Articles

Trump says he is considering

• giving 20% of savings from DOGE cuts as payouts to Americans
• another 20% of savings could go toward paying down the federal debt

Trump speaking at the FII Priority Summit in Miami

This article was written by Eamonn Sheridan at www.forexlive.com.

POLITICO has the report, here.

In summary:

• The EU is open to reducing its 10% tariff on cars as part of broader negotiations with the U.S.
• EU Trade Commissioner Maroš Šefčovič signaled willingness to discuss a larger trade deal, including tech regulations and defense spending.
• President Trump has criticized the EU’s car tariffs and threatened “reciprocal tariffs” on various sectors, including autos, semiconductors, and pharmaceuticals.
• Šefčovič countered Trump’s complaints, arguing that the EU’s average industrial tariffs are comparable to the U.S. and highlighting the U.S. 25% tariff on pickup trucks.
• The U.S. trade deficit with the EU in goods was $235.6 billion in 2024, but including services, the deficit drops to around $50 billion.
• Šefčovič warned of retaliation if Trump imposes sweeping tariffs but emphasized hopes for a diplomatic resolution.
• Meetings planned with senior U.S. officials, including Commerce Secretary Howard Lutnick, Trade Representative-nominee Jamieson Greer, and senators from both parties.

This article was written by Eamonn Sheridan at www.forexlive.com.

more to come

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Expectations I had seen centred on:

• Headline crude +2.2 mn barrels
• Distillates -3.5 mn bbls
• Gasoline +0.8 mn

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This data point is from a privately-conducted survey by the American Petroleum Institute (API).

• It’s a survey of oil storage facilities and companies
• The official report is due Wednesday morning US time.

The two reports are quite different.The official government data comes from the US Energy Information Administration (EIA)

• Its based on data from the Department of Energy and other government agencies
• Whereas information on total crude oil storage levels and variations from the previous week’s levels are both provided by the API report, the EIA report also provides statistics on inputs and outputs from refineries, as well as other significant indicators of the status of the oil market, and storage levels for various grades of crude oil, such as light, medium, and heavy.
• the EIA report is held to be more accurate and comprehensive than the survey from the API

This article was written by Eamonn Sheridan at www.forexlive.com.

You’ll note that the People’s Bank of China Loan Prime Rate (LPR) setting is due today. Its not as relevant as it once was.

I’ve posted on this before, but ICYMI.

ps. The TL;DR on this (below) is that in June 2024 the PBoC designated the 7-day reverse repurchase (repo) rate as the primary policy rate.

Moar? OK:

In 2024, the People’s Bank of China (PBoC) implemented significant reforms to its monetary policy framework to enhance the effectiveness of its policy transmission and better support economic growth.

Shift to the 7-Day Reverse Repo Rate as the Main Policy Rate:

Traditionally, the PBoC utilized multiple policy rates, including the Medium-term Lending Facility (MLF) and Loan Prime Rate (LPR) rates, to influence market liquidity and interest rates. In June 2024, Governor Pan Gongsheng announced a strategic shift, designating the 7-day reverse repurchase (repo) rate as the primary short-term policy rate. This move aimed to streamline the monetary policy framework and improve the transmission of policy signals to the broader economy.

The 7-day reverse repo rate is pivotal in the PBoC’s open market operations, where it provides short-term liquidity to commercial banks. By focusing on this rate, the PBoC seeks to exert more direct influence over short-term market interest rates, thereby enhancing the responsiveness of financial institutions to policy changes.

Adjustments to Policy Rates:

In line with this new framework, the PBoC made several rate adjustments:

• July 2024: The 7-day reverse repo rate was reduced by 10 basis points from 1.8% to 1.7%.

• September 2024: The rate was further lowered by 20 basis points to 1.5%, marking the lowest level on record since at least 2012.

These reductions were intended to lower borrowing costs and stimulate economic activity amid signs of economic slowdown.

Changes to the Loan Prime Rate (LPR) and MLF Setting Dates:

The PBoC also reformed the mechanisms for setting the Loan Prime Rate (LPR) and the Medium-term Lending Facility (MLF) rates to align with the new policy framework:

• Loan Prime Rate (LPR): Previously, the LPR was closely linked to the MLF rate. With the shift to the 7-day reverse repo rate as the main policy rate, the PBoC aimed to reform the LPR setting mechanism to better reflect market rates and improve the transmission of monetary policy.

• Medium-term Lending Facility (MLF): The PBoC adjusted the timing of its MLF operations, conducting them later than usual and providing liquidity through open market operations. This approach was part of the broader strategy to reduce the prominence of the MLF rate in favor of the 7-day reverse repo rate.

In October 2024 the PBOC cut the one-year LPR to 3.1% and the five-year LPR to 3.6%.

LPRs have remained unchanged since that drop in October. The 7-day reverse repo rate remains at 1.5 since its drop in September.

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You’ll note, too, on the calendar is Australia’s employment report. The jobs market here in Oz has been solid and that’s expected to have been the case in January. A small tick up in unemployment is expected. Yesterday we had official Australian Bureau of Statistics wage figures for Q4. A slight miss, but stable enough growth:

• Australian data – Wage Price Index (Q4 2024 ) +0.7% q/q (expected +0.8%)

The RBA cut its cash rate earlier this week. The Bank will be on hold now for a least a couple of meeting ahead.

• ForexLive Asia-Pacific FX news wrap: RBA cuts rates for the first time in four years

This article was written by Eamonn Sheridan at www.forexlive.com.

Good morning, afternoon and evening all. Any charts, technical analysis, trade ideas, thoughts, views, ForexLive traders would like to share and discuss with fellow ForexLive traders, please do so:

This article was written by Eamonn Sheridan at www.forexlive.com.

Major stock indices are closing higher with the S&P index closing at another record level. Shares of Palantir did not fare as well as it tumbled -10.08% after present from said that the Pentagon should look to cut spending by 8%. With the price at the highs today up nearly 100% from the January low, a corrective move of 10% is the price of the gains (and the price can still go lower).

A snapshot of the closing levels shows:

• Dow industrial average up 71.25 points or 0.16% at 44627.59.
• S&P index of 14.57 points or 0.24% at 6144.15.
• NASDAQ index up 14.99 points or 0.07% at 20056.25.
• Russell 2000 down 7.89 points or -0.34% at 2282.45.

Meta, which has also been on a run higher with a 20 day when streak is now down for the second consecutive day. Shares felt $-12.60 or -1.76% to $703.77.

The software ETF high GV also fell indicative of lower software prices (inclusive of Palantir) fell -1.75%

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

• Trump attacks Zelensky in a post, calls him a dictator
• FOMC Minutes: The vast majority of participants judged risks to mandate roughly balanced
• US January housing starts 1.366M versus 1.39M expected
• Fed’s Bostic: Did not expect inflation to go in a straight line
• Trump admin orders Pentagon to prepare for 8% budget cuts – report
• RBNZ Governor Orr: We are in an environment of low and stable inflation
• Mexico lowers its 2025 GDP forecast to 0.6% from 1.2%
• The US treasury auctions of $16 billion of 20 year bonds and a high yield of 4.830%
• Atlanta Fed GDPNow growth estimate for Q1 comes in at 2.3% unchanged
• Trump eyes a bigger deal with China that would include nuclear weapons – report
• China says willing to work with US to resolve trade concerns through dialogue
• Trudeau: We are entirely focused on making sure no tariffs ever get brought in on Canada
• Putin says Caspian pipeline “impossible to restore quickly”
• Putin sounds pleased with progress on Ukraine talks

Markets:

• Gold flat at $2934 after touching record $2946
• US 10-year yields down 1.1 bps to 4.53%
• WTI crude oil down $0.44 to $72.29′
• JPY leads, CAD lags
• S&P 500 up 0.1%

Newsflow was steady but it’s not clear what any of it means. The main development was a harsh social media posting by Trump criticizing Zelensky, calling for elections and calling him a dictator. It indicates that there are some frictions in the US approach, to say the least. Not surprisingly, Putin indicated he was pleased with what he was hearing in negotiations.

The euro didn’t appreciate the turmoil and the US dollar was broadly higher. A separate curve ball came from talk of an 8% cut to US military spending, which isn’t something you see often.

There was a risk-averse move in FX but it wasn’t really evident elsewhere. Equity markets were slightly higher despite an ugly reversal in Europe while yields were 1-3 bps lower. USD/JPY fell 60 pips on the day on broad yen bids as that pair challenges the lows of the year.

USD/CAD was a solid gainer despite minimal moves in the antipodeans. That was despite a decent day for oil on restricted output from Kazakhstan. The Australian dollar got a short-lived jolt higher on a report that Trump was perhaps looking for a broader deal with China.

Overall, the moves were limited outside of the yen and kiwi finishes the day flat despite the big rate cut.

Eyes tomorrow will be on initial jobless claims and the latest leaks/announcements from Washington.

FX news wrap

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

It’s not often that you see the United States cutting military spending. I don’t think too many people had that as a baseline scenario to pay for corporate tax cuts, but it would go a long way. Trump certainly didn’t campaign on it but he may be trying to keep the hawks happy by shifting some of those military orders to the books of allies in a push for increased NATO spending.

We will see what actually comes to pass because it’s Congress that controls the spending. The cuts would be over 5 years, according to the report.

“Defense Secretary Pete Hegseth has ordered senior leaders at the
Pentagon and throughout the US military to develop plans for cutting 8
percent from the defense budget in each of the next five years,” citing a memo.

Shares of Lockheed and RTX don’t seem to be too bothered and Palantir is still trading at 100x sales.

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

More to come

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

The Federal Reserve is in a wait-and-see mode as they watch economic data and Capitol Hill. That was the clear message from the January 29 FOMC statement, Powell’s press conference and subsequent comments from other Fed officials.

The language they’ve used is that they’re in “no hurry” to cut rates further.

In terms of the Minutes, I will be looking for commentary around tariffs, inflation, the strength of the consumer and jobs.

Here was the full text of the FOMC decision:

Recent indicators suggest that economic activity has continued to
expand at a solid pace. The unemployment rate has stabilized at a low
level in recent months, and labor market conditions remain solid.
Inflation remains somewhat elevated.

The Committee seeks to achieve maximum employment and inflation at
the rate of 2 percent over the longer run. The Committee judges that the
risks to achieving its employment and inflation goals are roughly in
balance. The economic outlook is uncertain, and the Committee is
attentive to the risks to both sides of its dual mandate.

In support of its goals, the Committee decided to maintain the target
range for the federal funds rate at 4-1/4 to 4-1/2 percent. In
considering the extent and timing of additional adjustments to the
target range for the federal funds rate, the Committee will carefully
assess incoming data, the evolving outlook, and the balance of risks.
The Committee will continue reducing its holdings of Treasury securities
and agency debt and agency mortgage‑backed securities. The Committee is
strongly committed to supporting maximum employment and returning
inflation to its 2 percent objective.

In assessing the appropriate stance of monetary policy, the Committee
will continue to monitor the implications of incoming information for
the economic outlook. The Committee would be prepared to adjust the
stance of monetary policy as appropriate if risks emerge that could
impede the attainment of the Committee’s goals. The Committee’s
assessments will take into account a wide range of information,
including readings on labor market conditions, inflation pressures and
inflation expectations, and financial and international developments.

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

The Mexican central bank cut its growth forecasts today:

• Sees +0.6% this year from +1.2%
• Sees 2026 growth of about 1.8%
• Sees core inflation this year at 3.3% compared to 3.0% previously
• Balance of risks for inflation remains to the upside
• Headline inflation seen converging to 3% target in Q3 2026, sooner than Q4 previously forecast

Sub-1% GDP growth in a developing market isn’t going to get anyone excited. If there is some certainty around trade terms with the US, there could be some upside but I don’t think that will be a 2025 story.

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

• High yield 4.830%
• WI level at the time of the auction 4.820%
• Tail 1.0bps vs six with average +1.2 basis points
• Bid to cover 2.43X vs six month average of 2.54X
• Directs (a measure of domestic demand) 19.5% vs six-month averages of 16.9%
• Indirects (a measure of international demand) 63.0% vs 6 month average of 67.5%
• Dealers 17.5% vs 6 month averagge of 15.6%

Auction Grade: C-

The tail was positive but it was less than the 6-month average. The Bid to cover was lower than average.

Domestic demand was stronger than average and international demand was weaker.

The dealers were saddles with more than average

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