OPTIONS: Expiries for Mar03 NY cut 1000ET (Source DTCC)

From the MPR’s scenario assuming that the US increases tariffs on all imported goods to 25% and its trading partners respond by increasing tariffs on imported goods from the US to 25%. See in full here. 

• Benchmark case: GDP growth is 2.4pps lower than otherwise in year 1 before 1.5pps lower in year 2 and then returns to normal in year 3.
• “In other words, if annual average growth were projected to be 2% in years 1 and 2 with no new tariffs, then the growth forecast would be about -0.5% in year 1 and 0.5% in year 2 with the new tariffs.”
• That 2% in the scenario isn’t random, with the BoC forecasting 1.8% for GDP growth in both 2025 and 2026 (revised down from 2.1% and 2.3% respectively from the Oct MPR).
• Canadian CPI inflation would be just 0.1pp higher in year before a more notable 0.5pp in year 2 and 1.0pp in year 3.
• “Considerable excess supply and declining commodity prices largely offset the direct impact of tariffs in the first year, but inflation rises as excess supply is gradually absorbed in subsequent years.”

Modest dovish repricing in the UK short end holds, with gilts consolidating their morning rally and little of note on the macro front to shift BoE pricing.

• BoE-dated OIS flat to 2bp more dovish on the day, showing 70.5bp of cuts through year-end. Dovish cycle extremes of ~74bp have not been retested.
• We continue to look for cuts in both February & May, with 23bp and 42.5bp of cuts priced through those events at present.
• The market has moved back towards our baseline view over the past couple of weeks, but probably needs fresh dovish cues to move closer towards fully discounting 50bp of cuts through May.
• SONIA futures flat to +3.0.
• Comments from BoE Governor Bailey kept away from direct monetary policy matters, with the BoE in its pre-meeting quiet period.

Reuters reporting comments from Socialist Party (PS) Senator Patrick Kanner saying that the PS is not returning to budget talks with the gov't 'for now', and that the party 'wants further concession from PM Bayrou'. In the Senate, Kanner addresses the gov't saying "We do not want our country to live under the tutelage of the extreme right". 

• The PS withdrew from any budget discussions following comments from PM Francois Bayrou on 27 Jan talking about a 'feeling of flooding' with regards to immigration. The PS has demanded Bayrou walk back his comments, as well as committing to an increase in the minimum wage and an agreement not to cut funding for state medical aid (see 'FRANCE: PS Sets Out Conditions To Return To Budget Talks', 1154GMT)