Global Economy & Markets, Weekly Roundup 10/02/25
As trade concerns continue, Powell’s testimony to Congress will be top of mind
US external trade policies remain in focus, with President Trump commenting in recent days that he plans to announce as soon as on Monday February 10th an increase of 25% on imports of steel and aluminum (circa 1.5% of total US goods imports). Regarding bilateral trade with individual countries, Mr.Trump cited that “reciprocal tariffs” will also be announced later in the current week, suggesting levies on US imports from a certain country, to match the respective tariffs which are applied to US exports towards that country.
Meanwhile, the Secretary of the Treasury of the United States, Scott Bessent, reiterated his belief in the so-called 3-3-3 program, i.e. bringing down the fiscal deficit down to 3% of GDP (6.6% in fiscal year 2024), increasing the daily oil production by +3 million barrels (currently it stands at 13.5 million barrels per day) and sustaining a +3% annual growth for real GDP.
Mr. Bessent also commented that the strong US Dollar policy remains intact while also noting that regarding interest rates, the Administration’s focus is on bringing down the government bond yields and not on the monetary policy per se. US Treasury long-term yields declined by circa 10 bps wow to 4.45%, while the 10/2 term spread flattened.
Regarding US economic activity, the labor market report was noisy in view of data revisions, albeit the view for robust conditions remains well in place (see Economics). At the same time, PMIs remain consistent with a robust impetus, with the manufacturing index up by +1.7 pts mom to 50.9 in January, above the expansion/contraction threshold of 50.0 for the first time in 27 months, while its services peer partly eased by -1.2 pts mom, albeit to a still healthy 52.8.
The Bank of England, as expected, reduced the Bank Rate by -0.25% to 4.50% (the last had taken place in past November), on the back of disinflation progress (+2.5% in December from +2.6% in November and +4.0% in December 2023). Indeed, the BoE expects inflation to gradually revert back towards the 2% target by end-2027, on the back inter alia, of the ongoing monetary policy restrictiveness and an assumed easing of private sector regular wages growth towards +3% yoy by early 2026 versus c. +5% currently.
The timing for reaching the inflation target was somewhat deferred compared with the respective November’s exercise (Q2:2027). Nevertheless, the Monetary Policy Committee’s (MPC) voting count suggests that policy makers’ confidence that inflation is under control, has improved. 2025 real GDP forecasts were lowered to 0.75% from 1.5% in November 2024 and from 0.75% in 2024.
In the event, 7 members voted in favor of the -25 bps cut and 2 in favor of an even larger one (-50 bps). That development was somewhat surprising (8 in favor of -25 bps and 1 in favor of leaving the Bank Rate unchanged, appeared the most probable outcome) and suggests a less cautious stance towards further monetary policy easing.
In all, global equity markets were mixed in the past week, with the MSCI ACWI Index closing the week roughly unchanged on a weekly basis. The S&P500 was slightly down by -0.2% wow, with investors’ attention also on corporate results for Q4:2024. Investors’ initial reaction to the new tariff threats from the US, was muted, with modest gains for most major indexes on Monday 10th.
US external trade policies remain in focus, with President Trump commenting in recent days that he plans to announce as soon as on Monday February 10th an increase of 25% on imports of steel and aluminum (circa 1.5% of total US goods imports). Regarding bilateral trade with individual countries, Mr.Trump cited that “reciprocal tariffs” will also be announced later in the current week, suggesting levies on US imports from a certain country, to match the respective tariffs which are applied to US exports towards that country.
Meanwhile, the Secretary of the Treasury of the United States, Scott Bessent, reiterated his belief in the so-called 3-3-3 program, i.e. bringing down the fiscal deficit down to 3% of GDP (6.6% in fiscal year 2024), increasing the daily oil production by +3 million barrels (currently it stands at 13.5 million barrels per day) and sustaining a +3% annual growth for real GDP.
Mr. Bessent also commented that the strong US Dollar policy remains intact while also noting that regarding interest rates, the Administration’s focus is on bringing down the government bond yields and not on the monetary policy per se. US Treasury long-term yields declined by circa 10 bps wow to 4.45%, while the 10/2 term spread flattened.
Regarding US economic activity, the labor market report was noisy in view of data revisions, albeit the view for robust conditions remains well in place (see Economics). At the same time, PMIs remain consistent with a robust impetus, with the manufacturing index up by +1.7 pts mom to 50.9 in January, above the expansion/contraction threshold of 50.0 for the first time in 27 months, while its services peer partly eased by -1.2 pts mom, albeit to a still healthy 52.8.
The Bank of England, as expected, reduced the Bank Rate by -0.25% to 4.50% (the last had taken place in past November), on the back of disinflation progress (+2.5% in December from +2.6% in November and +4.0% in December 2023). Indeed, the BoE expects inflation to gradually revert back towards the 2% target by end-2027, on the back inter alia, of the ongoing monetary policy restrictiveness and an assumed easing of private sector regular wages growth towards +3% yoy by early 2026 versus c. +5% currently.
The timing for reaching the inflation target was somewhat deferred compared with the respective November’s exercise (Q2:2027). Nevertheless, the Monetary Policy Committee’s (MPC) voting count suggests that policy makers’ confidence that inflation is under control, has improved. 2025 real GDP forecasts were lowered to 0.75% from 1.5% in November 2024 and from 0.75% in 2024.
In the event, 7 members voted in favor of the -25 bps cut and 2 in favor of an even larger one (-50 bps). That development was somewhat surprising (8 in favor of -25 bps and 1 in favor of leaving the Bank Rate unchanged, appeared the most probable outcome) and suggests a less cautious stance towards further monetary policy easing.
In all, global equity markets were mixed in the past week, with the MSCI ACWI Index closing the week roughly unchanged on a weekly basis. The S&P500 was slightly down by -0.2% wow, with investors’ attention also on corporate results for Q4:2024. Investors’ initial reaction to the new tariff threats from the US, was muted, with modest gains for most major indexes on Monday 10th.
