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 U.S. stock futures remain pressured, the dollar surged, and Hong Kong shares fell from their two-month peaks on Tuesday as the U.S. and China caused unease in financial markets with their reciprocal tariffs, raising concerns about a potentially harmful trade conflict. China retaliated swiftly against new U.S. tariffs, reinstating a trade conflict between the world’s two largest economies, while President Donald Trump delayed tariffs for Mexico and Canada. Following the implementation of an additional 10% tariff on all Chinese imports to the U.S., tensions escalated as China responded with tariffs on U.S. coal, LNG, crude oil, agricultural machinery, automobiles, and initiated enquiries into Google, PVH Corp, and Illumina. Moreover, China announced export controls on rare earth elements critical for high-tech devices and clean energy. These measures, effective from February 10, offer a window for negotiation before taking full effect. Trump’s upcoming conversation with Chinese President Xi Jinping aims to address these escalating trade tensions. Trump’s decision to delay imposing tariffs on Mexico and Canada highlights efforts to negotiate border and crime enforcement measures with the neighboring nations. The recent developments echo the prolonged trade conflict that characterized Trump’s first term, impacting global supply chains and the economy. These trade dynamics underscore the intricate relationship between the U.S. and China, shaping the global economic landscape and exemplifying the challenges of resolving trade disputes in an increasingly interconnected world.The beginning of the second Trump presidency has brought about uncertainty in market expectations regarding tariffs, oscillating between certainty and negotiation tactics. Following the last-minute pause in tariffs for Mexico and Canada, focus has shifted back to perceiving tariffs as a looming threat. China promptly retaliated, intensifying trade tensions. While the threat of increased trade costs seems prevalent, this uncertainty is influencing the Federal Reserve’s rate trajectory. Notable Fed members like Goolsbee and Bostic have emphasized the impact of tariff uncertainties on monetary policy. Goolsbee suggests that addressing uncertainties may slow the pace of easing, while Bostic underscores the importance of monitoring inflation expectations in response to tariff-related developments. The recent uptick in short-term inflation projections, aligning with changes in retail pump prices, hints at tariff-induced inflation concerns influencing the Fed’s cautious approach. The unresolved tariff uncertainty is expected to persist beyond the upcoming March FOMC meeting, contributing to market volatility and influencing the Federal Reserve’s policy decisions amidst ongoing economic uncertainties.Following Bloomberg’s report, the UK Chancellor has indicated that government budgets may be frozen in cash terms, which implies a real-terms decrease. This stands in contrast to the rhetoric and objectives outlined in the previous October budget. While there are nuances to consider, with the largest spending increase planned for 2025-26, subsequent years are likely targeted for savings. Additionally, it is suggested that only ‘unprotected’ departments could face these freezes, with anticipated real-terms cuts already in place. If ‘flat in cash terms’ is indeed implemented, it would result in an additional reduction in real terms, albeit less severe than if applied universally, given the projected rise in overall departmental spending from 2026-27 onwards. The rise in gilt yields post-Budget has reportedly impacted fiscal headroom, leading to corrective actions in day-to-day departmental spending. However, capital budgets are expected to remain protected as they fall outside the primary fiscal rule. The potential extent of spending cuts warrants monitoring, as a tighter fiscal stance could necessitate looser monetary policy for requisite economic balance. The evolving fiscal landscape underscores the delicate balance between government spending measures, fiscal sustainability, and the broader monetary policy environment, shaping the UK’s economic trajectory in the coming years. Today’s calendar highlights include the release of Riksbank minutes, US job openings data, and durable goods figures, alongside insights from central bankers Bostic, Daly, and Villeroy.
 Overnight Newswire Updates of Note

          (Sourced from reliable financial news outlets)
 FX Options Expiries For 10am New York Cut (1BLN+ represents larger expiries, more magnetic when trading within daily ATR)

CFTC Data As Of 31/1/25

Technical & Trade ViewsSP500 Pivot 6040

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