US manufacturing ISM delivers an upward surprise that was too big to ignore'

Markets

The (USD) debasement trade last week was mainly driven by longer-term structural and (geo)political considerations. However, yesterday, for once, (US) eco data also again had a role to play. The US January manufacturing ISM delivered an upward surprise that was too big to ignore. The headline index jumped from 47.9 to 52.6 (48.5 expected). It was the first 50+ reading since January last year and the best level since August 2022. Almost all subindices supported the improvement (production 55.9 from 50.7; orders 57.1 from 47.4; backlog of orders 51.6 from 45.8). The employment series also improved but at 48.1 stayed below the 50-mark. The prices paid stayed at a high 59. The figure needs confirmation from tomorrow’s services ISM, but it provides additional evidence that the US economy for now doesn’t need ‘emergency monetary support’, leaving the Fed in a good place to wait and see. US yields already were upwardly oriented (Warsh-driven?) going into the release and extended gains afterward. Yields closed the session 4-5 bps higher across the curve. The Treasury’s estimated borrowing needs were published later in the session but didn’t yield any major surprise ($574 bln borrowing this quarter from an estimated $578 set in November, including a higher $850 bln cash pile at the start; and $109 bln borrowing in Q2). The Q4 cash flow performance was $42 bln better than expected. German Bund yields followed the US move at a distance with yields rising 2-3 bps across the curve. The data also rubberstamped the intraday comeback of the USD dollar. EUR/USD closed the session at 1.179 (from 1.1856). DXY rebound further to 97.63. Both US and European equities apparently enjoyed renewed dip buying (S&P 500 +0.54%, less than 0.5% from all-time record; Eurostoxx 50 +1%). Metals including Gold, Silver and Copper were/are looking for a bottom.

This morning, (Asian) equity markets show an outright risk-on sentiment (Nikkei +3.92%; Kospi +6.84%, Nifty 50 + 2.97%). A positive risk sentiment and metals rebounding currently caps further USD gains (EUR/USD 1.181, USD/JPY 155.4). Risk sentiment probably will continue to set the tone for lobal trading today. The eco calendar is almost empty. The release of the US JOLTS Labour market data is delayed by the (partial) US government shutdown. We keep a close eye at the ‘balance’ between commodities/metals and the Dollar. Maybe the latter is a bit better protected against a (potential) new upleg in metals as US eco data improve further.

News and views

There it is; the first rate hike by a central bank in an advanced economy. The Reserve Bank of Australia (RBA) hiked the policy rate by 25 bps to 3.85% this morning. Motivation was straightforward: “A wide range of data over recent months have confirmed that inflationary pressures picked up materially in the second half of 2025. While part of the pick-up in inflation is assessed to reflect temporary [e.g. the expiry of state electricity rebate schemes] factors, it is evident that private demand is growing more quickly than expected, capacity pressures are greater than previously assessed and labour market conditions are a little tight.” Headline inflation increased to 3.6% y/y in 2025Q4 while underlying gauges accelerated to 3.4%. Both were (substantially) higher than the RBA expected. Strong upward revisions result in CPI not returning to the 2-3% target before mid-2027. GDP grew at around potential in 2025Q3 (2.1%) and probably quickened in the final quarter thanks to strong private demand. Consumption growth picked up by “much more” than expected in the November statement. The Aussie dollar jumped back above AUD/USD 0.70 after losing that handle in the recent US dollar recovery. The combo is trading around the strongest levels since early 2023. Australian swap yields rise 2.4-7 bps in a bear flattening move though gains (at the front) had been higher earlier (>10 bps). Money markets assume another rate hike at the June meeting (90%).

The US will cut tariffs on Indian imports to 18% from 50%, President Trump announced yesterday. Indian exports suffered from the punitive rate of which 25 ppts was introduced in response to India buying Russian crude. The US president said India would no longer buy Russian oil and instead agreed to potentially buy more oil from Venezuela. PM Modi confirmed the trade deal but stayed silent on the oil topic. Trump claimed India would buy over $500bn in American goods (over 5 years). Annual amounts last year only totaled $40bn+ while total bilateral trade only amounted to $212bn in 2024. Either way, the trade détente supports the Indian rupee which had been hitting record lows the last couple of weeks. USD/INR gaps lower to 90.43 from 92 just a couple of days ago. Indian stock markets rise more than 3%.

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