- Slow start to the week; China and the US on holiday today
- Busy event calendar ahead, with a potential Supreme Court decision on Friday
- US equity weakness in the spotlight; dollar benefits from lingering ‘risk off’ sentiment
- Dollar/yen slide pauses; Japanese sovereign yields drop after weak GDP report
Slow Monday but Week Could Prove Market-Moving
A slow start to the week is expected after last week’s galore of US data releases. The combination of a stronger labour market and softer has beefed up the priced into the markets. Around 62bps worth of rate cuts are currently expected, with the first rate cut fully pushed out to July. That makes sense for two reasons: the current strong run of US data prints, and the new dovish Fed Chair–nominee Kevin Warsh, pending a major surprise–taking office in late May.
The first reason will be tested this week, as there is a plethora of fresh US data prints, including key manufacturing indicators, with the highlight being Friday’s first estimate for the fourth quarter of 2025 and the report. Similarly, Fedspeak will be at the forefront, with known dove Fed board member Bowman being on the wires today. Following Friday’s report, dovish Fedspeak may get a boost this week, possibly prompting a potent reaction from investors.
Equities do not seem to appreciate the rising Fed rate cut expectations and the robust economy, as the major indices underperformed last week, led by the index. Sector-wise, financial and communication stocks posted the sharpest losses, but the technology sector made the headlines once again. It completed seven weeks of negative weekly performance, matching the May 2022 period, with the run of ‘red’ weeks stopping at eight. More importantly, back then it took almost a year for tech stocks to surpass the local peak posted in mid-2023, just before this extraordinary sequence of ‘negative’ weeks.
Dollar Performance
The weak stock performance appears to have somewhat boosted the on Friday, but it did not reverse the weekly picture. The finished the week down 0.7%, with the and the posting significant gains against the greenback, matching ’s performance. The precious metal is hovering around the $5,000 level today.
Low Liquidity Session Ahead
China has officially commenced its week-long Lunar New Year holiday, returning to action on February 24, and thus severely reducing market activity during Asian hours. Similarly, today, the US is observing another bank holiday, with major US exchanges being closed. This usually means very low liquidity in markets, deterring aggressive market plays, and leading to minimal moves, as most trading desks are manned by junior staff with orders to keep the order book stable.
The week will probably become more interesting going forward, as apart from key data releases, there is another bout of US corporate earnings and the possible Supreme Court decision about tariffs. The Supreme Court has announced that February 20, 24 and 25 will be decision days, but, as per usual, the cases on which ruling will be published have not been announced. This means that investors might prepare for a decision in the next ten days, but there could be another month before judges publish their ruling.
In the meantime, as widely expected, President Trump has shifted his focus to the November midterm elections, which might explain his less aggressive rhetoric on tariffs. Even more importantly, there are reports that he is thinking about reducing the high tariffs imposed on steel and aluminium imports.
Dollar/Yen Stabilizes
Meanwhile, Japanese PM Takaichi is preparing for her second term, implementing the pre-election promises. One of the key announcements was the suspension of the 8% consumption tax on food and further fiscal spending. The leader of Ishin, the junior coalition partner, touted the idea of using the vast foreign exchange reserves to cover these needs without tapping the bond market.
Japanese yields have reacted somewhat positively to this controversial idea, with mostly reacting to today’s weaker Q4-2025 report, potentially denting the chances of a rate hike by the BoJ’s April meeting, thus making June the key month for the next rate move.
