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It’s a tough day for risk assets and it’s getting worse following a dismal consumer confidence reading and signs that Congress won’t be able to easily pass Trump’s tax cut without doing some major spending cuts.

Stocks are dropping and yields are falling.

The risk off mood has also hit crude oil, which hit stops on a break of $70. It’s now down $1.13 to $69.54, which is the lowest since December 27.

This article was written by Adam Button at www.forexlive.com.

There is a great deal of focus on economic data, geopolitics and AI in markets at the moment but I think the most-important signal is in Congress.

House Republicans can only afford to lose two votes to pass anything given the slim majority and they’re trying to move forward with a budget resolution that balloon’s the deficit to pay for Trump’s tax cut promises.

The possibility of that passing without reform is dwindling.

Laura Weiss from Punchbowl writes that Rep. Warren Davidson just said he won’t vote for it.

“I’m not voting for that,” he told reporters.

Yesterday, Rep. Thomas Massie said. “If the Republican budget passes, the deficit gets worse, not better.”

Other reports show Spartz and Burchett as ‘no’ votes.

The negotiations are always toughest at the end though. But given this, it makes sense that Treasury yields are falling and stocks are down. It means less of a chance of a corporate tax cut while a better likelihood of a lower deficit.

This article was written by Adam Button at www.forexlive.com.

• US economy brittle underneath due to excessive spending by Biden admin
• Job growth in recent years has been concentrated in gov’t and govt-adjacent sectors
• US data suggests financial health is concentrated at the top of the economic spectrum
• Must swap economic growth from gov’t to the private sector

He’s not exactly cheerleading here.

This article was written by Adam Button at www.forexlive.com.

• Prior month -4
• Richmond Fed composite index rise to 6 from -4 last month. Best level since April 2022
• Service index 11 vs 4 last mont
• Manufacturing shipments 12 vs -9 last month
• Prices paid 2.23 versus 2.37 last month
• Prices received 1.62 versus 1.21 last month
• Employment 9 versus 3 last month

Activity improved as the composite index rose to 6 (Jan: -4), driven by a rebound in shipments (12 vs. -9). New orders reached 0, and employment increased to 9 (Jan: 3). Local business conditions stayed at -5, while future expectations dropped significantly. Vendor lead times fell, and order backlogs were steady at -6. Price growth for inputs eased, while output prices edged up, with firms expecting both to rise over the next year.

Looking at the price data, the levels were mixed with prices paid lower, but prices received higher. However, looking at the chart the levels are near the lows.

For the full report CLICK here

This article was written by Greg Michalowski at www.forexlive.com.

• Prior was 104.1
• Present Situation Index 136.5 vs. 133.1 prior
• Expectations Index 72.9 vs 82.2 prior
• 12-month inflation expectations 6.0% vs 5.2% prior

This is the largest monthly decline since August 2021. It’s not clear if this is just tariff worries or something more but it’s the third month in a row of declines and is perilously close to the lowest since 2022. The inflation number is worrisome and will get the Fed’s attention.

The University of Michigan survey has also fallen recently.

Shares of Walmart are down 10% from the February high despite the company calling spending ‘resilient’.

This article was written by Adam Button at www.forexlive.com.

She doesn’t sound worried. Why are you worried?

“You have to keep a cool head and not take President Trump’s isolated statements out of context,” says Claudia Sheinbaum. “The agreement needs to be finalized this week; we continue to dialogue with them on the issues of security and trade.”

This article was written by Adam Button at www.forexlive.com.

There is some buzz following the German election about higher spending and the removal of the debt brake. CDU leader and (almost surely) incoming Chancellor Merz is now pouring some cold water on that, saying it’s ruled out in the “near future” to reform the debt brake. He called it a “complex task”.

The euro has stumbled on that. It could cool the DAX as well (which is at the highs at the moment).

This article was written by Adam Button at www.forexlive.com.

• Prior was +4.3% y/y
• Monthly +0.5% vs +0.3% expected (+0.4% prior)

House price data from the FHFA:

• Prices +4.7% vs +4.2% y/y prior (revised to +4.5%)
• Monthly +0.4% vs +0.3% prior

These are some solid numbers that are a good pushback on some of the creeping bearishness around housing. That said, pricing is a lagging indicator.

This article was written by Adam Button at www.forexlive.com.

The economic calendar gets a bit more lively today as the market remains off balance.

There is some creeping worry about the economy after a series of drops in consumer and business sentiment. Those ran head-long into early optimism following the election. It may just be a temporary blip due to all the turmoil in Washington but we’re not exactly past that theme.

So today’s top release will be the 10 am ET consumer confidence report from the Conference Board. It’s a much better survey than the UMich report but both have struggled to capture turning points since covid. The consensus is 102.5 but a fall below 100 is feared.

That report is out at 10 am but first we will get some numbers on home prices for December at 9 am ET. That sector is certainly struggling and indications are worsening.

“Through the first half of February, many homebuilders we survey haven’t seen the usual signs of a spring sales lift (particularly among entry-level buyers). If the trend continues through the second half of February we may downgrade the whole entry-buyer segment to Slow,” writes Rick Palacios Jr from John Burns Research.

Then at 10 am ET with the consumer confidence report, we will also get the Richmond Fed. I was struck by how many comments there were about tariff uncertainty in the Dallas Fed survey yesterday.

On the Fed agenda we get Barr at 11:45 am and Barkin at 1 pm ET. I was struck by the hawkish tone of the ECB’s Schnabel today.

This article was written by Adam Button at www.forexlive.com.

• Subdued growth not proof of restrictive policy.
• Can’t say with confidence policy is restrictive.
• The nature of the inflation process is likely to have changed lastingly.
• We are transitioning from a global “savings glut” towards a global “bond glut”.
• First, a higher R* calls for careful monitoring of when monetary policy ceases to be restrictive.
• There is still ample excess liquidity.
• The natural rate of interest in the Euro Area has increased appreciably over the past two years.
• If QT leads to a scarcity of reserves, it may cause the overall convenience yield to rise and hence equilibrium rates to fall.
• It is becoming increasingly unlikely that current financing conditions are materially holding back consumption and investment.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

• ECB’s Nagel: We should take one step at a time and not rush rate cuts
• Markets cautious but not fearful on Trump tariffs for now
• Bitcoin not quite down for the count amid latest crypto selloff
• European equities open mostly lower to kick start the day
• What are the main events for today?
• Germany Q4 final GDP -0.2% vs -0.2% q/q prelim
• China CPI will decline moderately in February, says PBOC advisor
• Month-end flows to favour the dollar – Deutsche
• German politics fail to inspire EUR/USD breakout for now
• USD/JPY nudges back lower with bond yields in focus
• FX option expiries for 25 February 10am New York cut

It’s been a quiet session in terms of data releases and newsflow. The mood in the markets continues to be negative following the Friday’s US PMIs and the jump in long-term inflation expectations.

The price action in the US stock markets remains cautious after the selloff triggered by Friday’s data. Treasury yields continue to fall amid the stocks selloff as the market increased the expectation for Fed’s easing to 55 bps by year-end.

The thinking here
might be that in case we get a slowdown, the Fed might not be fast
enough in cutting rates amid inflation remaining above target and uncomfortably
high long-term inflation expectations. That would exacerbate the pain and eventually lead to more aggressive cuts.

The focus now switches to the US consumer confidence report in the session ahead where a breakout of the range created since 2022 could see more risk-off flows. The inflation expectations in the report will also be eyed.

This article was written by Giuseppe Dellamotta at www.forexlive.com.

In case you missed it: Trump Confirms tariffs on Canada, Mexico ‘will go forward’

The reaction among major currencies has been relatively muted, with the dollar also not doing much today. USD/JPY was the only one that showed some response with the pair moving up to 150.30 but is now flat at 149.70 again. Besides that, there’s not much else to scrutinise on the movement in other dollar pairs.

In the equities space, US futures are slightly lower today after another day of selling yesterday. S&P 500 futures are now down 0.2% but it owes to a softer mood since Friday with eyes also on Nvidia’s earnings release tomorrow after the close. That is arguably the more anticipated event for stocks this week than Trump headlines.

As for the bond market, we’re seeing yields actually track lower on the day with 10-year yields now dipping below its 100-day moving average (red line) and below the 4.40% level:

So, what does that tell us?

The bond market move is by far the most interesting in my view. Previously, traders were fearful that tariffs might stir up inflation and lead the Fed to a pause for longer mode. But with the latest drop in yields this week, those concerns are hardly showing.

And even in equities, the bout of selling since Friday has hardly much to do with Trump’s tariffs threats. The S&P 500 itself is hinting at a double top just above 6,100 and even with the latest drop, price levels are in a comfortable position as we hold at the highs still.

Perhaps the best indication to all this also looking directly at the Canadian dollar and Mexican peso themselves. And both are trading flat on the dollar for the time being.

That pretty much shows how market players are taking to Trump’s latest threat that the tariffs “will go forward”.

I mean, he managed to delay them in just under 24 hours the last time. So, having a full week to go is ample amounts of time for something to happen before the 4 March deadline. We live, we learn.

This article was written by Justin Low at www.forexlive.com.