Articles

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.

The US treasury will auction off $16 billion of 20-year bonds at the top of the hour. The auction results will be compared to the six-month averages to gauge the relative success or failure of the auction.

Generally speaking, the 20 year is not a favorite for buyers. As a result, its yield is higher than the longer dated 30-year bond despite the positive yield curve.

• 10 year yield 4.561%
• 20 year yield 4.838%
• 30 year yield 4.782%

The six-month averages of the major components shows:

• Tail +1.2 basis points
• Bid to cover 2.54X
• Directs (a measure of domestic demand) 16.9%
• Indirects (a measure of international demand) 67.5%
• Dealers 15.6%

As the auction approaches, the yield curve is steeper with the shorter end lower in the longer and higher.

• Two year yield 4.290, -0.6 basis points
• five year yield 4.393%, unchanged
• 10 year yield 4.561%, +1.6 basis points
• 30 year yield 4.782%, +2.0 basis points

US stocks are mixed with the Dow industrial average and the Russell 2000 lower of the S&P and the NASDAQ indices are modestly higher.

• Dow industrial average -141.18 points or -0.32% at 44414
• S&P index +3.91 points or 0.06% at 6133. Yesterday the index closed at a record level.
• NASDAQ index up 12.09 points or 0.06% at 20053.27
• Russell 2000-10.27 points or -0.45% at 2280.15

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

Shortly after the open today, the DAX hit a record high but profit taking hit hard and it finished down 1.8% in a somewhat-ugly candle that highlights an outside reversal. It closed at the lows.

Closing changes:

• Stoxx 600 -1.0%
• German DAX -1.7%
• France CAC -1.3%
• UK FTSE 100 -0.7%
• Spain IBEX -1.75%
• Italy’s FTSE MIB -0.6%

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

EUR/USD is trading at the lows of the day, down 38 pips to 1.0407 as part of a broad climb in the US dollar in the past 30 minutes.

It looks like a ‘risk off’ move in most of the FX market but it hasn’t come with rising yields or falling stocks.

Trump’s harsh attack on Zelensky could be putting Europe off-balance. The earlier NYT report that Trump is looking to make a deal with China initially boosted AUD/USD to 0.3565 but it’s since reversed to a session low of 0.6342.

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

I miss the days of true ‘reveals’ from Apple.

Instead, we got today the iPhone 16e, which is a step down from the existing iPhone 16. It includes Apple Intelligence, which has been a bust so far. We also got its first cellular modem chip.

Apple shares are down 0.2% today and not doing much on this announcement.

Meanwhile, CNBC reports that Microsoft has revealed a quantum chip called Majorana 1. Microsoft shares are flat but quantum computing meme stocks have jumped around 10%.

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

Trump is putting some major pressure on Zelensky to take the deal that’s on the table.

Here is his latest post:

Think of it, a modestly successful comedian, Volodymyr Zelenskyy, talked
the United States of America into spending $350 Billion Dollars, to go
into a War that couldn’t be won, that never had to start, but a War that
he, without the U.S. and “TRUMP,” will never be able to settle. The
United States has spent $200 Billion Dollars more than Europe, and
Europe’s money is guaranteed, while the United States will get nothing
back. Why didn’t Sleepy Joe Biden demand Equalization, in that this War
is far more important to Europe than it is to us — We have a big,
beautiful Ocean as separation. On top of this, Zelenskyy admits that
half of the money we sent him is “MISSING.” He refuses to have
Elections, is very low in Ukrainian Polls, and the only thing he was
good at was playing Biden “like a fiddle.” A Dictator without Elections,
Zelenskyy better move fast or he is not going to have a Country left.
In the meantime, we are successfully negotiating an end to the War with
Russia, something all admit only “TRUMP,” and the Trump Administration,
can do. Biden never tried, Europe has failed to bring Peace, and
Zelenskyy probably wants to keep the “gravy train” going. I love
Ukraine, but Zelenskyy has done a terrible job, his Country is
shattered, and MILLIONS have unnecessarily died – And so it continues…

This all looks like it’s going to come to a head very quickly.

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

NYT report citing ‘more than half a dozen current and former advisers and others familiar with Mr. Trump’s thinking’:

• the president would like to strike a wide-ranging deal with Xi, beyond just trade
• Would go beyond commitment to buy US goods
• Would also include nuclear weapons security

The Australian dollar has rose on this but it’s a good sign for risk assets in general and underscores the idea that Trump doesn’t really want to use tariffs.

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

• If ever there are tariffs brought in Canada, our response will be immediate and strong but we don’t want that

CAD is virtually unchanged today but there was some slight selling on this, though I’m not sure why. Last at 1.4210.

See: Canadian election polls take a big turn as Mark Carney surges

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