Futures, Treasuries And Dollar All Lower Ahead Of Powell Senate Testimony

US equity futures, treasuries and the dollar are all lower as the latest tariff news sparked a risk-off move, with traders also looking ahead to testimony from Jerome Powell at 10am ET today. As of 8:00am, S&P futures are down 0.2% while Nasdaq futures drop 0.5%, as Mag 7 stocks all lower with NVDA (-1.2%) and TSLA (-0.6%) underperforming; Europe’s Stoxx 600 index was held back by tumbling mining and travel shares and a gauge of Asian stocks dropped. Trump signed the 25% tariffs on all steel and aluminum imports with no exceptions after market close yesterday. Moreover, the announcement of reciprocal tariffs is expected to arrive in the next few days, which adds further uncertainty on stocks. Gold touched a fresh record high rising as high as $2942 before retracing, while an index of the dollar dropped from Monday, and treasury yields rose. Commodities are mostly higher: oil and aluminum added 1.3% and 1.2%, respectively; Ags are also higher. Today, key macro focus are Powell’s testimony, KO/GILD/SPGI earnings and any updates from Washington.

In premarket trading, Phillips 66 jumped 5% as Elliott Investment Management has built a more than $2.5 billion stake in the oil refiner; the news follows reports that Elliott had also built up a sizable stake in flailing European energy giant BP. Coca-Cola rose 3% after profit beat Wall Street expectations as shoppers paid higher prices for the company’s sodas, energy drinks and juices. Meanwhile, amazon is one of the largest decliners for the Magnificent Seven group (GOOGL -0.4%, AMZN -0.7%, AAPL -0.4%, MSFT -0.2%, META -0.3%, NVDA -0.6% and TSLA -0.4%). Here are the other notable premarket movers:

• Amkor Technology (AMKR) falls 9% after the semiconductor manufacturer’s forecast for first-quarter net sales missed the average analyst estimate.
• Astera Labs (ALAB) slips 4% after the semiconductor connectivity company reported gross margins that were slightly below analyst estimates.
• DuPont de Nemours Inc.’s (DD) rises 4% as earnings jumped on growth in the electronics market, suggesting the conglomerate’s push to cut costs and break up into smaller, more focused businesses is paying off.
• Fidelity National (FIS) drops 6% after providing a forecast for 1Q profit that missed the average analyst estimate.
• Fluence Energy (FLNC) plunges 36% after the renewable-energy equipment maker cut its total revenue guidance for the full year to a level below Wall Street estimates.
• Harmonic (HLIT) sinks 26% after the communications equipment company issued weaker-than-expected forecasts for revenue and profit for the current quarter and full year.
• Incyte (INCY) falls 3% after the drugmaker’s fourth-quarter profits fell short of estimates, and analysts pointed to disappointing guidance for its Opzelura drug, despite multiple catalysts ahead.
• Inspire Medical Systems Inc. (INSP) said in a filing that the company received a request for information from the Department of Justice. The medical device falls as much as 8% postmarket
• Lattice Semi (LSCC) rises 13% after the semiconductor device company gave reassuring 1Q guidance.
• Mitek Systems Inc. (MITK), a software company focused on digital identity verification, falls 7% after posting fiscal 1Q revenue that slightly beat estimates and reiterating year revenue guidance.
• Phillips 66 (PSX) rises 5% as Elliott Investment Management has built a more than $2.5 billion stake in the oil refiner.
• Shopify (SHOP) falls 8% after reporting quarterly results.

The latest market moves underscore how investors are struggling to gauge the potential flow-on effects from Trump’s actions for global trade, corporate earnings and inflation. The European Union said Tuesday it will respond to any tariffs the US might impose on it, escalating a potential transatlantic trade dispute.

“The best approach in terms of asset allocation is to find assets that can protect you,” said Christian Mueller-Glissmann, head of asset allocation research for Goldman Sachs, on Bloomberg Television. “The big challenge is that this is going to be much more difficult from here because the tariffs are very specific.”

Trump on Monday set 25% tariffs on steel and aluminum shipments from all countries, including major suppliers Mexico and Canada, effective March 12. The president also said he would announce reciprocal levies this week on countries that tax US imports.

Aside from the global trade picture, investors will also be focused on this week’s key inflation data and Federal Reserve Chair Jerome Powell’s testimony before Congress. Expected inflation rates over the next year and three years ahead were both unchanged in January at 3%, according to results of the New York Fed’s Survey of Consumer Expectations published Monday.

“The CPI data will be the most important this week,” said Viktor Hjort, global head of credit and equity derivatives strategy at BNP Paribas. “The risks are asymmetric; if inflation were to go higher, that’s worse for credit markets than the upside if inflation were to move lower. The selloff in Treasuries today — which is a moderate one — could easily be rationalized as positions paring ahead of a pretty important data print.”

European stocks hover near a record high as investors look ahead to the latest round of corporate earnings reports and weigh the potential for a broader trade war with the US. Energy and media sectors outperformed, while miners and travel were the biggest laggards. Among single stocks, Kering rallies after earnings showed a slight improvement, while Entain shares slide after a surprise CEO departure after just five months. Here are the most notable movers:

• Kering shares rise as much as 6.7% after the Gucci owner’s earnings showed a slight improvement. Analysts had flagged weak sentiment for the luxury goods stock ahead of its release.
• DSM-Firmenich shares gain as much as 5.5% in Amsterdam after the nutrients and flavors company agreed to sell its stake in a partnership called the Feed Enzyme Alliance to Novonesis for €1.5 billion ($1.6 billion).
• Mediobanca shares gain as much as 3.2% to the highest level in almost 18 years after the Italian lender posted 2Q profit ahead of analysts’ estimates and raised 2026 guidance.
• Var Energi shares gain as much as 4.9% after the Norwegian oil company raised its dividend policy for 2025 and lifted production guidance to above 400,000 barrels of oil equivalent per day by the end of 2025.
• AMS-Osram shares rise as much as 19% after the chipmaker says it’s expecting free cash flow to exceed €100m this year, a goal that JPMorgan says is a positive for investors after its cash outflow in 2023.
• Barco shares jump as much as 17% after the visualization specialist’s strong cost control measures helped margins come in higher than expected, resulting in annual earnings beating estimates.
• Kemira shares plunge as much as 9.3% after the Finnish company reported 4Q operating Ebitda that missed average analyst estimates.
• UniCredit shares retreat from a 14-year high as a softer outlook for lending revenue offset a beat in 4Q net income and plans to distribute €9 billion to shareholders.
• Entain shares sink as much as 11% after the sports betting company announced in a statement that CEO Gavin Isaacs is stepping down with immediate effect after five months.
• TUI shares slide as much as 8% as signs of normalizing booking trends in key markets overshadowed what analysts said was a strong first-quarter reportl
• Stora Enso shares fall as much as 5% after the paper and packaging firm said it will no longer provide annual Ebit guidance.
• Bellway shares drop as much as 6.8%, most since October, after a trading update sees Citi lower its 2026-27 earnings estimates on weaker demand. Shares of some rival UK homebuilders also decline.

On the UK monetary policy front, Bank of England rate-setter Catherine Mann said she voted for a bumper half-point interest-rate reduction at last week’s BOE meeting to “cut through the noise” after seeing more evidence of a weakening economy. The pound weakened before paring the move. Before last week, Mann was seen as the BOE’s most hawkish rate-setter and was the only member of the Monetary Policy Committee not to back either of the previous two reductions of the cutting cycle.

Earlier in the session, Asian stocks headed for a second day of losses as traders digested the impact of US President Donald Trump’s decision to impose 25% tariffs on all imports of steel and aluminum. The MSCI Asia Pacific ex-Japan Index fell as much as 0.5%, with Chinese tech shares such as Tencent and Xiaomi among the biggest drags. Benchmarks in China declined, offsetting gains in South Korea and Taiwan. Japan was closed for a holiday. The risk-off mood in Asia reflects investors’ ongoing concern about a global trade war, with the potential for other nations to roll out retaliatory tariffs against the US. It could also affect corporate earnings, inflation and the Federal Reserve’s monetary policy.

In FX, the Bloomberg Dollar Spot Index is 0.1% lower. GBP/USD was little changed at 1.2369; Bank of England voting member Catherine Mann said she voted for a bumper half-point interest-rate reduction to “cut through the noise” after seeing more evidence of a weakening economy. The euro added 0.2% and is the strongest of the G-10 currencies.

In rates, treasuries dip before Fed Chair Jerome Powell delivers his semi-annual Humphrey-Hawkins testimony on Capitol Hill at 10am ET, while US inflation data due Wednesday also coming into view. US 10-year yields rise 4 bps to 4.54%, with the yield curve steeper as US trading gets under way, extending Monday’s widening of 2s10s and 5s30s spreads. US long-end yields are 3bp-4bp higher on the day, widening 2s10s spread by nearly 3bp, 5s30s by ~1bp.  Wider losses across core European rates support higher Treasury yields ahead of Powell’s testimony. In Europe, France mandates banks for a new 30-year bond offering, adding to supply pressure. Gains in oil add to upside pressure on Treasury yields with WTI futures advancing 1.1% after rising nearly 2% Monday; commodities broadly are in focus after US President Trump set 25% tariff on steel and aluminum imports to take effect March 12. US Treasury coupon auctions resume with $58b 3-year note sale at 1pm, to be followed by $42b 10-year and $25b 30-year Wednesday and Thursday. WI 3-year yield near 4.31% is ~2bp richer than last month’s auction, which tailed by 1.2bp. 

In commodities, oil advanced from near its lowest levels this year as shrinking Russian production eased concerns over a glut; Brent crude futures rose 1.3% toward $77 a barrel, after rising 2% on Monday. Gold set a fresh peak above $2,940 an ounce, before retracing some of that advance. Bullion has surged about 11% this year, setting successive records, as Trump’s disruptive moves on trade and geopolitics reinforce its role as a store of value in uncertain times. Bitcoin rises 0.8% above $98,000.

Looking at the day ahead, US economic data calendar is blank with January CPI ahead Wednesday. Fed speaker slate includes Hammack (8:50am), Powell (10am), Williams and Bowman (3:30pm).

Market Snapshot

• S&P 500 futures down 0.3% to 6,068.25
• STOXX Europe 600 down 0.1% to 545.37
• MXAP down 0.4% to 184.65
• MXAPJ down 0.5% to 580.04
• Nikkei little changed at 38,801.17
• Topix down 0.2% to 2,733.01
• Hang Seng Index down 1.1% to 21,294.86
• Shanghai Composite down 0.1% to 3,318.06
• Sensex down 1.3% to 76,325.96
• Australia S&P/ASX 200 little changed at 8,484.00
• Kospi up 0.7% to 2,539.05
• German 10Y yield up 4 bps at 2.40%
• Euro little changed at $1.0316
• Brent Futures up 1.1% to $76.73/bbl
• Gold spot up 0.0% to $2,908.99
• US Dollar Index little changed at 108.29

Top Overnight News

• US judge temporarily blocked the Trump administration’s cuts to universities and medical centres’ research funding.
• US Speaker Johnson intends to begin presenting outlines of his budget reconciliation package today, he believes he’s “very close” to a final budget resolution: Punchbowl.
• Sam Altman said OpenAI is not for sale, rebuffing a $97.4 billion bid by an Elon Musk-led group. BBG
• South Korea’s state-run think tank cuts its growth forecast for the country and warned that Trump trade uncertainty is a downside risk. WSJ
• China’s vehicle sales fell in January, pressured by subdued demand and a front-loading effect from the previous month. Retail sales of passenger cars fell 12.1% to 1.79 million vehicles in January from a year earlier. Sales declined 32% from December, remaining at historically low levels. WSJ
• The EU vowed “firm” countermeasures to any tariffs imposed by the US. Donald Trump warned metals levies “may go higher” than his 25% charge on all US imports of steel and aluminum from March 12. The president also said he’ll be looking at tariffs on cars and chips. BBG
• The UK is set to sell a record £13 billion of 10-year bonds after attracting more than £140 billion of orders — the highest-ever demand for such securities — from investors keen to lock-in yields near multi-decade highs. BBG
• Trump and the US will consider an exemption for Australia from the 25% tariff it imposed on steel and aluminum imports this week, leaders from both countries said after a phone call. Nikkei
• Israel should call off its ceasefire deal with Hamas if hostages aren’t returned this weekend, Trump said. He threatened to cut off aid to Jordan and Egypt if they don’t take Palestinian refugees from Gaza. BBG
• Jordan’s King Abdullah II will deliver a concerted message from the Arab world that Trump needs to think again on his plans for Gaza. He’s set to meet with the president in Washington today. BBG
• JD Vance said that the Trump administration will work to make the US the “gold standard worldwide” for AI as he issued strong warnings against regulating political speech and took aim at the EU’s tough regulatory approach. BBG

Tariffs

• US President Trump signed proclamations to reimpose a 25% tariff on steel and aluminium imports and declared there are no exceptions or exemptions, effective March 12th. Trump said they are looking at tariffs on cars, pharmaceuticals and chips and will hold meetings over the next four weeks, while they will do reciprocal tariffs over the next two days. Trump also commented that tariffs on metals could go higher and he does not mind if other countries retaliate. Furthermore, it was also reported that President Trump is expected to sign executive orders on Tuesday at 15:00EST/20:00GMT.
• Canada’s Industry Minister said US tariffs on steel and aluminium are “totally unjustified”, while he is consulting with international partners on US steel and aluminium tariffs, as well as noted that the response will be “clear and calibrated”.
• Australian PM Albanese said he had a great conversation with US President Trump and they committed to working constructively to advance Australian and American interests, while he noted that President Trump agreed to consider an exemption for Australia on steel tariffs.
• Hong Kong said US tariffs are inconsistent with WTO rules and it will file a complaint on US tariffs to the WTO, while it noted the US has completely ignored the city’s status as a separate customs territory from China.
• EU Trade Ministers set to hold video conference on Wednesday after Trump confirms steel and aluminium tariffs. EU Commission President von der Leyen says unjustified tariffs on the EU will not go unanswered; they will trigger firm and proportionate countermeasures.
• EU Trade Commissioner Sefcovic says they are looking into the possibility of stronger trade ties with Gulf-nations.
• South Korean acting President says they are to prepare support for firms hit by US tariffs; to discuss response measures with Japan and the EU.
• Canadian PM Trudeau says “our response will be firm and clear and we will stand up for Canadian workers”, in relation to the new Trump tariffs.
• “Britain is not expected to join the EU in retaliating against the US after Donald Trump announced plans to hit steel imports with 25% tariffs”, according to Times’ Swinford. “The EU said it will ‘react to protect the interests’ of businesses, workers and consumers”. “But senior govt sources said that retaliatory tariffs would have little impact and would ultimately serve to provoke Trump further”. “Starmer, Reynolds and Lammy have all been very clear that Britain is philosophically opposed to tariffs of any kind”.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were ultimately mixed after the tech-led gains on Wall St and as participants digested US President Trump’s 25% tariffs on steel and aluminium which take effect from March 12th, while Japanese markets were closed for a holiday. ASX 200 closed flat with gold stocks underpinned after the precious metal extended on its record highs, while the tech sector took impetus from the strength seen in its US counterpart. Hang Seng and Shanghai Comp were subdued following US President Trump’s latest tariff actions, while he reiterated they will do reciprocal tariffs in the next two days and is also looking at tariffs on cars, pharmaceuticals and chips with meetings to take place over the next four weeks. Furthermore, Hong Kong criticised the US tariffs and will file a complaint on US tariffs to the WTO, as well as claimed that the US has completely ignored the city’s status as a separate customs territory from China.

Top Asian News

• US President Trump said he had spoken to Chinese President Xi since his inauguration but didn’t provide further details.

European bourses (Stoxx 600 U/C) are mixed and trading on either side of the unchanged mark, continuing the indecisive mood in APAC trade overnight, as markets digest Trump signing a reimposition of 25% tariffs on steel and aluminium. Markets are also awaiting updates over the next few days re. tariffs on cars/pharmaceuticals/chips. In recent trade, some downside has picked up a touch. European sectors are mixed and with the breadth of the market very narrow. Media takes the top spot, joined closely by Energy; the latter is buoyed by strength in underlying oil prices. Consumer Products was initially the outperformer, lifted by post-earning strength in Kering (+2.2%) – but the upside has since mostly pared.

Top European News

• BoE’s Mann said UK inflation is less of a threat as corporate pricing power weakens and pricing is coming very close to 2% target-consistent levels in the year ahead, while she added that demand conditions are weaker than before and that she had changed my mind on that, according to FT.
• BoE’s Mann says as an activist policy maker, she opted for 50bps cut in February to 1) ‘cut through the noise’, 2) anchor expectations through the inflation hump, and 3) acknowledge structural impediments and macroeconomic volatility in longer term. On the Bank Rate: “I note that respondents in our Market Participants’ Survey have been consistent in putting this longer-run average at about 3-3½ percent. I’m more likely at the higher end of that range.” “I expect that Bank Rate will average well above the nominal equilibrium rate implied by the estimates set out in the August 2018 Inflation Report”. “it seemed to me that the two quarter-point cuts last year had not appreciably loosened financial conditions.”. “Indeed, the projections in the February Monetary Policy Report were conditioned on a path for Bank Rate that is above four percent for the entirety of the forecast horizon which, given my assessment of the UK outlook, was not consistent with achieving the 2% target sustainably.”. On being the activist policymaker, “The activist policymaker needs to maintain policy rate discipline and restrictiveness even after this immediate decision. This ensures that, as we move through the inflation hump, expectations remain anchored both in the near and longer term.”.
• BoE’s Mann says “my active rate policy does not mean cut, cut, cut”. “A 50bps cut now, 50 next time would not be a full reading of what I have said”. Looking to see that wage settlements will be moderate and that firms pricing power is moderate. Not expecting additional second-round effects.
• Barclays said UK January consumer spending rose 1.9% Y/Y which is the largest rise since March 2024 and Consumer Sentiment was at +21% which is the lowest since the series began in April 2024.
• European Commission President von der Leyen says the EU aim to mobilise EUR 200bln in AI investments in Europe

FX

• DXY is a little lower as markets digest the latest bout of tariff updates. Trump’s tariff regime remains the main focus throughout trade thus far after the President signed proclamations to reimpose a 25% tariff on steel and aluminium imports and declared there are no exceptions or exemptions, effective March 12th. Furthermore, Trump said they are looking at tariffs on cars, pharmaceuticals and chips and will hold meetings over the next four weeks, while they will do reciprocal tariffs over the next two days. US President Trump is expected to sign executive orders on Tuesday at 15:00EST/20:00GMT. A slew of Fed speakers are due to today, with Chair Powell also scheduled for 10:00EST/15:00GMT.
• EUR is trivially firmer vs. the USD after a session of shallow losses yesterday. In the early stages of the Trump Presidency, markets were relieved that no immediate action was taken against the US. However, the recent imposition of steel tariffs by the US has brought this to an end. Actions have subsequently triggered a response from the bloc with European Commission President von der Leyen stating that unjustified tariffs on the EU will not go unanswered. ECB thought-leader Schnabel due to speak at 17:00GMT. EUR/USD is holding above the 1.03 mark and within Monday’s 1.0282-1.0336 range.
• JPY saw some fleeting support vs. the USD in early European trade following as markets digested the latest ramp-up in global trade tensions. Fresh macro drivers for Japan were lacking overnight with the nation away for holiday. USD/JPY is currently tucked within Monday’s 151.17-15253.
• GBP is trivially higher vs. the USD after three sessions of losses in the wake of last week’s “dovish” cut from the BoE. 50bps dissenter Mann has been on the wires overnight and throughout the morning justifying her decision to go back a larger rate reduction. Mann noted that her decision was made on the basis that she is an activist policy maker and wished to “cut through the noise” by taking bold action. Governor Bailey is due to speak at 12:15GMT. Cable has been as high as 1.2377 but is yet to threaten the 1.24 mark.
• Antipodeans are both a touch higher vs. the USD. Focus for AUD has been on the recent imposition of steel tariffs by the US. Australian PM Albanese said President Trump agreed to consider an exemption for Australia on steel tariffs. Trump later declared no exceptions or exemptions.
• PBoC set USD/CNY mid-point at 7.1716 vs exp. 7.3067 (prev. 7.1707).

Fixed Income

• A slightly constrained start to the session on account of a Japanese holiday and as such there was no overnight cash UST trade. Nonetheless, the bias is bearish as participants digest and assess the inflation implications of Trump’s latest measures and commitments to respond from Canada and the EU. Action which has weighed on USTs to a 109-01+ trough, a tick below Monday’s base but just above the 109-01 low from Friday. Trump is set to sign an executive order at 15:00 EST, with commentary via Fed Chair Powell also due at that time.
• Bunds have moved in tandem with peers. EU Commission President von der Leyen said they will trigger firm and proportionate countermeasures while Trade Commissioner Sefcovic remarked that closer ties with Gulf nations are being looked at; remarks which have had little impact on the complex. Bunds down to a 133.04 base, have seemingly found a slight floor just above the 133.00 mark. ECB Schnabel is due later.
• Gilts are in-fitting with the above. Not quite as pressured as Bunds but not far behind, some modest recent respite has come from reporting around the 2035 Gilt syndication which just before books closed had reportedly attracted orders in excess of GBP 130bln. Prior to these reports, a length text release dropped from BoE dissenter Mann (voted for 50bps cut, decision was 25bps). A speech which sparked a modest hawkish move as the release made clear that Mann continues to favour and wants to maintain “policy rate discipline and restrictiveness”.
• Netherlands sells EUR 2bln vs exp. EUR 1.5-2.0bln 2.75% 2047 DSL: average yield 2.773% (prev. 0.403%)
• Orders for Italy’s new 15yr BTP bond exceeds EUR 83bln, spread set at +7bps over BTP maturing in 2039, via Reuters citing leads.
• UK to sell GBP 13bln of 4.5% 2035 Gilt via syndication (a record), according to a bookrunner; orders in excess of GBP 140bln.
• Germany sells EUR 3.777bln vs exp. EUR 5bln 2.40% 2030 Bobl: b/c 2.0x (prev. 2.52x), avg. yield 2.17% (prev. 2.42%) & retention 24.60% (prev. 24.14%).

Commodities

• Firmer trade across the crude complex this morning amid Middle Eastern geopolitical updates and in the aftermath of tariff escalations after US President Trump signed proclamations to reimpose a 25% tariff on steel and aluminium imports and declared there are no exceptions or exemptions, effective March 12th. Brent sits in a USD 75.90-76.74/bbl parameter at the time of writing.
• Mixed/mostly lower trade across precious metals with silver and palladium hampered by the implications of US levies, but spot gold trading flat. Silver has both monetary and industrial uses, with around half of its demand coming from industrial applications (electronics, solar panels, etc.). Gold is cushioned by haven properties, with the yellow metal pulling back after printing a fresh high overnight at USD 2,942.78/oz.
• Base metals are lower across the board amid the implication on demand from the aforementioned tariffs. 3M LME copper sits towards the bottom end of a USD 9,364.00-9,452.55/t range at the time of writing.
• Russia’s First Deputy Energy Minister believes sanctions won’t hinder oil trade with India and said more time is needed to assess the impact of the latest sanctions, while the official added that Russia has the technology to develop energy resources and will continue to meet market demand for energy.
• Russian Deputy PM Novak says will looking to proposals regarding possibility of gasoline export ban.

Geopolitics: Middle East

• US President Trump said if all Gaza hostages aren’t returned by noon on Saturday, he would say cancel the ceasefire and let all hell break out, while he added that Israel can override it and thinks Jordan will take refugees. Trump also said the US could withhold aid to Jordan and Egypt if they don’t take refugees, while he might talk to Israeli PM Netanyahu about the Saturday deadline.
• Al-Qassam Brigades Tulkarm said their fighters, accompanied by the Al-Quds Brigades and the Al-Aqsa Martyrs Brigades, targeted an Israeli force in the vicinity of Tulkarm camp, according to Al Jazeera.
• US President Trump said Iran is very concerned and very frightened because their defence is pretty much gone and now would love to make a deal with the US, according to an interview with Fox News cited by Iran International.
• Egyptian sources say that “Trump’s threat to cut off aid to Egypt would mean that the peace treaty between Israel and Egypt “would have no meaning,” and that the tension in relations between the United States and Egypt was the greatest in three decade”.
• Israeli “security cabinet is now convening at the Prime Minister’s Office in Jerusalem to discuss Israel’s response to Hamas’s postponement of the release of hostages”, via Times of Israel.

Geopolitics: Ukraine

• Russian Deputy Foreign Minister meets the US envoy, according to RIA.
• “A Gulfstream jet registered to a company controlled by Steve Witkoff, United States Special Envoy to the Middle East, is moments away from landing in Moscow…It is unclear if Witkoff himself is on board”, according to HuffPost’s Ali.
• Ukraine’s Energy Minister said Russia launched an air attack on Ukraine’s gas infrastructure overnight and in the morning, while emergency power restrictions were imposed to minimise possible consequences.
• Russia’s aviation watchdog suspended flights at four airports to ensure safety after officials reported drone attacks.
• Industrial facility in Russia’s Saratov region was on fire after a Ukrainian drone attack, according to the regional governor, while Russia’s Shot Telegram news channel reported explosions were heard in the area of the oil refinery in Saratov.
• US President Trump said he will speak with Ukrainian President Zelensky this week and special envoy Kellogg is going to Ukraine soon. It was also reported that the Trump administration will push European allies to purchase more US weapons for Ukraine, while weapons approved by the Biden administration are still flowing to Ukraine, according to Reuters citing sources and the US Special Ukraine Envoy.

Geopolitics: Other

• North Korea said a US nuclear submarine has arrived at a South Korean port, escalating security tensions, according to KCNA. Furthermore, North Korea said Washington’s sending of a nuclear submarine to Seoul is a serious threat.

US Event Calendar

• 06:00: Jan. SMALL BUSINESS OPTIMISM 102.8, est. 104.7, prior 105.1

Central Bank Speakers

• 08:50: Fed’s Hammack Speaks on Economic Outlook
• 10:00: Fed’s Powell Testifies to Senate Banking
• 15:30: Fed’s Bowman Speaks on Bank Regulation
• 15:30: Fed’s Williams Gives Keynote Remarks

DB’s Jim Reid concludes the overnight wrap

Morning from Heathrow as the DB outlook tour hits Brussels today before I have a dinner in Paris tonight. Thankfully the Trump 2.025 outlook we published in November is still live in terms of views. On balance the risks are perhaps skewed towards a more aggressive tariff view than we had penciled in but the reality is that we’d priced in enough to suggest that the Fed wouldn’t be able to cut rates this year due to elevated inflation and a combination of this and the data means we still believe this.

The tariff news has continued to build over the last 24 hours but risk assets got the week off to a solid start yesterday, with the S&P 500 (+0.67%) moving back to within 1% of its all-time high, while global bond markets saw muted moves. Yet despite the mostly positive headline moves, there were several mounting risks looming on the horizon, including the threat of reciprocal tariffs from the US, along with European natural gas prices at a two-year high. In both cases, the problem is that it’s reviving investors’ fears about inflation, which in turn is raising questions about whether we’re going to get the rate cuts that are currently priced in. So it meant the US 2yr inflation swap (+2.7bps) hit its highest level in nearly two years, at 2.75%, whilst gold prices (a classic inflation hedge) moved above $2,900 for the first time as well.

In terms of the latest on tariffs, shortly after the US market close yesterday Trump signed the executive order imposing 25% tariffs on US steel and aluminum imports, which will be effective from March 12. The tariffs will affect all countries, though Trump confirmed he was considering an exemption for Australia. Procedurally, the move revives and expands tariffs introduced back in 2018. Meanwhile, Trump commented that details on reciprocal tariffs would come over the next two days, while also saying that tariffs on metals “may go higher” and that his administration would be looking at chips and cars, two product groups he’s previously floated as potential tariff targets.

Our US economists published a piece suggesting that if sustained, steel and aluminium tariffs combined with reciprocal tariffs could increase core PCE in 2025 by an additional 30-40bps, depending on the ultimate passthrough to consumer prices. If the delayed Canada and Mexico tariffs were to ultimately go into effect as well, inflation in 2025 could be above 3.5%, though the assumption is that tariffs would have limited impact beyond this year. While our economists’ baseline is that the Fed would prefer to “look through” the price level impact by keeping rates steady, their ability to do so could be constrained if inflation expectations begin to rise and / or the labour market reemerges as an additional source of inflationary pressure. Recent data suggest both these outcomes cannot be fully discounted. See their piece here.

Staying on the theme, in a piece yesterday, the FX team looked at which countries would be hit most by reciprocal tariffs, but the key point is that the impact varies widely depending on how reciprocity is defined.

Meanwhile in Europe, the main story was the mounting price of natural gas, which brought back unhappy echos of the energy crisis back in 2022. In terms of the latest, natural gas futures moved up another +4.16% to €58.04/MWh, which is their highest closing level in over two years, and more than double their levels a year ago. Now admittedly, we’re still a long way from the situation in late-2022, when prices averaged above €100/MWh, but gas storage is falling right now, and is currently at its lowest level at this point in the year since 2022. And more broadly, this is adding to the risk that inflation remains sticky above target, making it more difficult for the ECB to cut rates over the rest of the year.

Yet despite the bad news on inflation from tariffs and higher gas prices, there was some better news from the New York Fed’s Survey of Consumer Expectations. That showed inflation expectations were broadly stable in January, with 1yr and 3yr expectations unchanged at 3.0% even if the 5 year expectation edged up three tenths to 3.0%. Importantly for markets, the overall release was a contrast to the University of Michigan’s preliminary survey for February, which showed 1yr expectations surging up to 4.3%, so it helped to reassure investors that the UMich number wasn’t being replicated more broadly. After all, if inflation expectations become unanchored, that’s a huge problem for central banks as it raises the risk of a self-fulfilling prophecy where firms set prices and workers bargain for wages according to those higher expectations. And it was a big success during the recent inflationary wave that long-term US inflation expectations remained in check, helping to prevent a repeat of the 1970s. Looking forward, the focus today will turn back to the Fed, as Fed Chair Powell is delivering his semiannual testimony before the Senate Banking Committee, ahead of the CPI release for January, which is out tomorrow, before Powell’s second congressional testimony of the week.

Even with the uncertain backdrop yesterday, the absence of definitive negative newsflow was sufficient for equities to put in a strong performance, with the major indices on both sides of the Atlantic moving higher on the day. Tech stocks outperformed, with the NASDAQ up +0.98%, though the Magnificent 7 (+0.42%) saw a more modest gain, weighed upon by a -3.01% decline for Tesla. The S&P 500 rose +0.67%, with the energy sector (+2.15%) the strongest performer as Brent crude oil rose +1.96% to $76.12/bbl amid a tighter supply outlook, including a Bloomberg report that Russia’s oil production fell below its OPEC+ quota in January. In Europe, the STOXX 600 (+0.58%), the FTSE 100 (+0.77%) and the DAX (+0.57%) all closed at record highs.

For bonds it was also a decent picture, despite the lingering concern about inflation. For Treasuries, the 2yr yield fell -1.3bps on the day to 4.28%, with a 2.6bps decline in the real yield more than offsetting higher breakevens, whilst the 10yr yield was little changed (+0.2bps to 4.50%). Meanwhile in Europe, 10yr yields also fell across the continent, with those on bunds (-1.0bps), OATs (-0.9bps) and BTPs (-1.7bps) all moving lower.

In Asia markets are quiet with Japan on holiday. Chinese stocks are slightly underperforming after climbing for several consecutive sessions with the Hang Seng (-0.33%) leading losses with the Shanghai Composite (-0.12%) trying to get back to flat. Elsewhere, the KOSPI (+0.73%) is bucking the negative trend while the S&P/ASX 200 (+0.06%) is flat. S&P 500 (-0.22%) and NASDAQ 100 (-0.28%) futures are lower with Treasuries not yet trading due to the Japanese holiday.

To the day ahead now, and there are lots of central bank speakers, including Fed Chair Powell’s testimony to the Senate Banking Committee. Otherwise, we’ll hear from the Fed’s Hammack, Williams and Bowman, the ECB’s Schnabel, BoE Governor Bailey, and the BoE’s Mann. Otherwise, data releases from the US include the NFIB’s small business optimism index. And today’s earnings releases include Coca-Cola.