GGMA Morning Brief: “Buy Japan” trade lifts yen, Fed rate pause?, CBO: US budget deficit will continue to rise, UK house prices to increase?, RBA still hawkish, Today: Jobless claims & ECB & BOC speak
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: “Buy Japan” trade lifts yen
The Japanese yen rallied yesterday against the Greenback and is slightly firmer this morning, as investors appear to be piling into Japanese assets. The nation’s 30- and 40-year bond yields have dropped at least 8 basis points, while the Topix extended its rally. (BBG) However, some investors remain concerned about the fiscal outlook and the risk of another bond market crash. (BBG) Also notable is that Japan's vice finance minister for international affairs, Atsushi Mimura, stated that the government remains highly alert to foreign exchange movements. Mimura said Japan will continue to monitor market developments with a strong sense of urgency and keep close communication with market participants. (BBG)
US Treasuries came under pressure yesterday following a stronger-than-expected US non-farm payrolls report. Two-year Treasury yields jumped as much as 9.5 basis points to 3.55% before settling at 3.50%, the sharpest intraday move in weeks. Ten-year yields rose 3bps to 4.17% after a $42 billion 10-year note auction drew weaker-than-expected demand. Money markets now price the Fed’s next rate cut in July, pushed back from June, with less than 5% probability assigned to a March move. (BBG, CME)
US and European stock futures are trading firmly in the green this morning.
Oil prices edged higher overnight amid ongoing tensions in the Middle East. US President Donald Trump said he told Israeli Prime Minister Benjamin Netanyahu he planned to proceed with talks with Iran, and his preference was to reach a deal with the Islamic Republic. Trump stated that there was no definitive agreement; he stressed that negotiations with Iran should continue to determine whether a deal can be reached. Netanyahu visited Washington to warn Trump against a narrow agreement with Iran, instead hoping to persuade him to endorse a more comprehensive rollback of Iran's military influence in the region. (BBG)
Copper rallied yesterday but has since retreated from its highs. Analysts attribute the rally, which began in August last year, to tighter supply outlooks, with benchmark LME futures trading at around $13,000 per tonne and New York contracts at around $5.98 per pound. Banks forecast the biggest copper supply deficit in 22 years in 2026, driven by limited mine output and increased demand from electrification and data centres. (BBG)
Bitcoin's correlation with stocks continued to diverge, with the cryptocurrency declining while US equities were mostly flat after a US jobs report. The largest cryptocurrency dropped below $67,000 before paring the decline during New York trading on Wednesday. (BBG)
Fed's rate pause bolstered by jobs data, but concerns linger
Federal Reserve policymakers are likely to keep interest rates on hold for longer after data on Wednesday showed the U.S. job market began 2026 on a better-than-expected footing, but revisions showing payroll growth all but stalled last year will keep concerns about a weakening labour market alive. The Bureau of Labour Statistics, in its shutdown-delayed report, said nonfarm payrolls rose by 130,000 jobs in January, compared with the gain of 70,000 that economists in a Reuters poll had forecast. The unemployment rate ticked down to 4.3% from 4.4%. Fed policymakers voted 10-2 last month to keep the central bank's benchmark overnight interest rate in the 3.50%-3.75% range, after cutting it at each of the last three meetings of 2025. The bigger-than-expected job gain in January may give them some assurance that the labour market is stabilising, and allow their attention to shift towards controlling inflation, which remains above the Fed's 2% target. (RTRS – Continue Reading) I also find the uptick in wages and hours worked noteworthy.
Meanwhile, Kansas City Federal Reserve President Jeffrey Schmid said on Wednesday that the U.S. central bank needs to keep tight monetary policy in place for now amid continued strong economic growth, cautioning that it was too early to bank on rising productivity as a remedy for still-elevated inflation. "With inflation still running hot, it appears that demand is outpacing supply across much of the economy," Schmid said. (RTRS)
Federal Reserve Governor Stephen Miran on Wednesday said he would be "very happy" to stay on at the central bank longer term if asked, but the decision is not up to him. Miran's term expired January 31, and though he can stay in it until a replacement is confirmed, his is the only Fed board seat to which President Donald Trump can nominate former Fed Governor Kevin Warsh to be the next Fed Chair unless current Fed Chair Jerome Powell resigns from the Fed Board when his leadership term is up in mid-May. (RTRS)
CBO forecasts indicate that the US budget deficit will continue to rise due to Trump-era tax cuts and tariffs
The U.S. budget deficit is projected to slightly increase in fiscal 2026 to $1.853 trillion, the Congressional Budget Office forecast on Wednesday, indicating that overall, President Donald Trump's economic policies are worsening the country's fiscal outlook amid slow economic growth. The CBO stated that the deficit for fiscal 2026 - Trump's first full fiscal year in office - will be approximately 5.8% of GDP, similar to fiscal 2025, when the deficit was $1.775 trillion. (RTRS)
Euro-Zone wage growth set to pick up in second half, ECB says
Euro-area pay growth is set to quicken in the second half of the year, supporting the European Central Bank’s view that interest rates can remain steady, Bloomberg reports. The ECB’s wage tracker, published on Wednesday, predicts salaries will rise by an annual 2.7% in the fourth quarter after advancing 2.6% in the third. While far below the peak of more than 5% in 2024, that’s stronger than the projection for the first six months. “The rise in the wage path over the course of the year is related to the dissipation of the mechanical downward effect of large one-off payments that were made in 2024 but not in 2025,” the ECB said in a statement. “These mechanical effects are expected to virtually disappear over the course of 2026.”
US House votes to end Trump's Canada tariffs
The Republican-led US House passed legislation aimed at ending the president’s levies on Canadian imports, marking heightened political pressure to alter Trump’s key economic policy. The vote indicates growing concern over the White House’s economic plans ahead of elections expected to emphasise affordability, with Democrats blaming Republicans who voted to uphold the tariffs for defending policies that raise the cost of living. Trump is almost certain to veto any bill calling for a repeal of his tariff policies, but defections from six Republicans alongside opposition from nearly all Democrats highlight his increasingly fragile grip on the narrow House majority. (BBG)
Meanwhile, President Trump has questioned aides about why he should not withdraw from USMCA, the North American free trade agreement he signed during his first term. He has stopped short of explicitly indicating withdrawal, but the discussions introduce new uncertainty into key renegotiations with Canada and Mexico. If carried out, the move would disrupt supply chains across the continent and intensify the effects of existing tariffs, Bloomberg reports.
London’s house price slump to bottom out, RICS survey says
The UK RICS house price balance improved to -10% in January from a revised -13% in December, beating the consensus forecast of -11%. For the first time in over a year, London property agents expect prices to rise, after the capital’s net balance had plunged to -44% in November 2025. New buyer enquiries increased to their highest level since July, and 12-month sales expectations reached their strongest since December 2024. The data suggests the UK housing market may be turning a corner despite high mortgage rates. (BBG)
RBA still sounds hawkish
Australia's central bank is prepared to increase interest rates further if inflation remains persistent, according to Governor Michele Bullock. The Reserve Bank chief stated that inflation "with a three in front of it" is unacceptable, and the board will be data-dependent and continually reassess forecasts. The RBA anticipates that both headline and core inflation will exceed the upper end of its 2–3% target this year, and most economists expect the RBA to hike again in May. (BBG – Continue Reading)
RBA Deputy Governor Andrew Hauser warned that inflation remains “too high” and policymakers cannot allow it to persist. He cited strong credit growth as evidence that current interest rates may not be sufficiently restrictive. “If that’s true, the risk is higher inflation may persist, and we can’t let that happen,” Hauser told an audience in Sydney. (BBG)
Separately, Australia’s Melbourne Institute consumer inflation expectations surged to 5.0% in February from 4.6% in January, reinforcing the hawkish message.
BoC: Trump trade deal review poses ‘important risk’ to outlook
Senior Bank of Canada policymakers identified the pending US-led review of the current North American trade agreement as an “important risk” to the economic outlook, according to minutes published on Wednesday. The seven members of the central bank’s governing council, led by Gov. Tiff Macklem, stated that risks to the outlook have increased amid renewed geopolitical tensions and heightened uncertainty over the Trump administration's trade policy. (WSJ – Continue Reading)
Japan’s wholesale inflation slows, weak yen pressures import costs
Japan's wholesale inflation decelerated for the second consecutive month in January, with the corporate goods price index rising 2.3% year over year, down from 2.4% in December. However, yen-based import prices increased 0.5% annually, accelerating from a revised 0.2% rise in December, indicating that the weaker yen continues to exert upward pressure on costs. The Bank of Japan, which raised its policy rate to 0.75% in December—a 30-year high—will scrutinize this data as it assesses whether underlying inflation is on track to meet its 2% target sustainably. (RTRS)
Today’s Macro Roadmap: UK GDP, US jobless claims, ECB & BOC speak
In the US, the jobless claims report might get some attention after yesterday’s stronger-than-expected January non-farm payroll report. Claims rose quite a bit in the previous week but are expected to fall again.
Chief Economist Lane is the most important ECB speaker today.
Good luck today, and feel free to ping me in the chat to discuss markets and views!