closed lower with ASX200 underperforming -1.4%. EU indices -1.4% to +0.1%. US futures -0.2% to 0.0%. Gold +1.0%, DXY +0.1%; Commodity: Brent +0.2%, WTI +0.2%; Crypto: BTC -1.7%, ETH -1.8%.

Asia

- South Korea Jan Export Price Index M/M: 0.4% v 0.6% prior; Y/Y: 7.8% v 5.0% prior.

- South Korea Jan Import Price Index M/M: 0.4% v 0.9% prior; Y/Y: -1.2% v 0.5% prior.

- China Jan New Home Prices M/M: -0.37% v -0.37% prior; Used Home Prices M/M: -0.54% v -0.70% prior.

- New Zealand Q1 2-year Inflation Expectation Survey: 2.4% v 2.3% prior.

- PBOC said to band could increasing its focus on the overnight rate and could adopt this tenor as its primary policy target.

- Japan BOJ Board member Tamura (hawk; dissenter) reiterated that neutral rate was at least around 1.00%; Rate was very distant from neutral level ; Personally felt Japan's recent inflation was becoming sticky.

- Japan Fin Min Katayama Markets have stabilized since initial shock from plans to cut tax on food; debt-GDP ratio is expected to fall further.

- Japan PM Takaichi's Adviser Honda: BOJ might see scope to raise this year, but may avoid hiking in March.

Global conflict/tensions

- Japan Fisheries Agency said it seized a Chinese fishing vessel operating in Japanese waters.

Europe

- ECB’s Nagel (Germany): Geopolitical rivalries could push inflation up.

Americas

- Fed's Miran (dovish dissenter): See natural rate of Unemployment at around 4%. Fed was one biggest risks to growth; monetary policy had passively tightened.

- A shutdown of DHS is all but assured after Democrats blocked two separate efforts to avert a shutdown on Thursday.

Trade

- Pres Trump said to be considering to “roll back” tariffs on metal, aluminum goods.

- Taiwan signed their trade deal with US (**Note: Amid warnings from China that US arms deal(s) for Taiwan could jeopardize Trump’s state visit to China in April).

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.09% at 617.94, FTSE +0.17% at 10,420.10, DAX -0.03% at 24,820.74, CAC-40 -0.23% at 8,321.52, IBEX-35 -0.49% at 17,808.57, FTSE MIB -1.22% at 45,660.50, SMI +0.62% at 13,628.40, S&P 500 Futures -0.06%].

Market focal points/key themes: European indices opened mixed and failed to gain direction in the early part of the session; concern over AI drop in US markets weighed on risk appetite; among sectors managing gains are financials and technology; underperforming sectors include consumer discretionary and materials; consumer staples sector dragged down following L’Oreal earnings overnight; Sumitomo Forestry to acquire Tri Pointe Homes; focus on US CPI coming out later in the day; earnings expected in the upcoming US session include Moderna and Hornbach.

Equities

- Consumer discretionary: Flutter Entertainment [FLUT.UK] -7.0% (DraftKings guidance), Delivery Hero [DHER.DE] -7.5% (Middle East unit's results disappoint).

- Consumer staples: L'Oreal [OR.FR] -3.5% (earnings).

- Energy: Norsk Hydro [NHY.NO] -5.5% (earnings).

- Financials: NatWest [NWG.UK] -1.0% (earnings).

- Industrials: Safran [SAF.FR] +7.5% (earnings).

- Technology: Capgemini [CAP.FR] +3.0% (earnings).

Speakers

- ECB's Kazaks (Latvia) reiterated view that ECB was in good place on rates; position to move in any direction if needed. Now was not the time to move on rate. Had yet to see the impact from Euro currency appreciation; strength reflects USD weakness and uncertainty. Markets currently see 90% change that Fed will keep.

- Indonesia Econ Min noted 2026 GDP target was 5.4% with potential upside to 5.6%.

- Taiwan Govt revised its 2026 outlook which raised 2026 GDP growth from 3.5% to 7.7% and raised 2026 CPI forecast from 1.6% to 1.7%.

Currencies/fixed income

- USD relatively steady with focus on upcoming US CPI data in the session. Dealers will gauge inflation data for more cues on the path rate cuts this year. Currently the market sees a 90% change of Fed keeping policy steady in Mar and almost 75% change of steady rates in April.

- EUR/USD at 1.1855 area and continued to be contained in the 1.15-1.20 range seen over the past quarters. ECB members have been vocal on need to gauge Euro currency impact on inflation particularly as many countries are currently below the 2% target.

- USD/JPY edged up to test 153.60. Yen unable to muster any additional strength despite its most hawkish member Tamura indicated that conditions for the central bank’s next interest rate hike could be in place by spring.

- 10-year German Bund yield last at 2.77%, France 10-year Oat at 3.35% and 10-year Gilt yield at 4.45% 10-year Treasury yield: 4.12%; 10-year JGB: 2.21%.

Economic data

- (DE) Germany Jan Wholesale Price Index M/M: -0.9% v -0.2% prior; Y/Y: -1.2% v 1.2% prior.

- (RO) Romania Q4 Advance GDP (1st reading) Q/Q: -1.9% v -0.3%e; Y/Y:0.1 % v 1.3%e.

- (TR) Turkey Dec Current Account Balance: -$7.3B v -$5.5Be.

- (TR) Turkey Central Bank (TCMB) Feb Inflation Expectation Survey: 12-month Inflation Expectations: 22.1% v 22.2% prior.

- (CH) Swiss Jan CPI M/M: -0.1% v 0.0%e; Y/Y: 0.1% v 0.1%e.

- (CH) Swiss Jan CPI EU Harmonized M/M: -0.1% v +0.1% prior; Y/Y: 0.2% v 0.2%e; CPI Core Y/Y: 0.5% v 0.5%e.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 272.5K v 248.9K tons prior.

- (TH) Thailand May Foreign Reserves w/e Feb 6th: 289.7B v $289.6B prior.

- (ES) Spain Jan Final CPI M/M: -0.4% v -0.4% prelim; Y/Y: 2.3% v 2.4% prelim.

- (ES) Spain Jan Final CPI EU Harmonized M/M: -0.8% v -0.7% prelim; Y/Y: 2.4% v 2.5% prelim.

- (ES) Spain Jan Final CPI Core M/M: -0.6% v 0.4%e; Y/Y: 2.6% v 2.6% prelim.

- (CZ) Czech Jan Final CPI M/M: 0.9%e v 0.9% prelim; Y/Y: 1.6%e v 1,6% prelim.

- (RU) Russia Narrow Money Supply w/e Feb 6th (RUB): 19.49 v 19.40T prior.

- (TW) Taiwan Q4 Preliminary GDP (2nd reading) Y/Y: 12.7% v 12.7% advance.

- (CZ) Czech Dec Current Account Balance (CZK): 8.5B v 14.0Be.

- (PL) Poland Jan CPI M/M: 0.6% v 0.5%e; Y/Y: 2.2% v 1.9%e v 2.4% prior.

- (CN) China Jan YTD New Yuan Loans (CNY): 4.71T v 5.00Te.

- (CN) China Jan YTD Aggregate Financing (CNY): 7.22T v 7.085Te.

- (CN) China Jan M2 Money Supply Y/Y: 9.0% v 8.3%e; M1 Money Supply Y/Y: 4.9% v 3.6%; M0 Money Supply Y/Y: 2.7% v 10.2% prior.

- (EU) Euro Zone Q4 Preliminary GDP (2nd of 3 readings) Q/Q: 0.3%e v 0.3% advance; Y/Y1.3%e v 1.3% advance.

- (EU) Euro Zone Q4 Preliminary Employment Q/Q: No est v 0.2% prior; Y/Y: No est v 0.6% prior.

- (EU) Euro Zone Dec Trade Balance: €11.6B v €10.2B prior; Trade Balance NSA (unadj): €12.6Bt v €9.9B prior.

Fixed income issuance

- (IN) India sold INR310B vs. INR310B indicated in 2031 and 2076 bonds.

- (ZA) South Africa sold total ZAR850M vs. ZAR1.0B indicated in 2031, 2050 and 2058 I/L bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to leave Key One-Week Auction Rate unchanged at 16.00%.

- 06:00 (PT) Portugal Q4 Labour Costs Y/Y: No est v 4.7% prior.

- 06:00 (BR) Brazil Feb FGV Inflation IGP-10 M/M: 0.0%e v 0.3% prior; Y/Y: No est v -1.0% prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0B, £B and £B respectively).

- 06:30 (IN) India Forex Reserve w/e Feb 6th: No est v $723.0B prior.

- 07:00 (BR) Brazil Dec Retail Sales M/M: -0.2%e v +1.0% prior; Y/Y: 2.9%e v 1.3% prior.

- 07:00 (BR) Brazil Dec Broad Retail Sales M/M: -1.0%e v +0.7% prior; Y/Y: +3.0%e v -0.3% prior.

- 07:00 (ES) ECB’s De Guindos (Spain).

- 07:00 (UK) BOE’s Pill (chief economist).

- 07:00 (CZ) Czech Central Bank comments on Jan CPI data.

- 08:00 (PL) Poland Dec Current Account Balance: -€1.1Be v -€0.5B prior; Trade Balance: -€1.7Be v -€1.1B prior; Exports: €27.4Be v €29.9B prior; Imports: €29.2Be v €30.9B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (RU) Russia Central Bank (CBR) Gov Nabiullina post rate decision press conference.

- 08:00 (ES) Spain Debt Agency (Tesoro) announcement on upcoming issuance.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:30 (US) Jan CPI M/M: 0.3%e v 0.3% prior; Y/Y: 2.5%e v 2.7% prior.

- 08:30 (US) Jan CPI (ex-food/energy) M/M: 0.3%e v 0.2% prior; Y/Y: 2.5%e v 2.6% prior.

- 08:30 (US) Jan CPI Index NSA: 325.514e v 324.054 prior; CPI Core Index: 332.820e v 331.860 prior.

- 08:30 (US) Jan Real Avg Hourly Earning Y/Y: No est v 0.7% prior (revised from 1.1%); Real Avg Weekly Earnings Y/Y: No est v 1.0% prior (revised from 1.1%).

- 10:00 (CO) Colombia Dec Retail Sales Y/Y: 8.9%e v 7.5% prior.

- 10:00 (CO) Colombia Dec Manufacturing Production Y/Y: 1.3%e v 0.7% prior; Industrial Production Y/Y: 1.1%e v 1.7% prior.

- 11:00 (RU) Russia Jan CPI M/M: 2.0%e v 0.3% prior; Y/Y: 6.5%e v 5.6% prior.

- 11:00 (RU) Russia Jan Core CPI M/M: No est v 0.4% prior; Y/Y: No est v 5.4% prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody's on Austria).

- 13:00 (US) Weekly Baker Hughes Rig Count data.