US DATA: Services PMI Slides Below 50, Softest Services Inflation In Five Years

Secretary of State Marco Rubio yesterday held his first meetings at the State Department, convening a conflab of Indo-Pacific ‘Quad’ foreign ministers. The prioritisation of the Indo-Pacific dialogue alliance indicates continuity with the Biden administration in multilateral partnership with Japan, India, and Australia. 

• Rubio also met bilaterally with his three counterparts and acknowledged the importance of the next Quad Leaders’ Summit, to be hosted by India in September.
• The State Department said in a readout, tracking closely with previous Biden administration statements, that the four ministers reaffirmed their, “shared commitment to strengthening a Free and Open Indo-Pacific where the rule of law, democratic values, sovereignty, and territorial integrity are upheld and defended.”
• A Japanese spokesperson told reporters: “This is a very good example that we can continue this kind of minilateral or multilateral cooperation under the second Trump administration,”
• Trump’s National Security Advisor, Mike Waltz, also met with Japanese Foreign Minister Takeshi Iwaya yesterday, potentially starting discussions on a Trump meeting with Prime Minister Shigeru Ishiba in February -  a priority for Tokyo.
• The State Department noted that in his meeting with Indian counterpart, Subrahmanyam Jaishankar, Rubio, “emphasized the Trump Administration’s desire to work with India to advance economic ties and address concerns related to irregular migration,” signalling that the Trump administration is likely to target immigration reform from New Delhi in return for ratcheting up economic cooperation. 

(Originally published Jan 21): Eurozone economic activity continues to be mixed at best across sectors and countries. Despite an uptick on an aggregate basis in Q3, mid-term growth momentum is subdued, with low investment and net exports, while household consumption is seen to exhibit some relative strength. The economic outlook for the bloc became more clouded in recent months amid subdued sentiment and expectations for a less favourable global environment going forward.

• Economic Activity: Final GDP growth printed 0.4% Q/Q in Q3, but Q4 is only estimated around the 0.1% handle. Annual growth is seen a little higher in 2025 (1.0%) vs 2024 (0.7%) and 2023 (0.4%), but momentum is uneven across sectors and the main countries.
• Labour Market: The Eurozone labour market continues to show some signs of cooling in recent months but remains overall resilient. Wage pressures continued to moderate recently.
• Monetary Policy: The ECB appears confident on being able to gradually cut its interest rates down to neutral territory with markets expecting 100bps of cuts in 2025.

PDF ANALYSIS HERE: 

2025_Jan21_Eurozone_Macro_Signal.pdf

• Deutsche Bank see a large hit to Canadian aggregate demand in the event of 25% tariffs, pulling Canada into a recession that will be reinforced by the limited ability for a fiscal response as a result of political paralysis.
• Monetary policy would be the “only other stimulative option” in this situation with DB seeing a terminal policy rate falling to a least 1.5% vs the 2.75% currently priced. That would widen the Fed-BoC policy gap to at least 250bp.
• In this scenario, they see USDCAD moving to “at least 1.53, with a very real possibility that it tests the 2002 all-time highs of 1.61. By extension, USD/CAD is one of the most under-priced FX crosses for an FX trade war.”