New President, new tariffs
- As widely anticipated, President Trump plans to impose 25% tariffs on Mexico and Canada by February 1, citing concerns over undocumented migrants and drugs entering the US
- Trump’s tariffs would affect $1.8 trillion in goods and services trade. The tariffs would have a significant impact on the US auto industry, potentially boosting average new-car prices by $3,000, and could also affect trade with China
- Both Canada and Mexico said they’d retaliate against the U.S. if Trump slaps tariffs on them
- The dollar opened lower before surging when he threatened to impose the new tariffs, while the Canadian dollar and Mexican peso both tumbled
- Trump also indicated he was still considering a universal tariff on all foreign imports to the U.S.
US CPI – Relief at Last
US consumer prices rose less than forecast in December – restarting conversation that progress on inflation has resumed
- Core CPI increased 0.2% (vs. estimates of 0.3%) after rising 0.3% for four consecutive months – first stepdown in six months
- CPI print looks consistent with a continued, if slow, disinflation and very gradual soft landing for the US economy
- The report led economists to reconsider once again the possibility of a March rate cut – yields dropped, equities rose and dollar weakened on the news
- Next up on the macroeconomic agenda are PMI data for both Europe and the US that will be released on Friday
US Q4 Earnings Preview
- For Q4 2024, the estimated earnings growth rate for the S&P 500 is 11.5% y/y. If 11.5% is the actual growth rate for the quarter, it will mark the highest earnings growth rate reported since Q4 2021
- Early results have brought some high-profile beats and misses. Shares of big US banks all gained following better-than-expected reports, while drug maker Eli Lilly & Co. tumbled after an underwhelming revenue forecast
Source: Bloomberg
BoJ – Hike Expected Amidst Caution
Bank of Japan is expected to raise rates by 25bp on Friday bringing policy rate to 0.50% – so far there have been two hikes in the cycle with the last one in July 2024 disrupting strongly financial markets
- Strong evidence that inflation momentum has been strengthening once again since the middle of last year against a backdrop of continuing yen depreciation and rising labor costs
- 90% of analysts surveyed by Bloomberg believe that economic conditions warrant a hike
- The tone of Governor Ueda’s post-meeting conference will likely not be hawkish with the objective to signal to the market that policy rate normalization will remain gradual
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