GGMA Morning Brief: Trump’s Fed pick roils markets with Fed’s balance sheet in focus, BoJ minutes, Japan PM comments on FX, Will the RBA hike this week?, Today: EZ & US PMIs, Fed & BOE speak
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: Trump’s Fed pick roils markets
Risk sentiment continued to deteriorate after President Trump nominated Kevin Warsh for Fed chair. Stock markets fell, with Bitcoin dropping below $75,000 for the first time since April 7, 2025, before partially recovering. The US Dollar index rallied on Friday but is steady this morning. Precious metals and bond futures declined initially, but bonds later rebounded. Oil prices sank sharply as concerns over a supply shock eased following Trump's comments that Iran was "seriously talking" with the U.S. (CNBC). OPEC+ announced it would keep oil output unchanged for March despite recent crude price highs amid worries about potential U.S. military action against Iran. (CNBC)
Warsh’s return revives tensions over the Fed’s $6.6 trillion QE hangover
The focus has shifted from short-term rates to the Fed's $6.6 trillion balance sheet, following President Donald Trump's selection of Kevin Warsh as Federal Reserve chair, Bloomberg reports. Warsh, a critic of balance sheet expansion, may push to reduce it, which could affect long-term rates and markets. Shrinking the balance sheet could enable additional rate cuts but would require consensus within the Federal Open Market Committee.
Meanwhile, President Donald Trump’s economic adviser Kevin Hassett said the Federal Reserve should focus on getting its balance sheet “as lean as possible”. The central bank should focus on its job, which is financial stability, lower interest rates, lower unemployment and lower inflation, he said. (BBG)
House’s bid to end partial shutdown gets tougher
House Speaker Mike Johnson faces an uphill battle to end the partial U.S. government shutdown, as House Democrats refuse to support a GOP funding plan that includes a two-week extension for the Department of Homeland Security and instead demand sweeping reforms to immigration enforcement, the WSJ reports. With a razor-thin 218–213 Republican majority and some conservatives pushing for a longer extension or adding the VOTE Act, Johnson must hold nearly all GOP votes.
BoJ summary suggests emerging urgency around timely hikes
A summary of opinions from the Bank of Japan’s January policy meeting indicated a growing awareness of the need to raise interest rates in a timely fashion as authorities monitor the impact of the weak yen on inflation. “Given that addressing rising prices is an urgent priority in Japan, the bank should not take too much time examining the impact of raising the policy interest rate, and should proceed with the next step, a rate hike, without missing the appropriate timing,” one of the nine board members said, according to the summary from the two-day policy meeting that concluded on Jan. 23. A weak yen is likely to remain a primary factor for the BOJ and the government in support of the need for a rate hike, Bloomberg reports. Here is the link to the minutes.
Yen drops after Takaichi comments
Prime Minister Sanae Takaichi stated that a weak yen could benefit export industries, easing concerns about possible intervention to support the currency, Bloomberg reports. Traders expect market volatility ahead of the February 8 snap election and are watching for fiscal policies that could affect inflation and the yen. Takaichi later clarified she meant to emphasise building a resilient economy. USDJPY rose briefly but is now little changed.
RBA set for U-turn to rate hike in break from global trend
Australia’s central bank, the Reserve Bank of Australia (RBA), is widely expected to raise interest rates this week, marking a reversal from its previous policy of rate cuts less than six months ago. The anticipated 0.25-point increase to 3.85% comes as inflation persists and unemployment unexpectedly dropped to 4.1%, signalling a stronger-than-expected economy, Bloomberg reports.
Meanwhile, Australia’s home-price growth gathered pace in January, with the Home Value Index advancing 0.8%. Cotality’s Research Director Tim Lawless expects demand-side pressures to cool this year as affordability and loan-serviceability constraints push buyers to the sidelines, helping to slow price momentum, Bloomberg reports.
Today’s Macro Roadmap: Eurozone and US PMIs, BOE & Fed speak in focus
In the US, the ISM manufacturing survey is expected to edge higher to 48.3 in January from 47.9 in December. Wells Fargo notes that the solid, broad-based pickup in durable goods orders in November offered a tentative sign that firms are increasing capital expenditures. That said, manufacturing output growth remains uneven across industries, and while recent data suggest conditions may be stabilising at the margin, the ISM continues to signal a factory sector that is struggling to regain traction.
Most of the already published regional manufacturing surveys have ticked up lately, suggesting a recovery in the ISM series as well.
Good luck today!