08 February 2022
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US and Japan agree new deal on steel

By Daniel Richards

  • The US and Japan have announced a new trade deal which will roll back some of the tariffs introduced in 2018 under previous US president, Donald Trump, as part of his multi-fronted trade wars. The 25% tariff on Japanese steel imports will be removed for up to 1.25mn tonnes annually from April 1, with any imports in excess of that subject to charges. All the steel exported from Japan needs to be completely produced in the country, in order to minimise the risk of Chinese steel exports dodging US tariffs.
  • Industrial production in Germany contracted -0.3% m/m in December, missing consensus projections of 0.5% growth. This compares to an upwardly revised 0.3% expansion the previous month and means that Germany industrial output remains down around 7% when compared to pre-pandemic levels as issues around supply chains, which have led to shortages in semiconductor chips in particular but also many other essential inputs, continue to weigh on business.
  • The ECB’s Christine Lagarde testified to the European Parliament yesterday. The bank’s President acknowledged that inflationary risks continued to mount but maintained the line that the target 2% rate could still be achieved without drastic tightening of policy as demand conditions were not as frothy in the single block as seen in other major economies. This was a more cautious line to that taken last week following the ECB’s first rate-setting meeting of the year.
  • UK house prices have risen to record highs as regions all over the country saw strong growth through much of the pandemic crisis, but that appears to be slowing. Gains in January were just 0.3%, the slowest pace since last June, as industry analysts caution that the cost of living crisis which is beginning to squeeze household finances, will curb enthusiasm – especially as mortgage rates start to rise in line with the Bank of England’s monetary tightening.
  • Dubai has announced a plan to curb the use of single-use plastic bags. An AED 0.25 charge will be levied per bag from July 1 with the aim of phasing out their use over the next two years.

Today’s Economic Data and Events

  • Poland base rate announcement. Forecast: 2.75%
  • 17:30, US trade balance, December. Forecast: -USD 83.0bn

Fixed Income

  • After some sharp moves lower at the end of last week, US Treasury markets were relatively quiet to begin trading on Monday. Yields on the 2yr UST nudged lower over the course of the trading day, settling down 2bps at a little under 1.30%. Meanwhile the 10yr UST barely moved with yields essentially unchanged. Bond markets in Europe remained quite active, however, in the wake of the ECB’s hawkish turn with bonds in German, French and Italian markets all falling overnight. The 10yr bund yields edged up 2bps to 0.221%.
  • Emerging market bonds generally closed weaker at the start of the trading week with a broad USD-denominated index down around 0.2%. In local currency markets, South African bonds edged lower with 10yr yields up 4bps at 9.755% while Turkish bonds rallied with yields down 20bps at 21.37%. Indian yields came lower later in the session, closing below 6.9% as the RBI cancelled bids for two issues yesterday.


  • Currency markets opened the week on a more even keel after sharp moves in the past week. The dollar closed generally lower against most peers with the broad DXY index ticking down slightly. EURUSD edged back some of last week’s gains, settling at 1.442 even as expectations mount for a rate hike this year. USDJPY fell by 0.14% to USD 115.10 although it has already given back those moves in early trade today.
  • GBPUSD ended the day virtually unchanged at 1.3536 while other risk currencies gained much more strongly. USDCAD fell 0.7% to 1.2667 in favour of the loonie while AUD added 0.76% to 0.7126 and NZD added almost 0.3% to 0.6633.


  • The Shanghai Composite closed up 2.0% yesterday as Chinese markets reopened following the Lunar New Year holiday last week. Stocks were more mixed elsewhere in East Asia, however. The Hang Seng closed flat, but Japanese equities were under pressure with both the Topix (-0.2%) and the Nikkei (-0.7%) closing lower.
  • Performance was also mixed with those markets that opened later in the day. European equities generally started Monday on the front foot, with the DAX adding 0.7% and both the CAC and the FTSE 100 closing up 0.8%. In the US, however, both the S&P 500 (-0.4%) and the NASDAQ (-0.6%) closed down while the Dow Jones closed flat.
  • Locally, the ADX closed flat while the DFM added 0.6%. The Tadawul gained 0.4% while the EGX 30 closed -1.2% lower.


  • Oil prices snapped some of their recent gains at the start of the trading week with both Brent and WTI futures settling lower. WTI fell by more than 1% to USD 91.32/b while Brent closed down by 0.6% to USD 92.69/b. The apparent catalyst for the move lower was positive noises emerging from teams reviving the JCPOA negotiations that are due to resume later this week.

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Written By

Daniel Richards Senior Economist

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