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In focus today

In the euro area, focus turns to the unemployment rate for January. The labour market has continued to prove very resilient with record-low unemployment at 6.3%, which is also the expectation for January.

Economic and market news

What happened overnight

In Japan, the unemployment rate surprised to the topside, coming in at 2.5% in January (cons: 2.4%), up from 2.4% in December. Meanwhile, the jobs-to-applications ratio increased to 1.26 in November (cons: 1.25), up from 1.25 in the previous three months.
What happened yesterday

In the US, the ISM manufacturing index declined from 50.9 to 50.3 in February (cons: 50.7), suggesting that the rebound in production stalled in February. The message from today's ISM data is rather different compared to PMI figures, which were revised slightly higher from 51.6 to 52.7 in the final numbers out earlier today. Looking ahead, the risk related to tariffs on key trading partners could add to the ongoing rise in input prices, which could add to goods inflation depending on pricing power across producers.

In the euro area, HICP inflation declined to 2.4 % y/y in February from 2.5% (cons: 2.3%). Core inflation also fell slightly less than expected to 2.6 % y/y from 2.7% y/y (cons: 2.5%). The decline in core was due to services inflation, which declined due to the weaker momentum seen in the past months and base effects. It was overall another print that supports further rate cuts by the ECB but that also shows that upside risks from wage growth to services inflation remains as momentum continues to be too high. Yet, with falling wage growth we also expect services inflation to decline further, which in combination with low goods price increases should sedt core inflation below the 2% target from summer this year.

Furthermore, final manufacturing PMI for February was revised slightly up to 47.6 from the initial 47.3 in the flash release. We anticipate that the manufacturing PMI will continue to gradually increase and reach the 50-mark after the summer, supported by declining policy rates and increasing domestic demand.

In Sweden, PMI for the manufacturing sector came in strong, rising from 53.0 to 53.5, driven by a broad increase in production, orders, employment and delivery times. Only the delivery time sub-component declines, but overall, a solid print and average over the last six months is 52.9.

On the geopolitical front, US President Trump Donald Trump confirmed the imposition of 25% tariffs on all imports from Canada and Mexico, effective today, 4 March, which intensified market concerns and sent financial markets reeling. Furthermore, Trump signed an executive order raising additional tariffs on Chinese imports from 10% to 20%, also effective today. In a joint meeting with TSMC, the Taiwanese semiconductor company, Trump also announced a plan for the world's largest contract chip maker to invest USD 100bn in building five additional chip facilities in the US in the coming years.

Additionally, the US announced the suspension of its military aid to Ukraine to pressure President Zelenskiy to settle a deal with Russia amid tensions with President Trump. This move could advantage Russian forces and challenges European allies to increase support for Kyiv. The announcement comes after a day in equities when Europe's defence sector experienced a significant rally, with substantial share price increases as investors anticipated increased military spending by European governments.

Equities: Equities rallied and sold off yesterday. The most intriguing aspect to consider is whether it is more interesting to observe European equities rallying despite the known risk of tariffs and yesterday's deadline, or to see US stocks being sold off throughout the session, which, in our opinion, should be viewed as a result of Trump's tariff policies. Of course, global indices are down significantly, as the US constitutes the majority of these indices, and the US drop exceeded the gains in Europe. However, it is worth noting that financials and industrials rose alongside some defensive sectors on a day when we received confirmation of some of the largest tariff increases in modern history. When we mention confirmation, it is because Trump announced it yesterday, but nothing is set in stone, and he might change it today.

Secondly, the MAG 7 lost 3.1%, and other high-flying assets from last year, like crypto currencies, took a hit yesterday. In other words, the financial market reaction is not a direct reflection of what the macro impact of the tariffs will be, but rather a rotation away from some of last year's winners and the highest-valued segments of the equity market.

Similarly, Chinese equities are higher at the time of writing, just after the year-to-date tariff increase reached 20 percentage points, nearly twice the 12-percentage point rise seen during the 2018-19 trade war. From a macro and earnings perspective, this makes very little sense, but from a valuation and under-owned perspective, it tells a compelling story.

Thirdly, where do we see the most significant stress right now in our correction monitor? It is among the US retail investor segment, where we have a negative z-score of -2.8. This is quite indicative of how divergent the equity space is at the moment and how we have off-setting forces at play. In the US yesterday, Dow -1.5%, S&P 500 -1.8%, Nasdaq -2.6%, and Russell 2000 -2.8%.

To put things further into perspective, most US indices are lower for the year, while major European indices are up double digits, and the Hang Seng is nearly 15% higher year-to-date. Futures are lower in Europe this morning. In rounded numbers, at the time of writing, Europe is down about 0.7%, and the UK and Germany are down about 0.5%. In other words, down less than the indices rose yesterday. US futures are higher by 0.1-0.5% at the time of writing.

FI: The risk of a potential significant increase in defence funding across the euro area led to a significant sell-off yesterday driven by the long end, and particular Germany. The 30y German yield rose 10bp, slightly more than the 10y Bund by 9bp to briefly touching above 2.5%. The risk of additional supply for defence, coupled with the announcement of a long 15y Belgian bond (2042), the new 10y Dutch bond to come to the market today as well as Austria tapping the 2035 and 2053 bonds meant significant long-end supply to be absorbed. There is also potential of a new German 30y syndication to be announced today, see Reading the Markets EUR A cut is the easy part, 28 February, where we look at the pricing of the new 30y Benchmark bond.

FX: Monday was an eventful day for FX markets. SEK was among the big winners amid an outperformance in European assets with EUR/SEK declining close to the 11.00 mark. Conversely, EUR/USD was in for a strong performance, gaining 1% trading close to the 1.05 mark. CAD was left vulnerable as Trump reiterated that Canada (and Mexico) could not avert the 25% tariffs scheduled to take effect today, 4 March. Oil prices dropped yesterday after OPEC+ surprised the market by announcing it will proceed with scheduled production hikes from April - the market had likely expected the cartel to postpone hiking output yet again.

Daily Pivots: (S1) 1.4387; (P) 1.4465; (R1) 1.4559; More...

USD/CAD's rise from 1.4150 continues today and intraday bias stays on the upside. Further rally should be seen to retest 1.4791 high. Strong resistance might be seen there to limit upside on first attempt. But decisive break there will confirm resumption of larger up trend. On the downside, below 1.4368 minor support will turn intraday bias neutral again first.

In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned support holds (2022 high), even in case of deep pullback.

Daily Pivots: (S1) 0.6200; (P) 0.6228; (R1) 0.6251; More...

Intraday bias in AUD/USD remain son the downside with 0.6254 minor resistance intact. Corrective rebound from 0.6087 should have completed at 0.6407, ahead of 38.2% retracement of 0.6941 to 0.6087 at 0.6413. Deeper fall should be seen for retesting 0.6087 low. Firm break there will resume whole decline from 0.6941. On the upside, above 0.6254 minor resistance will turn bias to the upside for stronger recovery.

In the bigger picture, fall from 0.6941 (2024 high) is seen as part of the down trend from 0.8006 (2021 high). Next medium term target is 61.8% projection of 0.8006 to 0.6169 from 0.6941 at 0.5806. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.6494) holds.

Daily Pivots: (S1) 1.0417; (P) 1.0461; (R1) 1.0532; More...

Intraday bias in EUR/USD stays neutral, and outlook remains bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds. Below 1.0358 will target 1.0176/0210 support zone first. Firm break there will resume whole fall from 1.1213, and carry larger bearish implications. However, sustained trading above 1.0572 will pave the way to 61.8% retracement at 1.0817.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Daily Pivots: (S1) 1.2614; (P) 1.2669; (R1) 1.2757; More...

Intraday bias in GBP/USD is back on the upside with breach of 1.2715. Rise from 1.2099 is resuming for 1.2810 resistance. Firm break there will target 61.8% retracement of 1.3433 to 1.2099 at 1.2923. On the downside, break of 1.2558 will turn bias back to the downside for near term rising channel support (now at 1.2453).

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

Daily Pivots: (S1) 0.8941; (P) 0.8987; (R1) 0.9013; More…

Intraday bias in USD/CHF remains neutral and outlook is unchanged. On the upside, firm break of 0.9053 resistance will suggest that corrective pattern from 0.9200 has already completed at 0.8911. Further rally should then be seen to retest 0.9200 resistance. In case of another fall, downside should be contained by 38.2% retracement of 0.8374 to 0.9200 at 0.8884 to bring rebound.

In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

Daily Pivots: (S1) 148.63; (P) 149.97; (R1) 150.83; More...

Intraday bias in USD/JPY is turned neutral again as it quickly reversed after recovering to 151.29. Overall outlook is unchanged that the decline from 158.86 is seen as the third leg of the corrective pattern from 161.94 high. On the downside, below 148.55 will resume the fall and target 61.8% retracement of 139.57 to 158.86 at 146.32 next. On the upside, break of 151.29 will delay the bearish case, and bring more consolidations.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

The latest round of US tariffs on Canada, Mexico, and China officially took effect today, marking the formal start of what many are calling "Trade War 2.0" under US President Donald Trump. Markets had been bracing for impact, and the steep selloff in US stocks overnight confirmed that investors are deeply concerned about the economic fallout. Treasury yields also tumbled, reflecting strong safe-haven flows as traders rushed into bonds amid rising uncertainty.

Despite the sharp risk-off move in the US, the reaction in Asian markets has been uneven. Japan's Nikkei is the only major index experiencing a significant selloff, while other regional markets remain relatively calm. This suggests that investors are still assessing the broader implications of the tariffs before making further adjustments to their positions.

In the currency markets, Yen is currently the strongest performer for the day, benefiting from both risk aversion and falling yields in the US and Europe. Yen's is facing additional upward pressure Trump directly accused Japan of currency manipulation. The US President stated that he had personally called Japanese leader to warn them against devaluing Yen, adding that if such actions continued, tariffs could be the next step to level the playing field for American manufacturers.

Japan wasted no time in responding, with Finance Minister Katsunobu Kato firmly rejecting the accusations. "We are not adopting a policy to weaken the Japanese currency. If you recall our foreign exchange market interventions in recent years, you can understand what I mean," Kato stated in a press conference. This exchange sets the stage for further tensions between Washington and Tokyo, as Japan seeks to defend its monetary policy while avoiding trade tensions with the US.

Elsewhere in the forex markets, the Australian Dollar is the worst performer of the day at this point. While RBA's minutes confirmed that there is no commitment to further rate cuts following last month’s policy reduction, Aussie has been dragged lower by broad risk aversion. Kiwi followed closely behind, and then Loonie.

On the other hand, the Swiss Franc is benefiting from the risk-off sentiment, positioning itself as the second-strongest currency after Yen. Dollar remains resilient, supported by safe-haven demand despite falling treasury yields. Meanwhile, the Euro and Sterling are mixed, still partially bolstered by optimism surrounding the European-led "Coalition of the Willing" and the region’s commitment to increased defense spending.

Technically, AUD/JPY's decline from 120.39 is in progress for 100% projection of 102.39 to 95.50 from 98.75 at 91.86, Such decline is currently seen as the second leg of the corrective pattern from 90.10 (2024 low). Hence, momentum should start to diminish below 91.86 while downside should be contained by 90.10 to bring reversal. Break of 94.42 support resistance will be the first sign of short term bottoming. However, sustained break of 90.10 will suggest that fall from 102.39 is indeed resuming the whole down trend from 109.36 (2024 high) as the third leg.

In Asia, at the time of writing, Nikkei is down -1.26%. Hong Kong HSI is down -0.26%. China Shanghai SSE is up 0.15%. Singapore Strait Times is down -0.33%. Japan 10-year JGB yield is up 0.010 at 1.419. Overnight, DOW fell -1.48%. S&P 500 fell -1.76%. NASDAQ fell -2.64%. 10-year yield fell -0.051 to 4.180.

S&P 500 sinks as US tariffs on Canada, Mexico, and China set to begin

US equities tumbled sharply on Monday, kicking off March with the biggest single-day decline in months, and the markets were rattled by the formal commencement of a US-led trade war.

The selloff started in the afternoon after US President Donald Trump reaffirmed that 25% tariffs on imports from Mexico and Canada would go into effect as scheduled on Tuesday. Hopes for a last-minute deal to avert the full imposition of tariffs were dashed. The Federal Register confirmed that the new duties would be officially imposed at 05:01 GMT.

Similarly, the additional 10% duty on Chinese goods was also slated to take effect at the same time, effectively raising the total tariff on thousands of Chinese products to 20%.

In quick response, Canada announced retaliatory measures, with Prime Minister Justin Trudeau confirming that CAD 155B worth of US goods would be hit with 25% tariffs if Trump's levies proceed as planned. China will impose an additional 15% tariff on US imports of chicken, wheat, corn, and cotton. Additionally, a 10% tariff will be applied to sorghum, soybeans, pork, beef, seafood, fruits, vegetables, and dairy. These measures are set to take effect on March 10.

Technically, S&P 500's rejection by 55 D EMA (now at 5988.77) is a near term bearish sign. Immediate focus is on 5773.31 support this week. Considering bearish divergence condition in D MACD, firm break of 5773.31 should confirm medium term topping that 6147.47. That would set up deeper correction to 55 W EMA (now at 5594.28) at least.

RBA minutes: No commitment to further rate cuts

The minutes from RBA’s February meeting reinforced the central bank’s cautious approach to monetary easing, making it clear that the recent 25bps rate cut to 4.10% does "not commit them to further reductions" in subsequent meetings.

Policymakers acknowledged that inflation has been falling at a “somewhat faster pace than expected,” which helped ease concerns over upside risks. However, they stressed that the path to returning inflation to target while maintaining labor market gains is “not yet assured.” The Board ultimately deemed that the stronger case was to ease policy, given the downside risks to the economy.

Despite the decision to cut, RBA members debated the risks of "easing policy too soon", recognizing that a premature policy shift could lead to resurgence in inflation.

They noted that if inflation proved “more persistent than expected,” holding the cash rate at 4.1% for an “extended period” or even tightening policy would be warranted.

Australia retail sales rises 0.3% mom, driving by food-related spending

Australia's retail sales turnover rose 0.3% mom to AUD 37.08B in January, matched expectations.

Robert Ewing, ABS head of business statistics, said: "While the pick-up in retail spending since mid-2024 has been boosted by more discretionary spending, this month’s rise is mostly driven by food-related spending."

USD/JPY Daily Outlook

Daily Pivots: (S1) 148.63; (P) 149.97; (R1) 150.83; More...

Intraday bias in USD/JPY is turned neutral again as it quickly reversed after recovering to 151.29. Overall outlook is unchanged that the decline from 158.86 is seen as the third leg of the corrective pattern from 161.94 high. On the downside, below 148.55 will resume the fall and target 61.8% retracement of 139.57 to 158.86 at 146.32 next. On the upside, break of 151.29 will delay the bearish case, and bring more consolidations.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

US equities tumbled sharply on Monday, kicking off March with the biggest single-day decline in months, and the markets were rattled by the formal commencement of a US-led trade war.

The selloff started in the afternoon after US President Donald Trump reaffirmed that 25% tariffs on imports from Mexico and Canada would go into effect as scheduled on Tuesday. Hopes for a last-minute deal to avert the full imposition of tariffs were dashed. The Federal Register confirmed that the new duties would be officially imposed at 05:01 GMT.

Similarly, the additional 10% duty on Chinese goods was also slated to take effect at the same time, effectively raising the total tariff on thousands of Chinese products to 20%.

In quick response, Canada announced retaliatory measures, with Prime Minister Justin Trudeau confirming that CAD 155B worth of US goods would be hit with 25% tariffs if Trump's levies proceed as planned. China’s commerce ministry also vowed countermeasures, calling the US tariffs "unreasonable and groundless, harmful to others."

Technically, S&P 500's rejection by 55 D EMA (now at 5988.77) is a near term bearish sign. Immediate focus is on 5773.31 support this week. Considering bearish divergence condition in D MACD, firm break of 5773.31 should confirm medium term topping that 6147.47. That would set up deeper correction to 55 W EMA (now at 5594.28) at least.

Australia's retail sales turnover rose 0.3% mom to AUD 37.08B in January, matched expectations.

Robert Ewing, ABS head of business statistics, said: "While the pick-up in retail spending since mid-2024 has been boosted by more discretionary spending, this month’s rise is mostly driven by food-related spending."

Full Australia retail sales release here.