US plans reciprocal tariffs

US President Donald Trump has instructed his administration to consider imposing reciprocal tariffs on any country that imposes trade barriers on the US. The list of tariffs would take time to complete but could be ready by April, according to Howard Lutnick, the nominee to lead the Commerce Department. The new tariffs would reportedly be in addition to existing ones that have been targeted on steel and aluminium as well as those that were put in place on China earlier this month and threatened on Mexico, Canada and Colombia. The tariffs from the US could also target measures like value-added taxes, exchange rates or intellectual property protections.

Producer price inflation in the US rose by 0.4% m/m in January, on the back of higher food and energy prices. On an annual basis PPI inflation rose by 3.5%. However, components of the PPI basket that contribute to PCE inflation, the Fed’s target level, showed modest price moves.

The UK economy expanded by 0.1% q/q in Q4 last year, ahead of market expectations for flat activity or a contraction. Government spending rose by 0.8% q/q while household spending was flat and gross capital formation, covering investment, declined. On a monthly basis the economy expanded by 0.4% m/m in December thanks to gains in accommodation and broad based increases in the services economy. After growth of 0.9% last year the British economy is expected to grow by little more than 1% in 2025.

Egypt’s finance minister said that the IMF was considering a resilience and sustainability facility while it conducts a fourth review of the existing loan programme. The RSF programme is used by the IMF to support finance of climate and pandemic preparedness.

Turkey’s current account deficit expanded in December to USD 4.65bn, ahead of market expectations. The goods deficit widened to USD 6.2bn in December while the services balance remained in surplus. FDI inflows were estimated at USD 1.1bn while there was a net outflow of portfolio investment.

Today’s Economic Data and Events

• 14:00 EC GDP q/q Q4: forecast 0.0%
• 17:30 US retail sales m/m Dec: forecast -0.2%
• 17:30 US industrial production m/m Jan: forecast 0.3%.

Fixed Income

• A more moderate PPI estimate for January helped to push US Treasuries higher overnight with yield on the 2yr UST down almost 5bps at 4.3067% while the 10yr yield dropped by 9bps to 4.5288%. Markets are still pricing in just barely more than one cut for the rest of 2025, however.
• Fitch has assigned a ‘B’ rating to Egypt’s sovereign sukuk programme, in line with their wider rating on Egypt sovereign with a stable outlook.
• Bond markets were more upbeat after heavy selling post-CPI. Both high-yield and emerging market bonds closed higher overnight while regional sovereign bonds picked up.

FX

• The US dollar dropped a third day running as markets are perhaps gaining some “tariff announcement” fatigue and a more constructive PPI pushed back some inflation anxiety. EURUSD jumped 0.8% to 1.0465, seeming abetted by the prospect of Europe needing to take more control over its immediate security, while GBPUSD gained nearly 1% to close at 1.2566. JPY was also stronger with the USDJPY pair falling 1.1% to 152.80.
• Commodity currencies showed strength as well with USDCAD lower by 0.8% at 1.4193 while AUDUSD added 0.6% to 0.6317 and NZDUSD gained 0.6% to 0.5677.

Equities

• US equity markets had a uniformly positive session overnight with the Dow Jones up 0.8%, the S&P 500 rising by 1.1% and the NASDAQ up by a robust 1.5%. In Europe, the Euro Stoxx index added almost 1.8%, its strongest daily gain since the start of January, while the FTSE was lower by 0.5%.
• Local markets had a mixed close with a gain of 0.3% in the DFM while the ADX was flat. The Tadawul also closed near flat with a downward bias.

Commodities

• Oil prices settled marginally lower overnight with Brent futures down 0.2% at USD 75.02/b and WTI off by 0.1% at USD 71.29/b. The IEA revised its oil demand growth forecast for 2025 higher by 100k b/d to 1.1m b/d and also lowered its expectations for flows of oil from Russia and Iran as both countries endure new US sanctions. According to the agency, oil market balances would record a surplus of around 450k b/d on average this year.