US: Inflationary Pressures Turn Sharply Gigher in January 

The Consumer Price Index (CPI) rose 0.5% month-on-month (m/m) in January, an acceleration from December’s 0.4% m/m gain. On a twelve-month basis, CPI was up 3.0% (from 2.9% in December).

  • Energy prices rose 1.1% m/m, led by a further gain in gasoline prices (+1.8% m/m), though energy services (+0.3%m.m) were also higher. Food prices (+0.4% m/m) also came in on the hotter side – posting its largest monthly gain since February 2023.

Excluding food and energy, core inflation rose 0.4% m/m, ahead of the consensus and the strongest monthly gain since March 2024. The twelve-month ticked up to 3.3% (from 3.2% in December), while the three-month annualized rose to a nine-month high of 3.8%.

  • The January release also included revised seasonal adjustment factors, through the impact on the monthly pattern for 2024 was relatively negligible.
  • Moreover, the outsized gain in core inflation last month suggests that residual seasonality could still be a factor biasing the early-year readings of inflation higher.

Price growth on core services was up 0.5% m/m, or double the monthly gain recorded in December. On a year-ago basis, services prices remain at an elevated 4.3%.

  • Primary shelter costs rose 0.3% m/m, slightly softer than the 0.4% m/m gain averaged over the prior twelve months. On a 12-month basis, shelter costs are up 4.5%.
  • Non-housing services inflation (aka “supercore”) accelerated sharply, rising 0.7% m/m or its strongest monthly gain since last January. Price gains were relatively broad based, with vehicle insurance (2.0% m/m), recreational services (+1.4% m/m) and travel costs (including airfares, car rentals and hotels) all recording sizeable gains last month.

Core goods prices also came in on the hotter side, rising 0.3% m/m, thanks to a further increase in used vehicle prices (+2.2% m/m), medical goods (+1.2% m/m), and recreational goods (+0.3% m/m).

Key Implications

This report is probably the last thing the Federal Reserve and new Administration wanted to see.

The first CPI reading for 2025 showed core inflation rising at its fastest pace in nearly a year, amid a further uptick in goods prices and ongoing stickiness in services inflation. In the best of case, it’s chalked up to residual seasonality (i.e., the inability of seasonal adjustment factors to capture regular calendar moves) and some reversal shows up in the coming months. This effect was apparent in the January/February readings in each of the last two-years.

Following this morning’s release, futures markets sold-off sharply while the 2-year Treasury yield was jolted higher by approximately 8 basis points to 4.37%. Fed futures have pushed out the timing of next rate cut to December (yesterday, September was fully priced).

US CPI Release Today: What to Expect and Market Reactions

  • US CPI inflation data for February 2025 is being released today, and markets are closely watching due to recent increases in inflation expectations.
  • Economists expect headline inflation to rise by 0.3% for the month, keeping the yearly rate at 2.9%.
  • The article provides a table outlining potential market impacts based on different CPI scenarios on the US Dollar.

US CPI inflation data will be released today at 13h30 GMT time. Markets are paying close attention to today’s release following a significant uptick in inflation expectations revealed in last week’s Michigan Sentiment Index.

The incoming US administration of Donald Trump and his tariff and economic policies have made stoked inflation fears. I still think this inflation print will be too early to see any effects from President Trump’s tariff policies.

Having said that, any significant uptick in inflation could definitely add to market concerns around the trajectory of inflation moving forward, especially when the impact of tariffs begin to have an effect.

What is the Expected CPI Print?

Inflation continues to be a concern, even though the U.S. economy is still strong. In December 2024, prices went up by 0.4% compared to the previous month, leading to an annual inflation rate of 2.9%. Core inflation, which leaves out food and energy prices, increased by 0.2% in December and reached 3.2% over the year.

These numbers show how difficult it is to lower inflation to the Federal Reserve’s target of 2%. Fed Chair Jerome Powell reiterated yesterday that there is no rush for further rate cuts as the Fed will wait and see the impacts of President Trump policies.

Economists predict that headline inflation for January will go up by 0.3% compared to the previous month, keeping the yearly rate at 2.9%. Core inflation, which leaves out food and energy, is also expected to rise by 0.3% for the month, with the yearly rate easing slightly to 3.1% from December’s 3.2%.

This would show a continued gradual slowdown since inflation peaked in 2022.

The January inflation increase is expected to be driven by higher auto insurance rates and consistent rises in housing-related costs, which have been big drivers of core inflation. However, slightly lower energy prices, especially gasoline, may help balance out some of the increase. While housing expenses are still rising, they might start to show slower growth, following the broader pattern of easing price pressures in the rental market.

Potential Market Impact

Looking at the potential scenarios from today’s CPI release, I have created a table that may help. Now this of course is no guarantee as to how the market may react but rather my take on the potential movements that could materialize.

Source: Table created by Zain Vawda, Data from LSEG, TradingEconomics

The above table provides an insight into what I expect will happen depending on the CPI prints released later in the day.

My personal expectations are that the data will land quite close to expectations which could lead to some short-term volatility and whipsaw price action before markets settle down.

Technical Analysis

From a technical standpoint, the dollar has enjoyed a positive start to the week but struggled to continue its bullish momentum yesterday.

The 108.49 resistance level continues to hold firm for now and CPI is unlikely to change this unless we have a significant beat or miss of the forecasts.

Immediate support rests at 107.50 and 107.00. Resistance on the other hand rests at 108.49, 109.52 before the psychological 110.00 handle comes into focus.

I do not see today’s data providing any impetus for a break of the recent trading range between the 107.00 and 108.49 handles.

US Dollar Index (DXY) Daily Chart, February 12, 2025

Source: TradingView.com (click to enlarge)

Support

Resistance

NZ Dollar Eyes US and New Zealand Inflation Data

The New Zealand dollar is in negative territory on Wednesday. NZD/USD is trading at 0.5636 in the European session, down 0.31% on the day.

US CPI expected to tick lower to 0.3%

The markets are keeping a close eye on the January inflation report, which will be released later today. Headine inflation is expected to remain unchanged at 2.9% y/y, while monthly it is expected to dip to 0.3% from 0.4%. The core rate, which excludes food and energy, is projected to dip to 3.1% y/y from 3.2%. Monthly core CPI is projected to rise to 0.3% from 0.2%.

The Federal Reserve is expected to cut rates once or twice this year, sharply lower than the Fed’s December forecast of four rate cuts. The US economy is performing well and there isn’t much pressure on the Fed to lower rates right now. The markets have priced in a rate hold at the March meeting at 95%, according to the CME’s FedWatch.

Fed Chair Powell reiterated in testimony before a Senate Banking committee on Tuesday that the Fed “does not need to be in a hurry” to adjust policy. Powell said that rate policy remains restrictive but the Fed would be careful not to lower rates too quickly or too slowly. Powell deflected a question about Trump’s tariffs and US trade policy but acknowledged that tariffs could lift inflation and complicate the Fed’s ability to lower rates.

New Zealand releases inflation expectations early Thursday. The forecast for the first quarter stands at 1.8% q/q, compared to 2.1% in Q4 2024. Inflation remained unchanged at 2.2% in the fourth quarter, close to the Reserve Bank of New Zealand’s target of 2%. The RBNZ meets next week and the money markets have fully priced in a rate cut, with about a 50/50 probability of quarter-point or half-point cut.

NZD/USD Technical

  • NZD/USD has pushed below support at 0.5648 and is testing support at 0.5636. Below, there is support at 0.5549
  • There is resistance at 0.5668 and 0.5680

 

Crypto: No Growth Without Fear

Market picture

The crypto market continues to bump along, pulling back 2.7% to $3.15 trillion after flirting with the $3.3 mark the day before. This week, the market is hovering near the lower boundary of the descending corridor.

Technically, a rebound from these levels is more likely. However, the wiser approach is to wait, as the risk of a sharper decline remains high after an extended period of weakness.

The cryptocurrency sentiment index is hovering between the fringes of fear and neutral territory, having lost 1 point to 46 by Wednesday morning. Still, the market lacks enough fear to attract buyers.

On Tuesday, Bitcoin once again rebounded from its 50-day moving average near $98,600, a strong resistance level over the past week. However, intraday buying interest on dips below $95,000 remains evident. The RSI dynamics align with sentiment index trends, suggesting that a deeper move into oversold territory may be needed to attract buyers.

News Background

Galaxy Digital CEO Mike Novogratz expects Bitcoin to be on the government’s books in six months. He also expects that following the SEC leadership change, many cryptocurrency companies, including Galaxy Digital, will go public and list their shares on the New York Stock Exchange or Nasdaq.

Strategy, which had temporarily paused its initial cryptocurrency purchases, has now resumed buying Bitcoin. Last week, the company acquired 7,633 BTC for $742.2 million at an average price of approximately $97,255.

Strategy (formerly MicroStrategy) holds 478,740 BTC, purchased for a combined $31bn at an average price of $65,033 per coin.

Santiment estimates that market participant interest has definitively shifted from meme coins to Bitcoin and leading alts. Leading Tier 1 blockchains, including Ethereum, Solana, Toncoin and Cardano, account for 44% of all cryptocurrency discussions on social media.

Bloomberg cites Litecoin (LTC), Solana (SOL), XRP, and Dogecoin (DOGE) as having high odds of ETF approval. For LTC and DOGE, the U.S. Securities and Exchange Commission (SEC) has already accepted Forms 19b-4 for review.

In the 19 days since the launch of Official Trump (TRUMP), the volume of accumulated losses from investments in the US president’s meme-coin has reached $2bn, the NYT estimates. More than 810,000 users have experienced losses.

How the European Union Could Counter US Tariffs

Retaliation

If the EU reaches the stage where it can implement retaliatory tariffs, what might be included on the list?

  • Impose tariffs on products primarily produced in US swing states, such as , bourbon, motorcycles, or . In June 2018, the EU responded to the US Section 232 tariffs on steel and aluminum with immediate retaliatory countermeasures in the range of 10-25%. Additional countermeasures were to be imposed after three years if no settlement was reached. After a deal had been struck under former President Joe Biden, those tariffs have been put on hold until 31 March 2025, meaning that the European Union could simply reinstate those retaliatory tariffs on US exports, with little delay.
  • Europe could impose export tariffs on goods that are of strategic importance to the US. In 2022, the US relied on the EU for 32 strategically important import products, mainly in the chemical and pharmaceutical sectors. The EU could use this as a form of leverage in trade negotiations but should be aware of the US doing the same, potentially curbing chemical exports to Europe.
  • The ultimate retaliation would be a digital services tax. While the EU enjoyed a substantial trade surplus in goods with the United States, amounting to €156bn in 2023, this was mostly offset by a significant trade deficit in services, which reached €104bn in the same year. Among those service exports are IT services, led by dominant American tech companies, charges for intellectual property or financial services. Notably, the United States holds the position of the world’s largest exporter of services.

The art of Making a Deal

A long-held belief in Europe is that Trump is only after a good deal. We are a bit more sceptical. The Trump administration not only needs additional revenue to support its tax cut plans, but it may also have an interest in undermining an economic competitor.

Looking at the idea of making a deal, during Trump’s first presidency, the famous promise by former European Commission President Jean-Claude Juncker to buy more LNG and soybeans from the US prevented tariffs on European automotives. In the end, however, although the EU’s import of LNG and soybeans increased substantially – in the six months after the joint statement, LNG imports from the US increased by 181%, albeit from a low base, and soybean imports by 112%, making the US the largest supplier of soybeans to the EU – it didn’t really move the needle in terms of the overall goods trade surplus with the US. Instead, the trade surplus continued to widen. It would be naive for Europe to assume that Trump could as easily be appeased with a few soybeans as he was in 2018.

So, this time around, what does the EU have to offer Trump to strike a deal and avoid a trade war?

  • The first thing that comes to mind is more LNG purchases. However, the US is already the largest LNG supplier to the EU, with 40% of the EU’s LNG imports coming from the US in the third quarter of 2024. How much more room is there to increase these imports?
  • Another option could be to not only increase the EU’s defence spending to 3% or 4% of but also commit to increased purchases of US military products. Currently, the EU imports 55% of its military products from the US already (for the period 2019-23), a substantial increase from 35% between 2014-18, according to SIPRI. The EU could also offer to reduce import tariffs on US automobiles. While tariffs on imported cars are 2.5% in the US, tariffs stand at 10% in the EU. Thus, to achieve a level playing field, the EU could offer to lower its tariffs on US cars to 2.5%. Yet, to stay compliant with the WTO’s Most Favoured Nation (MFN) concept, it would have to extend this tariff reduction to all WTO members.
  • In all of these cases, it is important to note that the European Commission holds the sole responsibility for trade policy negotiations but cannot force member states to purchase goods from specific suppliers. Yes, the EU has successfully used joint procurement for Covid-19 vaccines, gas supplies, and ammunition for Ukraine but it takes time to set up these joint procurements. Additionally, since participation is voluntary, some purchases may still fall through.

Back to Draghi

As much as Europe will try to prepare for an upcoming possible trade war with the US, let’s not forget that trade wars will not be won by the trade surplus country. It is always the surplus countries that have more to lose. Therefore, Europe might want to consider another route: the strengthening of the domestic economy. Think of reducing dependency on the US by increasing domestic military industries, including reducing too many technological standards of weapons systems and pooling of defence purchases, and deregulation of the tech sector, including significant investments. The latest AI initiative by the French government points in that direction.

Beyond these efforts to reduce US dependencies, Europe should focus on implementing as many proposals from the Draghi report as possible.

Europe is Better Prepared but Speed and Power Remain a Problem

Although the EU is better prepared to tackle Trump 2.0, it still faces a complex challenge in countering potential US tariffs. While the EU has several options at its disposal, including retaliatory tariffs on key US exports and the implementation of a digital services tax, the effectiveness of these measures will depend on the EU’s ability to act swiftly and cohesively.

The EU Anti-Coercion Instrument (ACI) offers a framework for response, but its effectiveness is hampered by procedural delays and the requirement for widespread member state support.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Not Convinced that Higher Inflation Figure Will Trigger Sustained Further USD Gains

Markets

Fed Chair Powell’s appearance before the Senate Banking Committee yesterday didn’t yield much clues on (changes in) monetary policy in the Trump 2.0 era. The Fed Chair understandably stuck to data dependency. After having reduced policy restriction in the second half of last year, a strong economy and labour market give the Fed ample room to assess the impact of upcoming developments. In this respect Powell still held the view that it was unwise to speculate on the potential impact of the new government policy/proposals. The Fed is in no rush to cut rates. The Fed Chair also advocated to keep monetary policy out of the political debate as the best way for the Fed to serve its dual mandate. Many questions were on regulation and supervision instead on monetary policy. The US yield curve yesterday bear steepened with yields rising between 0.9 bps (2-y) and 4.0 bps (30-y), but most of this move already occurred before Powell’s testimony. The $58 bln US Treasury auction met solid investor interest. Regarding the data, there was a slightly bigger than expected decline in NFIB small business confidence, admittedly from a strong level, with quite a substantial rise in the uncertainty index (100 from 86). European yields showed tentative signs of bottoming after the end-January/early February setback. German yields added between 5.8 bps (2-y) and 7.7 bps 30-y). We didn’t see any specific trigger. US equity markets showed no clear trend (S&P 500 +0.03%) as markets still try to assesses the impact/reaction to the announcement of 25% tariffs on steel and aluminum. The EuroStoxx50 (+0.61%) again outperformed the US. Oil extended its rebound (Brent $77 p/b close). The dollar lost ground throughout the session but stays rangebound (DXY close 107.96 from 108.33, EUR/USD 1.036 from 1.0307).

Asian equities this morning are mostly trading in mildly positive territory. There are few eco data except for the US January CPI data to be released this afternoon. Consensus (headline 0.3% M/M and 2.9% Y/Y, core 0.3% M/M and 3.1% Y/Y) is broadly in line with last month. The market currently already scaled back expectations on Fed easing quite substantially (first additional 25 bps rate cut only fully discounted by September and less than 50% chance on a next step by year end). Given this starting point, an upward surprise is probably needed to further price out Fed easing. Maybe, LT yields still have some additional upside in case of an in-line/higher than expected figure. Later today, the US Treasury will sell $42 bln 10-y Notes. The dollar recently held relatively strong but failed to make further headway, despite the avalanche of announcements on tariffs. We’re not convinced that a higher inflation figure will trigger sustained further USD gains. EUR/USD 1.0442 is first intermediate resistance. Recent yen outperformance stalled as markets also grow uncertain on the potential impact of tariffs for Japanese exports. USD/JPY this morning rebounds further to 153.6 (compared to a low near 151 end last week).

News & Views

The European Commission is considering a price cap on gas prices, the Financial Times reported citing people familiar with the early-stage talks. Prices have recently surged to the highest level in more than two years on rapidly depleting stock levels and a lack of alternative (renewable) energy sources. The EC proposed a cap back in 2022, at the height of the energy crisis that followed Russia’s invasion, but it was never put in practice due to its high knock-in level compared to actual prices. Mario Draghi in his competitive report of last year recommended of bringing in “dynamic caps” instead for situations when EU gas prices diverge from global ones. One of the EU officials said they are studying Draghi’s suggestion in detail.

Bank of Japan governor Ueda appearing before parliament repeated that follow-up rate hikes will depend on the economy and price evolution. While the central bank usually looks at underlying gauges that exclude energy and fresh food to assess inflation strength, Ueda noted that “Rises in the prices of food, including fresh food, won’t necessarily be temporary and there’s the chance that this will impact people’s mindsets and price expectations.” Prices in Japan rose 3.6% y/y in December compared to the 3% core measure. Ueda also confirmed the central bank will conduct a review of its current plan to taper government bond purchases in June. In July of last year the BoJ said it plans to halve the monthly buying pace to JPY 3tn as of January-March 2026.

Stock Market Could Be Positioning for a Hot CPI Report

Stocks were flat yesterday ahead of today’s report. Forecasts call for a 0.3% increase in both core and headline CPI, with year-over-year gains of 2.9% for headline and 3.1% for core. Unlike last month, there have been no last-minute upward revisions.

CPI Swaps

Expiration Date Uses 3-Mo. Lag

CPI Swap

January swaps have remained relatively stable, trading around 2.93%, which isn’t enough to round the headline number to 3% but is a closer call than earlier this week. However, the market’s upward momentum could indicate that the CPI report may be hotter than analysts expect.

Kalshi is pricing in core CPI, coming in at 3.2% y/y.

What’s clear, however, is that fears of accelerating inflation are rising. The 2-year CPI swap climbed to around 2.7% today, marking a new local closing high. If tomorrow’s data is supportive, the swap could be well on its way to approximately 2.85%, the next area of resistance.US 2-Year Inflation Swap

The same applies to the 5-year inflation swap, which rose to a new local closing high. It seems unusual for the swaps market to push inflation expectations higher ahead of the CPI report unless the market fears a number coming in hotter.US 5-Year Inflation Swap

We also saw the rise yesterday, breaking above a downtrend and successfully holding support at 4.4% for now.US10Y-Daily Chart

December 2025 Fed Fund futures are trading at 3.99% and appear poised to move higher with the ascending triangle. Again, data dependent.100-ZQZ2025-Daily Chart

The has been trading sideways in wide ranges since mid-December. We’re at a point where something is likely to change. Volume levels have also declined significantly, and historically, when volume returns, it’s usually because sellers come back.S&P 500 Futures-Daily Chart

If the CPI report is unfavorable and signals that the Fed is done cutting rates as inflation expectations rise, I believe the would move lower. Given current valuations, further bear steepening would likely be too much for equities to handle. The pattern in the minus the suggest the yield steepens further.US30Y-US03MY-Daily Chart

Terms and Definitions By ChatGPT

1. Swaps Market (Inflation Swaps) – A derivatives market where participants exchange fixed payments for floating payments tied to inflation indices. These are used to hedge against or speculate on future inflation.

2. 2-Year CPI Swap – A financial instrument reflecting inflation expectations over the next two years, derived from swap contracts. Rising swap rates indicate increasing inflation concerns.

3. Bear Steepening – A yield curve movement where long-term interest rates rise faster than short-term rates, often signaling inflation concerns or expectations of tighter monetary policy.

4. 30-Year Minus 3-Month Yield Spread – A key measure of the yield curve that compares long-term and short-term interest rates. A steepening spread suggests higher inflation expectations or economic expansion, while an inversion often signals recession risk.

5. Kalshi Pricing – A reference to Kalshi, a prediction market where traders bet on economic data outcomes, such as future CPI prints. Its pricing reflects aggregated market expectations for inflation.

6. Ascending Triangle – A technical analysis pattern characterized by higher lows and a flat resistance level, often indicating a potential breakout to the upside.

7. Fed Fund Futures Pricing – Market expectations for the Federal Reserve’s future interest rate path, expressed through futures contracts. Changes in these prices signal shifts in rate expectations due to economic data or Fed policy signals.

Original Post

Fed Remains Inclined to Cut Rates, But Is in No Hurry

After 100bp of rate cuts, Fed Chair Powell suggests policy remains restrictive – even if remains elevated they will merely “maintain” policy restraint for longer. This indicates an inclination to cut rates closer to neutral, but no change is likely before June

Fed Signals Little Prospect of Any Further Rate Cuts Before Summer

Much was made of the lack of reference to the three “Big Ts” within the Federal Reserve’s Monetary Policy Report published yesterday. Tariffs were mentioned twice while President Trump nor the word “trade” featured at all. Well, all three failed to be worthy of inclusion in Fed Chair Jerome Powell’s testimony to the Senate Banking Committee. Instead, we get a rehash of the press conference following the Fed’s decision to leave rates on hold in January.

Economic activity and the labor market were described as “solid” while inflation remains “somewhat elevated”. In this regard he suggests that the jobs market is “not a source of significant inflation pressures” and since “longer-term inflation expectations appear to remain well anchored” they appear relaxed with the current stance of monetary policy. He does state that after 100bp of rate cuts “our policy stance is now significantly less restrictive” and with the economy performing well “we do not need to be in a hurry to adjust our policy stance”.

There is still a bias to cut again with the phraseology “we know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.” Moreover, “if the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer” – no mention of reversing course and hiking rates!

Chair Powell was asked about trade policy and tariffs, but merely stated that the case for free trade makes logical sense, but can fall down if other large countries don’t play by the rules – clearly a dig at China. Nonetheless, he adds that it isn’t the Fed’s job to make nor comment on trade policy. They can only react to economic data as they see it.

Two Rate Cuts Remains the View for Second Half 2025

There is no set path though with the data flow deciding if, and when, they do cut further – remember their latest forecasts from December suggested the committee viewed two cuts this year and two next was the most likely path forward.

President Trump’s policy mix of light touch regulation and lower taxes, coupled with immigration controls and the threat of tariffs may keep growth and inflation more elevated. This indicates little prospect of a rate cut before June. We are forecasting two rate cuts in the second half of the year though with cooler job creation and wage pressures, coupled with softer housing inflation helping to partially offset some of the impact from possible tariffs. This should give the Fed the scope to keep edging monetary policy closer to a “neutral” footing.

Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more

Original Post

Chinese Tech’s Big Return?

Federal Reserve (Fed) Chair Jerome Powell’s testimony yesterday went smoothly. He said that the Fed’s ‘policy stance is now significantly less restrictive than it had been’, the economy remains strong and that they ‘do not need to be in a hurry to adjust our policy stance.’ That was in line with his previous remarks. Powell also didn’t want to get too political. He said that ‘it’s not the Fed’s job to comment on the tariff policy’, that the impact of the tariffs is unknown but could eventually increase the inflationary pressures as someone will have to pay for them. The markets didn’t give a crazy reaction. The US yields rose slightly but the dollar index gave back gains and tested the 50-DMA to the downside. In the equity space, the Dow Jones advanced 0.30%, the S&P500 was flat, while Nasdaq 100 slightly retreated.

All eyes are on today’s US inflation update. The US headline inflation is expected to steady near 2.9% y-o-y in January, core inflation may have eased from 3.2% to 3.1%. A set of softer-than-expected inflation numbers could help sooth inflation worries and encourage a deeper retreat in the US dollar and a further advance across the major peers. While a stronger-than-expected set of inflation figures could fuel worries, back a further rise in the US yields and the dollar, and weigh on risk appetite.
China appetite returns

Chinese tech stocks are surfing on the DeepSeek wave. Alibaba for example gained more than 40% since mid-January while Warren Buffet-backed BYD rallied more than 7.50% today in Hong Kong and is also up by a hefty 42% since a month. The news that the company plan to integrate software from DeepSeek in its cars and the announcement that they will offer God’s Eye – their driver assistance system – in China for free help boosting the outlook for the Chinese EV giant and narrow the gap with Tesla – which on the other hand is falling from grace on slowing sales – not only due to the slowing global appetite for electric cars but also due to Elon Musk’s involvement in world politics.

Overall, stocks in Hong Kong didn’t look this promising in a while, and there is substantial room to extend gains before retesting the 2018 and 2021 peaks. Chinese tech giants have two key advantages. 1. They have Big Tech names that have a proven track record for building game-changing technology – like Alibaba and Tencent. And 2. Chinese consumers tend to be easier to adopt new technologies allowing the technology advances to spread faster.

Does that counterweigh the political, geopolitical and trade risks? Time will tell.

Oil and Gas

US crude rallied past the 50-DMA and rebounded lower after touching the $73.70pb yesterday. The sight of a more than 9mio barrel build in US inventories suggested by yesterday’s API report somehow killed joy. The freshly breached 50-DMA could act as a short-term support for a further extension of the gains in the short run, but we may see a strong resistance approaching the $74.50 mark, near the 200-DMA and the major 38.2% Fibonacci retracement on the latest selloff.

Elsewhere, the European nat gas futures extend gains on melting gas reserves and on the upcoming cold days that will further draw down the reserves, while the US nat gas futures successfully held ground near a key Fibonacci support and remain upbeat.

In the individual space, BP – which gained more than 7% on news that Elliott Investment Management steps in to tidy up things, lost a meagre 0.62% yesterday after announcing that their income dropped 35% last quarter due to lower oil and gas prices and lower profits from its refineries. 430-445p could be an interesting entry level for investors who would like to take a chance on Elliott’s plans to shift focus from renewable to traditional energy sources.

US: Small Business Optimism Index Cools to Start 2025

The NFIB’s Small Business Optimism Index fell 2.3 points to 102.8 in January, disappointing market expectations for a smaller decline to 104.7.

Seven out of ten subcomponents deteriorated on the month, with the remaining categories roughly unchanged. The largest declines came from the share of businesses planning to make capital expenditures (down 7 points to 20%), those planning to increase inventories (down 6 points to 0%), and those expecting the economy to improve (down 5 points to 47%).

The net share of businesses planning to increase employment fell 1 point to 18%. The share of firms with unfilled job openings was unchanged at 35%. Quality of labor concerns declined in January, with 18% of business owners identifying this as their top business problem. However, in addition to inflation, quality of labor concerns remained the top concern on the minds of small business owners.

The net share of firms currently increasing employee compensation rose 4 points to 33%, while the net share planning to do so over the next three months fell 4 points to 20% – the lowest level in five months. The share of businesses ‘raising’ average selling prices fell 2 points to 22% while the share of those ‘planning’ to raise average selling prices also fell by 2 points to 26%.

Key Implications

Small business confidence retraced some of its post-election gains in January but remained roughly 10 points above its October level. Expectations for more accommodative fiscal and regulatory policy has bolstered optimism on the economy in the months ahead, but many of the subcomponents that track current and planned activity have seen little improvement over the past three months. Severe weather in January may have played a role in this trend, but an elevated degree of uncertainty has also likely weighed on small businesses.

Small businesses may be more optimistic than they were prior to the election, but they are also more uncertain. In January, the separate small business uncertainty index spiked back to a level it typically only hits during presidential elections. This encompasses the multitude of uncertainties currently prevailing in the market related to monetary, fiscal, and trade policy, which are all interacting simultaneously in firm expectations. With monetary policy on hold for the foreseeable future, fiscal policy grinding its way slowly through Congress, and trade policy front and center, it is likely that uncertainty will remain a constraint on business confidence over the coming months.