Tariff uncertainty weighs on markets

US President Donald Trump threatened and then reversed plans to impose an additional 25% tariff on metal imports from Canada in response to the planned then reversed imposition of an export surcharge on flows of electricity from one of Canada’s provinces to several states. The variability in policy from the US is causing havoc in financial markets with wide intraday moves. US equity markets closed lower again overnight despite a late attempt at a relief rally.

The number of job openings in the US rose to 7.74m in January, down from 7.51m estimated for December, but ahead of market expectations. The quits rate, of people voluntarily leaving their jobs, rose to 2.1%, its highest level since July last year. Paired with the February nonfarm payrolls report, the JOLTS report gives sign of a labour market in fairly good condition even as readings from the ISM were more downbeat on employment.

The IMF completed its fourth review of Egypt’s extended fund facility, allowing the country to draw down on USD 1.2bn of financial support. The fund also approved a request for a Resilience and Stability Facility worth USD 1.3bn with those funds to be allocated to climate and pandemic preparedness projects. In the fourth review of Egypt’s programme, the Fund noted that Egypt’s primary fiscal surplus will be marginally narrower than originally expected.

Today’s Economic Data and Events

• 11:00 TU current account balance Jan: forecast USD -3.2bn
• 14:30 IN industrial production y/y Jan: forecast 3.5%
• 14:30 IN CPI y/y Feb: forecast 3.98%
• 16:30 US CPI y/y Feb: forecast 2.9%
• 16:30 US core CPI y/y Feb: forecast 3.2%

Fixed Income

• US Treasuries unwound a strong opening over the course of the day with yields pushing higher on both the 2yr and 10yr UST. The 2yr UST yield closed up by 6bps at 3.9431% while the 10yr yield added 7bps to 4.2799%. Markets have paired back some of their rate cut expectations for the year with about two and a half 25bps cuts now priced in by the end of 2025.
• The Islamic Development Bank priced a USD 1.75bn 5yr sukuk at MS+54.
• Aldar priced a USD 500m 10yr green sukuk at +110 with strong coverage.

FX

• The Euro extended its strong run, up nearly 0.8% against the dollar overnight to settle at 1.0919 as markets grow more assured of a debt deal in Germany that will unlock considerable fiscal spending. The Euro has nearly recovered all of the ground lost since the US election when a period US dollar dominance looked more assured. GBPUSD also had a strong day, rising by almost 0.6% to 1.2951 while USDJPY moved against the yen, rising by 0.4% to 147.78.
• Commodity currencies had a muted closed that masked some wider intraday movements. The Canadian dollar initially weakened in response to plans from the US to impose additional tariffs on metal exports but then recovered ground as the threat was drawn back. USDCAD closed at 1.4435, unchanged on the day. AUDUSD added 0.3% to 0.6298 while NZDUSD gained 0.3% to settle at 0.5716.

Equities

• US equity markets remain browbeaten by the uncertain policy agenda coming from the US government. The Dow Jones gave up an additional 1.1% overnight while the S&P 500 sold off by 0.8% and the NASDAQ dropped 0.2%. European markets also closed weaker with the Euro Stoxx 50 down by 1.4% and the FTSE lower by 1.2%.
• Asian markets have opened to a mixed session today with the Nikkei marginally higher while Chinese equities are softer.
• Equity markets in the UAE dipped overnight with a 0.3% drop in the DFM while the ADX was lower by 0.3%. The Tadawul closed lower by 0.2%.

Commodities

• Oil prices managed to push higher overnight but stayed close to recent lows. Brent futures added 0.4% to USD 69.56/b while WTI added 0.3% to settle at USD 66.25/b. The API reported a build in US crude inventories of 4.2m bbl last week though there was a sizeable draw in gasoline stockpiles. The EIA also revised its projections for a market surplus lower in 2025 to just 100k b/d.