πŸ“ˆ Market Report.

πŸ“Š The Institute for Supply Management’s manufacturing PMI increased to 50.9 in January, the highest since September 2022, indicating growth in the manufacturing sector. However, the tariffs represent a negative supply shock that may hurt production, raise prices, and negatively impact inflation and GDP growth.

πŸ‡ΊπŸ‡Έ President Trump has suspended his threat of steep tariffs on Mexico and Canada for 30 days, in exchange for concessions on border and crime enforcement. Canada agreed to deploy new technology and personnel along its border with the U.S. and launch efforts to fight organized crime, fentanyl smuggling, and money laundering. Mexico agreed to reinforce its northern border with 10,000 National Guard members to stem the flow of illegal migration and drugs. The U.S. also committed to preventing the trafficking of high-powered weapons to Mexico. Trump’s tariff threats are aimed at curbing immigration, narcotics trafficking, and boosting domestic industries, even at the cost of short-term pain for U.S. consumers.

🏦 President Trump said he is not surprised the Federal Reserve kept interest rates unchanged at its recent policy meeting, and he believes it was the right decision. Trump’s comments come after he had previously said he would “demand” lower interest rates from the Fed.

πŸ’Ή According to some estimates, the US could suffer from a stagflation scenario. Trump’s tariffs could result in a contraction in U.S. GDP by 1.5% this year and 2.1% in 2026, as higher import costs dampen consumer spending and business investment. The impact on inflation is expected to be an increase of 0.7% in the first quarter and 0.4% for the full year, before gradually easing as demand comes down and the dollar strengthens.

🌐 President Trump has signed an executive order outlining plans for a government-run sovereign wealth fund to serve as an economic development tool and potentially be used to buy TikTok. The fund aims to develop infrastructure like airports and highways, and could help the U.S. extend its influence in areas like Panama and Greenland. Potential funding mechanisms include tariffs, taxes on natural resources, financial transactions, and carbon use, though the U.S. running large budget deficits is unlike most nations with sovereign wealth funds.

πŸ“ The executive order states the fund’s purpose is to promote fiscal sustainability, lessen tax burdens, establish economic security for future generations, and bolster U.S. economic and strategic leadership. Bessent and Commerce Secretary nominee Howard Lutnick are tasked with developing a strategy for how the fund will operate within 90 days.

πŸ‡¨πŸ‡³ China has swiftly retaliated against new U.S. tariffs on Chinese goods, imposing levies of 15% on U.S. coal and LNG and 10% on crude oil, farm equipment, and some autos. The new Chinese tariffs are a response to President Trump’s additional 10% tariff across all Chinese imports into the U.S., which went into effect on Tuesday. China is also starting an anti-monopoly investigation into Alphabet’s Google and adding PVH Corp and Illumina to its “unreliable entities list.” China has called fentanyl America’s problem and said it will challenge the U.S. tariffs at the WTO, but also left the door open for talks.

πŸ‡ͺπŸ‡Ί The 27-member EU should “do everything to avoid” what Polish Prime Minister Donald Tusk described yesterday as a “totally unnecessary and stupid” trade battle. If Trump follows through, Europe can respond, said German Chancellor Olaf Scholz. The remarks are made in advance of today’s EU trade ministers’ meeting in Warsaw, where they will try to reach a consensus on the bloc’s approach to the threats posed by the new Washington administration.

πŸ‡¬πŸ‡§ Trump approved and then suspended tariffs on goods from Canada and Mexico, and vowed to subject Europe to similar treatment soon, though he said the UK could be spared for now. This highlights how the UK’s divorce from Europe could bring some benefits, but also undercuts Starmer’s campaign promise to rebuild relations with Brussels, given his past opposition to Brexit. The UK government now faces a difficult choice between aligning more closely with the US or the EU. If Trump tries to pressure the UK into complying with US demands, such as stopping imports of Chinese electric vehicles, Starmer may have little choice but to submit to avoid facing US tariffs.

πŸ–₯️ Amazon is developing its own processors to reduce reliance on costly Nvidia chips that power its Amazon Web Services (AWS) cloud business, the main growth driver for the company. Amazon’s workhorse chip Graviton, which performs non-AI computing, has been under development for nearly a decade and is on its fourth generation. The company’s newer AI chips are called Trainium and Inferentia. Amazon claims its custom chips can offer up to 40-50% improved price and performance compared to running the same workloads on Nvidia chips. During Amazon’s recent Prime Day event, the company deployed a quarter million Graviton chips and 80,000 of its custom AI chips to handle the surge in activity across its platforms.

πŸ“‰ Market View:

πŸ“‰ Yesterday turned out to be another negative day for markets. US futures failed to recover. Mini S&P 500 futures seem to be losing momentum over the past few hours, falling below 6,000 points, although they are currently trying to consolidate above that level at 6,012 points. Nasdaq futures are currently trading at 21,375 points, but are not facing an easy outlook either.

πŸ’Έ The dollar fell during yesterday’s session, with the dollar index (DXY) losing about 1.4%. However, it has rallied again in the last few hours, again approaching 109 points. This move has generated a rise in the EUR/USD towards 1.0350, although it has subsequently lost strength, showing that this rally was more of a pullback effect after the shoulder-head-shoulder (SHS) figure detected last week, which, by the way, has been precisely fulfilled.

πŸ“‰ In Europe, the markets paint a similar picture. The recovery they were experiencing has run out of steam. DAX 40 futures failed to break above 21,600 points and have turned slightly lower.

⬇️ Crude oil is falling again. Brent crude has fallen again to 75.30 dollars a barrel, returning to last Thursday’s levels.

πŸ₯‡ Gold has moved spectacularly. Gold futures touched $2,870 yesterday, but have since fallen back to $2,845.

πŸ’° Finally, Bitcoin staged a strong recovery yesterday, breaking above $102,000 from $92,000, a level we have repeatedly reported as key support. If this level is lost, it could trigger a $20,000 bearish move, taking it down to $72,000.

🌍 Geopolitics:

πŸ‡·πŸ‡Ί Putin believes that Trump’s “character and persistence” will allow him to “restore order” in Europe and force European leaders to “wag their tails” at the “master’s feet” in a short period of time. The Kremlin is watching the growing tensions between the U.S. and its allies, but says Russia has “no desire” to get involved or evaluate the situation. Putin criticized current European leaders for lacking the conviction and courage of past leaders like de Gaulle, Chirac, and Schroeder, who were willing to express and fight for their own opinions.

πŸ•ŠοΈ Russia’s Foreign Minister emphasised in an article for the journal “Russia in Global Affairs” that the emphasis on “establishing peace through force” could ultimately bury diplomacy; such ideological constructs have no respect for Washington’s commitments under the UN Charter. The US transition to the “America First” concept has an alarming resonance with the old german slogan, “Germany Above All,” – Lavrov.