Japan announces US investment

Japan has announced plans to invest USD 36bn in the US, with the funds directed into oil, gas, and critical mineral projects. This represents the first tranche of the promised USD 550bn investment which was part of the trade deal reached with the US last year. Specific projects include a natural gas facility in Ohio, a deepwater crude export facility in the Gulf of Mexico, and a synthetic diamond manufacturing plant in Georgia.

The UK’s unemployment rate ticked unexpectedly higher in the three months to December, rising from 5.1% previously to 5.2%. This marked the highest level since early 2021 when the economy was still struggling with the Covid-19 pandemic. Expectations had been for the rate to remain unchanged. Youth unemployment rose to 14%, with recent minimum wage hikes and changes to national insurance payments for employers curbing job creation for younger workers especially. 52,000 new jobs were created in the period, less than half the predicted 108,000. The weaker-than-expected labour market data paves the way for further easing from the Bank of England this year, especially given an expected slowdown in inflation – CPI figures are due out today, with the annual rate forecast at 3.0% in January according to consensus, compared with 3.4% in December. Weekly earnings growth in the three months to December slowed to 4.2% y/y, from 4.6% previously, supporting the expectation for moderating inflation.

Germany’s ZEW expectations survey slipped to 58.3 in February, down from 59.6 and far below the predicted 65.2. The current situation component came in at -65.9, in line with expectations and compared with -72.7 the previous month. Investors remain cautious around the outlook for Germany even amid a seeming moderation in trade tensions and an expected fiscal boost. Consensus forecasts put GDP growth at 1.0% this year, which would mark a marked improvement on the past several years, with growth of just 0.2% last year following recessionary years in 2023 and 2024.

CPI inflation in Canada slowed to 2.3% y/y in January, down from 2.4% in December. Consensus expectations were for the pace of annual price growth to be unchanged. On the monthly measure, prices stayed static. Core inflation slowed to 2.4%, down from 2.5% previously. Declining airfares drove the inflation slowdown.

Today’s Economic Data and Events

11:00 UK CPI inflation, % y/y, January. Forecast: 3.0%

17:30 US durable goods orders, % m/m, December. Forecast: -2.0%

Fixed Income

• US treasuries lost ground after reopening from the long weekend, with yields rising following the sharp gains seen last week. Yields on the 2yr closed up by 2.5bps to 3.4325%, while the 10yr was up by just under 1bps at 4.0578%.
• Comments by Fed Governor Michael Barr that rates should remain static until there was more evidence of a slowdown in inflation contributed to the caution, though there were marginal gains at the longer end of the curve, with the 30yr yield down by less than 1bps.

• The RBNZ kept its benchmark official cash rate on hold at 2.25% this morning, as had been anticipated.
• The Central Bank of the UAE carried out its regular auction of m-bills at the start of the week, selling a total of AED 24bn. The central bank sold AED 4.5bn of 28-day m-bills at a yield of 3.86%; AED 2bn of 98-day m-bills at a yield of 3.98%; AED 5.5bn of 210-day m-bills at a yield of 3.89% and AED 12bn of 322-day m-bills at a yield of 3.86%. The overall sale was 1.45x oversubscribed.
• The UAE issued two tranches of t-sukuk overnight, raising a total of AED 1.1bn. A new issue of AED 550m with a 2033 maturity priced at 3.78% while a tap of an existing 2030 maturity sukuk raised AED 550m at 3.53%. Both sukuk were more than 5x over-subscribed

FX

• There was a mixed performance in FX markets yesterday, with most majors gaining against the USD, but a notable depreciation in GBP. Weak labour market data in the UK spurred expectations of a rate cut from the BoE, weighing on sterling which closed down 0.5% at 1.3568.
• The other majors gained against the greenback, albeit marginally for EUR which closed up 0.03% at 1.1855. JPY strengthened by 0.1% to 153.31.

Equities

• There were modest gains in US equity markets yesterday as traders returned from the long weekend. The S&P 500, the Dow Jones, and the NASDAQ were all up by roughly 0.1%.
• Locally, the DFM closed down 0.3% while the ADX ended the day flat. In Saudi Arabia the Tadawul ended 0.8% lower.

Commodities

• Reports of comparatively positive progress in US-Iran talks in Geneva weighed on oil prices to start the week, with Brent futures closing down 1.8% to USD 67.4/b, while WTI fell 0.9% as it resumed trading, dropping to USD 62.3/b.
• Gold prices continued to soften yesterday, dropping 2.3% to USD 4,877.9/oz.