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Daily Economic Update
04.02.2025US: Trumps pauses tariffs on Canada and Mexico for one month as countries make concessions. In last-minute deals, President Trump delayed tariffs on imports from Canada and Mexico by one month as both nations agreed to bolster border security to prevent flows of immigrants and drug trafficking, and to allow time to negotiate further. Previously, Trump had announced 25% tariffs on Mexican and Canadian goods, with energy imports from Canada at a lower 10% rate that were to take effect from Tuesday. Absent a last-minute deal, the 10% tariffs on Chinese imports would become effective today, while according to just-released media reports, China has retaliated by imposing 15% tariff on US imports of coal and LNG and 10% on oil and some agricultural equipment. Judging by the way in which tariffs have been deployed so far, it appears that the Trump administration is using them at the moment mostly as a means of extracting concessions from countries on specific issues. Nonetheless, uncertainties remain very high given Trump’s transactional style of dealing with trade matters. Markets cheered the last-minute deals, with the S&P 500 cutting losses to 0.8% after being down around 2% at one point yesterday and the dollar index retreating from its nearly two years high. Meanwhile, US manufacturing activity exited contraction territory for the first time in 27 months, with the ISM manufacturing PMI rebounding more than expected to 50.9 in January from 49.2 in December. New orders (at 55.1) were also at their highest since May 2022. However, the price sub-index rose to an eight-month high (54.9), suggesting consumer price pressures on goods are building. Overall, the PMI manufacturing gauge may remain volatile over the coming months as Trump’s tariff polices evolve, affecting supply chain and import prices for domestic producers.
Eurozone: Headline and core inflation higher than expected in January. Inflation rose to 2.5% y/y in January, up from 2.4% in December and exceeding estimates of a 2.4% increase. With January’s results, the Eurozone recorded its fourth consecutive month of rising inflation. Core inflation remained steady at 2.7% y/y for the fifth consecutive month (higher than the 2.6% expected), with services inflation sticky and still elevated at 3.9%. Despite the stubbornly-high inflation, ECB projections indicate that both headline and core rates will trend towards the 2% target during 2025.
Oil: OPEC+ sticks to output plan. In the Joint Ministerial Monitoring Committee (JMMC) meeting held yesterday, OPEC+ stuck to its current oil production plan that sees the “Group of Eight” release 2.2 mb/d of withheld supply over 18 months (at the pace of 135 kb/d per month) from April 2025. The oil exporters’ group appears to have rebuffed for now US President Trump’s call earlier for OPE to “lower oil prices”, presumably by moving to a more accelerated resupply timetable. The bloc’s decision to finally unwind the supply cuts follows three postponements and a slower tapering pace compared to prior schedules as oil demand growth underwhelmed expectations while non-OPEC+ supply growth was robust, both pushing the market into potential surplus territory in 2025. The latest round of US sanctions on Russian energy could, however, cause short-term supply disruptions and limit market oversupply. Meanwhile, OPEC also dropped the US Energy Information Administration (EIA) and Rystad Energy as secondary sources to monitor members’ crude production and conformity, replacing them with Kpler, OilX and ESAI. An OPEC+ source said that dropping the EIA was due to a lack of communication on data rather than politics.
Kuwait: Non-oil private sector activity eases in January but remains in expansion territory. The non-oil private sector PMI activity gauge eased to a three-month low of 53.4 in January from 54.1 in December, but nevertheless remained in solid expansion territory. Output and new orders both grew, albeit at a softer pace than in December, benefitting from successful advertising campaigns, competitive pricing, and Kuwait’s hosting of the Arabian Gulf football cup which extended into early January. Amid higher consumer demand, firms increased hiring, with the employment subindex quickening to the joint-fastest on record, raising staffing costs. While growth in input costs moderated amid softer increases in purchasing costs, firms raised their selling prices following a minor decrease in December.
Saudi Arabia: Non-oil PMI strongest in over 10 years. The non-oil private sector PMI rose to 60.5 in January from 58.4 in December, the highest in over 10 years, reflecting an exceptionally strong expansion in business activity. The stronger activity was broad-based and particularly in new orders, which saw the fastest increase (71.1) since 2011, thanks partly to strong growth in export orders, while output also grew at a faster pace, encouraged by accommodative economic conditions and strong project activity. Purchasing activity strengthened as well, with inventories expanding as firms were optimistic about the year ahead. The strong increase in business activity saw an increase in overall cost pressures, with input prices rising at the fastest pace in more than four years, prompting firms to raise output prices.