Bitcoin Leads Fall in Cryptocurrencies as Investors Turn Cautious — Market Talk

0822 GMT - Bitcoin leads a fall in cryptocurrencies as investors turn cautious amid uncertainty over U.S. President Donald Trump's policies and ahead of a busy week on the economic calendar. Trump on Sunday threatened a 25% tariff on goods imported from Colombia. This was ultimately resolved but "highlights how focused Trump is on using tariffs as a geopolitical threat in his second term as president," XTB's Kathleen Brooks says in a note. Markets are also bracing for big tech earnings this week, the Federal Reserve's policy decision Wednesday, the European Central Bank's decision Thursday, U.S. economic growth data Thursday and U.S. personal consumption expenditures prices Friday. Bitcoin falls 5.8% to $99,064, having earlier reached a one-and-a-half-week low of $97,810, according to LSEG. ([email protected])0753 GMT - European Central Bank policy decisions this week and in March are fairly straightforward, and it is much more interesting to discuss the policy outlook from April, Danske Bank Research's Piet Haines Christiansen says in a note. April will be the next key "battleground" for policy decisions, Danske's ECB watcher says. He reckons the ECB will stop cutting interest rates when the inflation outlook is at target and growth is firmly expected at potential in the near term. "And importantly, both of these are associated with a balanced risk assessment to the medium-term outlook," he says. Markets near fully price in a 25bp ECB rate cut this week, see an almost 70% chance of a similar cut in March but are divided for April, according to LSEG. ([email protected])0752 GMT - The euro falls against the dollar as the European Central Bank is expected to cut interest rates Thursday while the Federal Reserve pauses rate cuts Wednesday, Swissquote Bank analyst Ipek Ozkardeskaya says in a note. Data on Thursday could show much weaker eurozone economic growth compared to the U.S. in the fourth quarter, she says. This would give the ECB reason to cut rates further as inflationary pressures remain under control, she says. Investors "continue to bet that the growth gap between the U.S. and the eurozone and the diverging Fed and ECB outlooks hint at a sustained euro weakness, rather than a sustainable recovery of the single currency." The euro falls 0.1% to $1.0471. ([email protected])0724 GMT - The government bond supply frenzy in the eurozone will probably calm down soon, but that reprieve could prove to be relatively short-lived as further syndications are likely in February, rates strategists at Societe Generale Research say. A risk-on mood, combined with attractive outright yield levels, has boosted demand for eurozone government bonds, leading to yield spread tightening, they say in a note. "If there is no repricing of the European Central Bank rate cuts and the general appetite for eurozone government bonds continues, there is no reason to expect a sharp widening in spreads," they say. That said, the strategists add that the situation in France is set to remain fragile, while Germany holds elections in February. ([email protected])0723 GMT - With the European Central Bank in easing mode, a spike in long rates close to the levels of the beginning of rate cuts makes duration increasingly appealing, rates strategists at Societe Generale Research say in a note. "We recommend cautiously buying duration, not necessarily in Bunds ahead of German elections," they say. The rates strategists prefer 30-year Spanish or Italian government bonds for eurozone duration. Germany will hold elections on Feb. 23. German 10-year Bund yields might rise to around 2.80%, although an increase to 3% is unlikely, they say. The 10-year Bund yield falls 5 basis points to 2.52% in early trade, according to Tradeweb. ([email protected])0719 GMT - The broad-based deterioration in China's PMIs point to a weak start to 2025, Barclays economists say. The beyond-seasonal drop in the manufacturing PMI in January and big miss in non-manufacturing PMI suggest that growth momentum slowed visibly, Yingke Zhou and others say. The alarming, five-year low in the construction PMI points to a deeper contraction in housing building and a slow start for new infrastructure, they write. Reflecting this, they see China's seasonally adjusted annual growth rate slowing from 7.9% on quarter in 4Q to 2.2% in 1Q. From 2Q onward, there could be a mild recovery as new policy support kicks in, followed by moderation in the next quarters as a potential trade war bites. Barclays keeps its full-year growth forecast at 4.3%. ([email protected])0650 GMT - China's surprisingly weak January PMIs cast doubt if the economy can gain a firmer footing after better-than-expected 4Q GDP growth, says Commerzbank Research senior economist Tommy Wu in a note. Although the latest PMI readings need to be taken with "a pinch of salt," due to the moving holiday effects of the Lunar New Year, Wu says the magnitude of decline was unexpectedly strong. The PMIs reinforce Commerzbank Research's view that the Chinese economy still needs further stimulus to help it to stay on a stable growth path. "This is especially true if China can no longer rely on exports as it did last year," Wu says. China's trade outlook faces challenges such as potential U.S. tariffs, he adds.([email protected])0649 GMT - The Nikkei Stock Average ended 0.9% lower at 39565.80 as weakness in tech and electronics stocks offset gains in bank shares. SoftBank Group dropped 8.3% and Advantest lost 8.6% after they rose sharply last week on renewed enthusiasm over artificial intelligence-related demand. Meanwhile, Mitsubishi UFJ Financial Group gained 0.7% and Sumitomo Mitsui Financial Group climbed 1.5% after their main banking units said they would raise short-term prime lending rates. Broader market index Topix rose 0.3% to 2758.07. Earnings are in focus. The 10-year Japanese government bond yield dropped 1.5 bps to 1.215%. USD/JPY is at 156.10, compared with 156.01 late Friday in New York. ([email protected]; @kosakunarioka)0619 GMT - More two-way swings for USD and other FX pairing are likely in store as Trump continues to use tariffs as a means to achieve his policies, Maybank analysts say. The dollar edged higher against most currencies after Trump ordered 25% emergency tariffs on Colombia over its refusal to allow planes with migrants to land in the country. Trump walked back on the threat as the White House said Colombia met its demands to repatriate migrants. That comes right after Trump threatened 25% tariffs on Mexico and Canada, the analysts note. With the U.S. 10-year Treasury yield and oil prices both edging lower, that tilts risks for the greenback to the downside on the whole in the near term, they say. ([email protected])0616 GMT - China's weaker-than-expected January PMI readings underscore the need for additional policy measures to stabilize economic growth, Citi analysts write in a note. While the Lunar New Year holiday effect contributed to the decline, manufacturing activity weakened more than typically seen in a seasonal slowdown, they say. External demand faced challenges, with tariff risks looming under Trump 2.0, the analysts add. Although the current trade-in policy will likely provide some support for holiday consumption, a key policy event to watch is the National People's Congress in March, they note. ([email protected])0557 GMT - The Bank of Japan seems likely to keep normalizing policy at a gradual pace, economists at PGIM Fixed Income say in a note. The policy rate is now at the psychologically important level of 0.5%. The BOJ has been unable to keep rates above that threshold since the mid-1990s and is likely hoping that this time will be different, they note. More policy normalization is backed by macro data, the currency impact from a strong USD, and the BOJ's thinking on Japan's experience with low inflation and prior policy action. "Our view is that rates will rise by a further 25 bps this year, but potentially not until the Autumn." But if underlying inflation accelerates beyond 2%, BOJ could speed up the pace of rate hikes, they add. ([email protected])0533 GMT - The Australian central bank still seems likely to make its first rate cut of the cycle next month, Nomura analysts say, expecting the upcoming 4Q CPI release to show that inflation pressures have continued to recede. They reckon this week's report will show evidence of moderation in trouble spots such as rent and insurance. More benign inflation should roughly offset a stronger-than-expected labor market over recent months. They see the rate cut argument shifting a little from a weak economy requiring monetary support to lower inflation allowing policy to become less restrictive. Given these labor market and inflation developments, Nomura continues to favour policy moves in February, May and August, following quarterly CPI reports. ([email protected])