ISM index points to expansion in US manufacturing activity

The US ISM manufacturing index rose above the neutral-50 mark for the first time since 2022, rising to a value of 50.9 in January from 49.2 in December. The print was better than consensus expectations for the index to rise to a value of 50, with new orders and production rising sharply on the month. It is worth noting that the was survey conducted before President Trump’s announcement of tariffs on imports from Canada, Mexico and China. While both Mexico and Canada have subsequently negotiated a 30-day delay to the implementation of the tariffs in return for tougher measures at their borders, significant uncertainty around the prospects for global trade and by extension US manufacturing activity remain.

Eurozone headline CPI unexpectedly rose to 2.5% y/y in the provisional January print, up marginally from the 2.4% recorded in December. Core CPI remained at 2.7% y/y in January, unchanged from the December print, but slightly higher than consensus expectations for price growth of 2.6% y/y. There was continued stickiness in the bloc’s services inflation which ticked down only marginally, to 3.9% y/y from 4% the month prior. On a country-basis, Germany and France saw the pace of price growth remain steady at levels set in December, while Spain and Italy saw faster price growth compared to the month prior.

Turkish CPI inflation fell to 42.1% y/y in January, down from 44.4% the previous month but higher than the consensus prediction of 41.1%. Core inflation was at 42.7%, down from 45.3% previously but again higher than the predicted 41.5%, while PPI inflation fell to 27.2% from 28.5% in December. While the annual measure continued to slow, monthly headline inflation accelerated to 5.0% in January, up from 1.0% in December and higher than the predicted 4.3%, with higher petrol prices (up around 5.2% m/m at the close of January) driving some of that increase. The disinflationary trend in annual inflation remains intact nonetheless. The TCMB forecasts a year-end rate of 21.0%, paving the way for more cuts to the one-week repo in the coming months further to the 500bps already implemented over the previous two meetings.

At a meeting on Monday the UAE Cabinet approved the creation of the UAE Logistics Integration Council. The step is intended to facilitiate coordination between key components of the logistics sector, with the aim of growing the contribution of the industry to over AED 200 billion in the next seven years. More broadly the UAE wants to boost the country's position as a global trade hub, which is consistent with the steps taken in recent years to negotiate a significant number of Comprehensive Economic Partnership Agreements.

Today’s Economic Data and Events

• 19:00 US JOLTS job openings Dec: forecast 8000k
• 19:00 US factory orders Dec: forecast -0.7% m/m

Fixed Income

• US Treasury yields ended Monday slightly higher, with haven demand declining following news that planned US tariffs on both Canada and Mexico had been postponed for 30 days. The 2yr UST yield rose 5bps on the day to close at 4.2489%, while the 10yr UST yield rose by a little less than 2bps on Friday to reach 4.555%.
• European bond yields were lower on Monday. The 10yr Gilt yield fell 5bps to reach 4.485%, while the 10yr Bund declined by almost 8bps to 2.38%.

FX

• The US dollar spot index retraced some gains on news of a 30-day delay in the imposition of tariffs on Canada and Mexico but still ended the day 0.57% higher. EURUSD fell 0.17% to 1.0344, while GBPUSD rose 0.4% to 1.245 and haven-demand saw USDJPY fall 0.3% to 154.73.
• USDCAD ended the day 0.77% lower at 1.4428, after a day of significant volatility, with the currency pair at one point touching 1.4782. The Mexican Peso similarly reversed earlier declines against the dollar.

Equities

• US equity markets pared some earlier losses, with news of tariffs being delayed, but still closed lower on the day. The Dow Jones fell 0.28%, the S&P 500 dropped 0.8% and the NASDAQ declined 1.2%.
• European markets also ended the day lower, with comments from President Trump earlier in the day suggesting that the EU exports would be subject to tariffs. The FTSE 100 and the DAX both fell 1.4%, the CAC 40 declined by 1.2% and the Eurostoxx 50 dropped 1.3%.
• Local markets saw small gains on Monday, as the DFMGI added 0.05% and the ADX rose just 0.01%. The Tadawul fell 0.26%.

Commodities

• Moves in oil prices were mixed on Monday, with Brent futures down 1% at USD 75.96/b and WTI 0.9% higher at USD 73.16/b. Both benchmarks have fallen in early morning trade, on news of delays to tariffs being imposed on Canada and Mexico.
• The OPEC+ joint ministerial monitoring committee met on Monday and endorsed the producer alliances’ plan to incrementally increase production as agreed in December last year. The JMMC also said it welcomed “renewed pledges by the overproducing countries” to hit targeted output levels. The statement made no mention of current conditions in oil markets or calls from US President Donald Trump for OPEC members to increase output.