Trump’S Whirlwind Leaves the World Breathless

Economic

Summary:

US President Donald Trump is revelling in his return to the role of 'Dealmaker in Chief' as he pushes ahead with his low tax, light-touch, regulation-led growth agenda. Nonetheless, immigration controls, trade tariffs and government spending cuts pose challenges for the economy while re-shoring and regulatory changes will take time to gain traction.

Quick out the blocks

President Trump’s first few weeks in power have been a whirlwind of activity as he looks to push through with his promises of tax and spending cuts, trade tariffs, immigration controls and regulatory reforms. The sense that this policy mix would boost growth, but heighten the risk of more prolonged above-target inflation readings still holds, although views on the scale of the impact continue to evolve. So where do we stand right now?

Trump's policy thrust

Immigration: The President pledged to crack down on illegal immigration and his threat of tariffs has yielded a significant response from the Canadian and Mexican governments who are beefing up security at their US borders. Deportations have been increasing, but the primary way this is set to impact the economy is by deterring people from attempting to enter the US. In an environment of falling numbers of American-born workers, this may mean labour supply is constrained in some key sectors including construction, agriculture and leisure and hospitality. This could push up pay rates and prices.

Regulation: Trump believes that by halting and reversing a “regulatory onslaught” he can unshackle the economy and unleash growth. The most apparent way he is doing this is by making it easier to obtain permits for oil and gas exploration – “drill, baby, drill”. However, the Dallas Fed reports that the “breakeven” cost for shale producers in the Permian basin is $65/bbl when oil prices are little more than $70/bbl, so there is little financial incentive to drill right now.

Tariffs: The perception that countries have been taking advantage of the US, costing jobs and damaging the social fabric of America runs deep in this administration. Tariffs will make domestic manufacturers more competitive in the local market, but those with international supply chains will face higher costs while US exporters will fear reprisals from foreign nations.

The bigger threat is to consumer demand, which has been the main engine of US growth. The value of US manufacturing output ($2.85tr full-year 2023) is less than the value of the goods imported into the US ($3.1tr in 2023), meaning that manufacturing output would need to double in size to remove the need for imports. This is unfeasible within the next decade, let alone the next few months. If/when tariffs are applied, the squeeze on spending power will be substantial even if businesses absorb some of the costs in their profit margins. The burden will fall disproportionally on low-income households who spend more of their income on physical goods relative to higher-income households who spend more on services and experiences, which aren’t subject to tariffs.

Taxes: His primary goal is to extend his 2017 tax cuts, which expire at the end of this year. This should pass easily, but it will be very costly and contribute to an ongoing deterioration in government finances over the next decade. Remember though an extension will not boost household spending power – it merely maintains the status quo. Consequently, he wants to go further and has stated that tariffs incentivise manufacturing reshoring, but they also provide revenue that can fund tax cuts elsewhere. Among his proposals to eliminate taxes on tips, social security benefits, and overtime pay, the one concerning tips is the most likely to pass, as it is the least expensive and enjoys bipartisan support.

Government spending: Trump’s aspiration of cutting government spending by $2tr is ambitious, but more than two million employees have been offered voluntary redundancy while plans to shut the US Agency for International Aid (USAID) show clear intent to carry through. However, to deliver the scale of cuts to spending that would put US government finances on a stable footing would require the trimming of government entitlement programmes surrounding health and social security. Congress will be immensely reluctant to sanction that.

Too far, too fast?

Combining these factors we see near-term strength in economic activity continuing. Robust consumer demand remains the main theme with evidence suggesting many households have started bringing forward spending to avoid tariffs. The jobs market remains solid while manufacturing appears to be recovering after languishing for the past couple of years.

Nonetheless, the rise in Treasury yields has pushed mortgage rates higher while credit card and auto loan borrowing costs have failed to drop despite 100bp of Federal Reserve interest rate cuts. Higher government borrowing costs remain a key call for us with tariffs keeping inflation more elevated and fiscal sustainability fears fuelling investor demand for higher returns for the risks they face. Dollar strength is also a headwind, making exports less competitive in international markets.

In the second half of 2025, tariffs look set to erode spending power, and with tax cuts not materialising before 2026 and government spending being cut immediately, we expect to see cooler growth. The will-they-won’t-they nature of the tariff strategy and the lack of clarity on which countries are impacted, what carve-outs there may be and what the tariff rate will be is going to leave US manufacturers uncertain about what to do. This lack of clarity may hinder investment and hiring until more certainty is provided.

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Cohen

Economic

Home to one of the fastest-growing economies in the world, ASEAN faces unique challenges as climate change intensifies tropical storms and disrupts supply chains. The region’s future hinges on its ability to strengthen infrastructure, protect small businesses and foster collective action.

The European Union leads the way in regional climate action, rallying member states around a common climate risk mitigation strategy and legally binding countries to specific, time-bound targets. By contrast, ASEAN is a much more loosely coupled region with a preference for laissez faire cooperation. If the region were to preserve its global economic promise within a rapidly warming climate, Southeast Asian countries would need to forge closer and more coordinated partnerships with each other.

In 2024, the region collectively comprised the fifth-largest economy in the world and among the most rapidly growing. By 2040, the region is projected to be the fourth largest.

Southeast Asia’s growth is predominantly export-driven. Its young, educated and skilled workforce is cost-efficient, making it a highly attractive destination for manufacturing-related foreign direct investment. It has thus rapidly increased its manufacturing exports, playing a key role in the ‘China Plus One’ strategy which involves diversifying supply chains away from China. Indeed, China itself is making significant manufacturing investments in the region.

The region’s geography offers a further benefit to its exporting activity. It has a long coastline that connects maritime trade routes between East Asia, the Middle East and Africa. The Southeast Asia region is a rapidly developing manufacturing and logistics hub.

Unfortunately, Southeast Asia’s geographic advantages come with significant drawbacks. Southeast Asia is located in the western North Pacific basin, which is the world’s most active basin, producing 30 per cent of all tropical cyclones. Between 1970 and 2019, approximately half of the tropical cyclones in the western North Pacific basin made landfall in Southeast Asia. Parts of Southeast Asia fall within ‘Typhoon Alley’, with the Philippines receiving the highest number of landfalls in the region and among the highest in the world.

The global economic promise of Southeast Asia must be viewed in light of its vulnerability to tropical cyclones, which early climate models predict will increase in frequency and intensity over the course of the 21st century. Southeast Asia suffered an estimated US$32 billion in typhoon-related economic losses between 1987 and 2016. Extreme weather events and their associated economic losses have continued to plague the region in recent years, with typhoons, storms and floods affecting Southeast Asia’s agriculture, infrastructure, tourism and transport.

This economic disruption extends well beyond the region because of Southeast Asia’s position in upstream and downstream interlinked global value chains.

Export growth in Southeast Asian countries has been driven mainly by electronics manufacturing. The risk of extreme weather events causing operational disruptions like damage to manufacturing plants can be reduced by modifying building structures to increase their durability. But while reinforced buildings are a crucial safeguard against environmental catastrophes, there are outstanding vulnerabilities in critical utility infrastructure such as power, telecommunications, roads and transport. Even if manufacturing plants come out of an extreme weather event relatively unscathed, the risk of operational disruptions due to utility and infrastructure failure remains significant.

The 2013 Typhoon Haiyan in the Philippines caused extensive damage to airports, harbours and roads, which paralysed business operations and hampered the emergency response for weeks. In 2024, Typhoon Yagi severely disrupted Vietnam’s supply chain and logistics industry, prompting both the government and independent analysts to lower the country’s GDP growth forecast for the year.

Apart from electronics, Southeast Asia’s major exports include metals, minerals, textiles and garments and agricultural products. Upstream agricultural production is highly vulnerable to storm-related disruptions which affect the price and supply of downstream products.

Around 98 per cent of businesses in Southeast Asia are micro-, small- and medium-sized enterprises, contributing 66 per cent of total employment, 41 per cent of regional economic activity and 13 per cent of exports. A significant segment of these are smallholder farmers, many of whom live in poverty and typically experience total loss from destructive storms. While individually tiny, the collective economic contribution of micro-, small- and medium-sized enterprises make or break downstream global value chain activity, ultimately affecting Southeast Asia’s major markets.

Effectively mitigating climate and economic risk requires ASEAN to go beyond the dialogue, capacity-building and consolidated reporting that is characteristic of its environment action. Tangible outcomes in building climate-adapted infrastructures, developing climate-resilient industries and redesigning financial models to support smallholder operators are urgently required.

The stimulus for the region to work collaboratively towards tangible climate outcomes may come from its major external partners. While some major trading partners such as the European Union, Japan and South Korea consistently acknowledge the importance of Southeast Asia as a regional partner, strategic initiatives have remained largely bilateral. But other partners such as the United States and Australia are moving towards minilateral initiatives. This encourages more Southeast Asian countries to collaborate on solving shared problems, such as climate issues in the Mekong affecting Cambodia, Laos, Myanmar, Thailand and Vietnam.

ASEAN countries should more actively engage in minilateral initiatives as a step towards region-wide climate and economic risk mitigation. Employing a coordinated systems approach to risk mitigation safeguards the flows of goods, services and information in resilient global value chains. The ability of Southeast Asia to deliver on its global economic promise depends on the region weathering its storms.

Source：Eastasiaforum

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Justin

Economic

Forex

NZD/USD remains steady as traders adopt caution ahead of the US Nonfarm Payrolls release on Friday.

The US Dollar extends its recovery amid rebounding US Treasury yields.

The risk-sensitive NZD struggled as heightened risk aversion grew amid global trade and economic uncertainties.

NZD/USD remains steady after registering losses in the previous session, trading around 0.5680 during the European hours on Friday. The pair remains silent as sentiment turns cautious ahead of a key US jobs report. Traders brace for Friday’s US Nonfarm Payrolls (NFP) data, which is expected to shape the Federal Reserve’s (Fed) monetary policy direction.

The NZD/USD pair may face pressure as the US Dollar (USD) extends its recovery, supported by rebounding US Treasury yields. The US Dollar Index (DXY) has risen toward 107.70, while the 2-year and 10-year US Treasury yields stand at 4.22% and 4.44%, respectively, at the time of writing.

On the data front, US Initial Jobless Claims rose to 219K for the week ending January 31, as reported by the US Department of Labor (DoL) on Thursday. This print surpasses initial estimates of 213K and was higher than the previous week's revised tally of 208K (from 207K).

The risk-sensitive New Zealand Dollar (NZD) struggled amid heightened risk aversion due to global trade and economic uncertainties. However, trade negotiations between the United States (US) and China could temper this sentiment. US President Donald Trump and Chinese President Xi Jinping are set to discuss potential tariff rollbacks.

The Kiwi Dollar could face headwinds as the Reserve Bank of New Zealand (RBNZ) is widely expected to cut interest rates in February. Markets are currently pricing in a nearly 92% chance of a 50 basis-point cut to 3.75% on February 19, marking the third consecutive jumbo rate reduction.

Source: FXSTREET

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Warren Takunda

Stocks

Asian shares Friday were mixed, with Chinese technology stocks rising as most other Asian equities declined.

Japan’s benchmark Nikkei 225 dipped nearly 0.72% in afternoon trading to 38,787.02. Australia’s S&P/ASX 200 slid just 0.11% to 8,511.40. South Korea’s Kospi declined 0.58% to 2,521.92. Hong Kong’s Hang Seng rose 0.91% to 21,081.72, while the Shanghai Composite was up 1.01% to 3,303.67.

Chinese technology stocks trading in Hong Kong appear poised to enter a bull market after AI models released by DeepSeek sparked renewed interest in China’s technology firms.

Xiaomi’s Hong Kong stock was up 4.81% Friday to trade at 42.50 Hong Kong dollars, while Alibaba stock jumped 1.57% to trade at 100.10 Hong Kong dollars. Tencent, China’s largest video game firm, jumped 1.57% to 427 Hong Kong dollars.

Japan’s Nikkei index may come under greater pressure from a stronger yen, with a sharp beat in January household spending reinforcing expectations for further rate hikes from the Bank of Japan ahead, according to Yeap Jun Rong, market strategist at IG.

“Along with both headline and core inflation accelerating over the past two months, the case for further policy responses to curb pricing pressures remains strong,” said Yeap.

On Wall Street, the S&P 500 rose 0.36%, while the Dow Jones Industrial Average fell 0.28% and the Nasdaq composite gained 0.51% on Thursday.

Investors are also bracing for the uncertainty that comes with U.S. President Donald Trump’s tariffs. After signing executive orders to levy 25% tariffs on Mexico and Canada, fears of a global trade war have eased slightly after Trump gave both countries a 30-day reprieves for tariffs, raising hopes that tariffs are likely to be a negotiation tool rather than the Trump administration’s long-term policy.

However, Trump has pressed ahead with 10% tariffs on Chinese goods, while China has retaliated by imposing tariffs on U.S. coal and liquefied natural gas products as well as crude oil, agriculture machinery and large-engine cars. China also launched an antitrust investigation into Google and placed two other firms on its unreliable entity list.

In energy trading, benchmark U.S. crude added 37 cents to $70.98 a barrel. Brent crude, the international standard, rose 47 cents to $74.76 a barrel.

In currency trading, the U.S. dollar inched up to 151.85 Japanese yen from 151.35 yen. The euro cost $1.0380, down from $1.0383.

Source: AP

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ING

Economic

What a week! Tariff threats switched on and off, Bessent laser focussed on the 10yr yield, and next up is payrolls Friday. Meanwhile, a 25bp cut by the Bank of England safely delivered, and a dovish aftertaste, supports three more 25bp cuts this year. The ECB will publish a report on the neutral rate – potentially interesting. Lots to chew on over the weekend.

Treasuries take a pause as they brace for a "not-half-bad" payrolls report

Scott Bessent's laser focus on the US 10yr yield continued to reverberate through Thursday's trading, but this time without material effect on direction. We note the tightening between the 10yr Treasury yield and the 10yr SOFR rate into 43bp. That's down from the 50bp area over the turn of the year. It may appear to be an academic observation, but it's important. That 50bp spread was rationalised, in our view, by the size of the US fiscal deficit.

The thinking being that the SOFR curve is the risk free rate curve, and the Treasury curve sits above this to reflect its credit risk. This ranges from virtually zero in very short tenors out to much wider spreads in longer tenors. The 10yr spread had been in the 25bp to 30bp area in the wake of derivation of the SOFR rate and curve a few years back (Libor transition). But it shot up to above 50bp in late 2024, which we read as an extra spread to account for the implied credit risk coming from the elevated fiscal deficit and growing absolute debt levels.

So far in 2025, that spread has shown a tendency to narrow, and as mentioned, got down to 43bp on Wednesday, in part pressured there by a falling 10yr Treasury yield (Bessent's doing). This can be rationalised to the extent that e.g. DOGE will show some results, thus taking pressure off the fiscal deficit. That said, it remains to be seen whether this theme is a real runner as a genuine driver. If it is, there is room for Treasury yields to squeeze further lower (and for the spread to SOFR to tighten). If it isn't, then it can easily revert back up again. Which brings us to payrolls.

Payrolls Friday is anticipated to be a Goldilocks outcome, but with a clear tint of macro firmness – nothing wrong with a 175k expectation for jobs growth (above the 150k replacement rate), and a 4.1% unemployment rate. Get that, and Treasury yields won't have a clear route to head lower, at least not based off that number alone. The Fed would also look at this as the type of data that rationalizes an ongoing pause on any rate cutting ambition that the dots imply for 2025.

ECB staff forecasts of the neutral rate could in the end even help reopen the policy debate

European Central Bank staff is set to publish updated neutral rate estimates at 10:00am CET on Friday. The already known sub-title “statistical uncertainties and conceptual shortcomings” of this research bulletin already suggests that one should not draw too firm conclusions from the results. The market may still focus on the mid-point and how it compares to the range 1.75-2.25% that currently frames the discussions. On the other hand, a broader range (both to the up and downside) could also blunt the impact of calls such as those from individual officials more recently who have pointed out policy "target"-levels of around 2%. In the end, a broader range and more caveated results could open up the discussion again and lead the ECB back to a truer meeting-by-meeting approach – thus softening the current gravitational pull of the 2% level for market expectations.

The ECB has so far tried to steer the attention to broader measures of the ECB’s policy stance, and not just the distance from a vague neutral measure. There was no way of summarising the restrictiveness of monetary policy into a single number, but Chief economist Lane did outline at least nine factors that would have to go into any assessment. These range from taking into account the rolling off of super-cheap debt, the market's rate expectations, measures of policy transmission, to bond and equity risk premia which can also be exogenously influenced.

The Bank of England delivers cut with dovish aftertaste

The Bank of England (BoE) cut rates by 25bp as expected, but the votes did initially give a dovish flavour to the decision. Not only did the arch-hawk Mann support a cut, she even voted in favour of 50bp, together with the more dovish Swati Dhingra. On the other hand, the updated forecasts were more on the hawkish side, with inflation remaining just above target in two years’ time. Overall the net impact from the meeting on sterling rates was close to zero on the day.

We maintain a more dovish view compared to market pricing and in our view the outcome of the meeting was in line with our baseline of three more cuts in 2025. The risks seem tilted to the downside, with services inflation coming down and the jobs markets showing fragilities. If these trends were to accelerate, a 50bp suddenly seems less remote. As such we would argue that the front end of the sterling rates curve can still nudge lower from here. A more dovish BoE helps convince markets to lower rates, but we probably first need a series of better inflation number to really see a structural move lower.

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Owen Li

Commodity

Crude oil prices were set to end the week with a third consecutive decline as worry about the effect of Trump’s tariffs and China’s retaliation to them dragged benchmarks down.

At the time of writing, oil was slightly up from Thursday, with Brent crude at $74.69 a barrel and West Texas Intermediate at $70.92 per barrel, but both were lower than they were on Monday, by over 2%.

The slide in prices followed the introduction of a 10% tariff on all Chinese imports into the United States, which prompted China to respond in kind, slapping a 10% import duty on U.S. crude and a 15% tariff on liquefied natural gas.

A Thursday announcement by the Department of Treasury that it would sanction several people and vessels carrying Iranian crude oil abroad somewhat limited the downward pressure on oil prices but the impact of the move is yet to manifest in full.

“Oil prices saw some stability return this morning following a volatile session overnight, as traders react to news of U.S. sanctions on Iranian crude exports to China,” IG analyst Yeap Jun Rong told Reuters.

“Nevertheless, (today's) oil gains are limited, reflecting persistent concerns over supply and demand headwinds, including the potential for increased production from OPEC+ and the US, as well as tariff risks weighing on global oil demand,” he added.

ING commodity analysts, meanwhile, revised their general expectations about oil prices in 2025 this week, noting that “The supply risks facing the market due to sanctions mean that the floor for oil prices is probably a little higher than we had expected coming into this year. However, much will depend on how trade relations progress. A tougher stance from the US on trade will be a concern for global growth.”

BMI analysts pointed out the prospect of a full-blown trade war as a source of price pressure on oil as such a development could weaken demand for the commodity.

Source: OILPRICE

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Owen Li

Bond

Economic

UK bond syndication attracts biggest ever order book despite volatility

The UK Debt Management Office’s first public sale of the year impressed with an unprecedented level of demand despite a huge sell-off in gilts over recent months.

On 21 January, the UK DMO raised £8.5bn via a syndicated re-opening of the 4.4% 2040 gilt led by Deutsche Bank, JP Morgan, Morgan Stanley, Nomura and RBC Capital Markets. The deal closed with total orders of just over £119bn from 279 accounts, making it a record gilt sale from both the size of demand and the number of investors in the order book.

The record level of demand was particularly notable given the gilt market’s recent period of volatility, with yields reaching their highest level in decades. Gilt yields have been under pressure, not just from a global sell-off in government bonds driven in part by US inflationary concerns, but also issues pertaining to the UK itself, such as Labour’s spending ambition, higher borrowing and stagflation fears.

Highest yields in decades

Yields on 30-year gilts passed 5.5% in January 2025, reaching their highest level since 1998, while 10-year yields touched 4.9%. While the sell-off has eased in recent weeks, 30-year and 10-year gilts are still at elevated levels. The higher yields would have inevitably helped attract more demand, with the yield on the syndicated tap at just over 5%.

‘It is fair to say this transaction provides a clear and visible demonstration of the excellent support we continue to receive from our gilt market investor base,’ said Jessica Pulay, chief executive officer of the UK DMO. ‘It also sends a strong message about the ongoing smooth and efficient functioning of the gilt market.’

The deal was executed smoothly and quickly with the order book closing at 10:00am and the price setting at just before midday.

Strong support from international investors

Another notable feature of the transaction was the support from international investors, allocated 32% of the sale, which was also marginally a record for a UK syndication. The allocation to international accounts from the last two gilt syndications were at 27% and 13% respectively, with issuances in November and September.

‘We welcome the diversification of our investor base,’ said Pulay. Foreign investors have become the biggest segment of the overall gilt portfolio. The growth of international investors has occurred in parallel with gilts having a bigger share in global bond indices as well as an increased share of sterling in central bank reserves.

Following the latest syndication, total gilt sales for the 2024-25 financial year have reached £229.7bn. This is the second-highest annual issuance by the UK DMO after 2020-21, when extra funds were raised to support the economy during the Covid-19 pandemic. However, accounting for the fact that there is no quantitative easing stimulus but rather £100bn worth of quantitative tightening over the next year by the Bank of England, this will be a record amount of gilts entering the hands of private investors.

The UK’s penultimate syndication of the financial year will take place in the week commencing 10 February, with the launch of a new conventional gilt maturing in March 2035.

Reduced duration

On 20 January, officials from the UK DMO and the UK Treasury held their annual consultation meetings with gilt-edged market makers and gilts investors to review the financing remit of the current financial year and provide feedback for 2025-26.

The minutes published by the UK DMO showed that among GEMMs and gilt investors, there was strong support for a reduction in the duration of conventional gilt issuance in 2025-26 relative to the current year. Most who were present advocated for an increased proportion of short-term and medium-term gilts and a proportionate reduction in long-term gilts.

The financing remit for the UK DMO in 2025-26 is currently projected to be £299.6bn.

Source：omfif

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Trump’S Whirlwind Leaves the World Breathless

Quick out the blocks

Trump's policy thrust

Too far, too fast?

Weathering the Economic Storms of the ASEAN Climate

Source：Eastasiaforum

NZD/USD Holds Ground Near 0.5700 Ahead Of US NFP

Source: FXSTREET

Stock Market Today: Asian Shares Mixed as DeepSeek Lifts Chinese Tech Stocks

Source: AP

Rates Spark: Bessent and Payrolls Key as We End a Tumultuous Week

Treasuries take a pause as they brace for a "not-half-bad" payrolls report

ECB staff forecasts of the neutral rate could in the end even help reopen the policy debate

The Bank of England delivers cut with dovish aftertaste

Oil Prices Remain Under Pressure from Trade War Fears

Source: OILPRICE

Record Bid ‘Sends a Strong Message’ About Gilt Market

Highest yields in decades

Strong support from international investors

Reduced duration

Source：omfif

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