- Trump confirmed that the 25% tariff on Canada and Mexico would start in March.
- US jobless claims rose to 242,000 last week.
- Investors are awaiting the US core PCE price index report.
Interest futures fell on Thursday as the dollar, and Treasury yields rose after Trump maintained the timing for tariffs on Canada and Mexico. However, prices rebounded on Friday as market participants focused on US data and the outlook for Fed rate cuts.
After almost a month, market participants expected the US President to further delay proposed tariffs on Canada and Mexico. Experts believed the tariffs would start in April as opposed to March. As a result, the dollar eased, and risk appetite rebounded.
However, on Thursday, things took a sharp turn when Trump confirmed that the 25% tariff on Canada and Mexico would start in March. This comes despite efforts by the two countries to improve trade with the US. The tariffs will increase the risk of trade wars if there is a response from Canada or Mexico. Previously, top officials in Canada have cautioned the US against such a move as it would hurt both economies. Moreover, they have promised an immediate response in case the tariffs come into effect.
Meanwhile, traders also focused on data from the US, including GDP and jobless claims. A preliminary report on GDP revealed that the economy expanded by 2.3%, holding from the previous reading. This indicated stalled growth.
US jobless claims (Source: US Labor Department)
The US also released its jobless claims report, revealing some softness in the labor market. Jobless claims rose to 242,000 last week. Economists had expected claims to increase to 222,000. The unexpected increase is a sign that demand has dropped in the sector. Therefore, it puts more pressure on the Fed to lower borrowing costs.
Last week, traders raised bets for Fed rate cuts in 2025 after US data revealed a sharp decline in business activity. Currently, markets are pricing two rate cuts this year. If data continues showing weakness, rate-cut bets will increase, boosting interest futures.
Investors will now watch the core PCE price index report for more clues on Fed monetary policy. According to estimates, inflation might increase by 0.3%, higher than the previous reading of 0.2%. An upbeat report will lower rate cut expectations, hurting interest futures. On the other hand, downbeat data will extend the recent rally as investors increase bets for rate cuts.
