US 10-year yields have decreased by 7 basis points to 4.16%, marking the lowest rate this year and approaching the December low of 4.126%. Levels to monitor include 4.00% and a September low of 3.60%, which were associated with concerns about a slowing US economy.

The decline in yields may lead to similar circumstances as inflation concerns persist. In tandem, the USD/JPY currency pair has formed a double bottom near 148.50, with the current spot rate around 100 pips above this level. In September, the pair fell to 140.00 as yields reached their lowest point.

Connection Between Bond Yields And Currency Markets

These moves show how connected bond yields and the currency market are. The drop in yields suggests that investors may be positioning for slower economic growth or an adjustment in expectations for Federal Reserve policy. Lower yields tend to make the US dollar less attractive, and this can influence how different markets behave.

Given this, the recent pattern in USD/JPY is worth following. The double bottom around 148.50 indicates a level where buyers have stepped in twice, preventing further declines. Right now, the price sits a little higher, but if US yields continue to slide, history suggests the pair could revisit levels last seen in September. Market participants who were around then will remember that the pair dropped sharply to 140.00 when rates were in a similar position.

Bond traders are already watching the 4.00% mark on the 10-year yield closely. The last time this level was tested, it was linked to worries about growth losing steam. If yields approach that point again, it could reinforce those same fears. Below that, 3.60% remains tied to the deeper concerns that were at play last September.

We have seen before how these types of moves influence decision-making across different markets. Inflation remains a topic that keeps resurfacing, which means every shift in expectations around Federal Reserve policy adds an extra layer of complexity. If bond yields continue to move lower, the US dollar’s reaction could resemble past behaviour.

Market Reactions To Changing Yields

This is the kind of environment where various markets begin to align. Lower yields can put pressure on the dollar, and that in turn creates ripple effects for assets that are sensitive to currency movements. In these situations, we tend to see volatility pick up in certain corners of the market, especially if economic data reinforces the direction bond traders are leaning towards.

There are always inflection points where market behaviour starts to reflect shifting expectations. Recent moves suggest we may be in one of those periods again. Familiar price levels are coming back into focus, and decisions taken now could have a lasting impact on how the next few weeks unfold.

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During a recent announcement regarding chip factories, Trump reiterated plans to impose 25% tariffs on imports from Canada and Mexico. This statement resulted in a roughly 60-pip increase for the USD/CAD and a decline in US equities.

He also reaffirmed the reciprocal tariffs set for April 2. Additionally, Trump expressed the belief that Ukraine’s President Zelensky should show more gratitude and indicated that the minerals deal with Ukraine is not concluded. He stated intentions to negotiate with various parties to resolve the conflict in Ukraine while asserting that there is little opportunity for a deal with Canada and Mexico.

Market Sensitivity To Policy Shifts

This comes at a time when markets have been sensitive to any policy shifts, particularly those affecting global trade. The immediate reaction in USD/CAD reflects how quickly traders factor in potential disruptions, with the currency pair climbing by roughly 60 pips following the remark. Meanwhile, US equities took a downward turn, showing that anticipation of tighter trade conditions has already started to weigh on investor sentiment.

With the 25% tariffs reaffirmed, pricing pressure on goods passing through North American supply chains cannot be ignored. Those directly affected will likely begin adjusting operations to absorb these added costs or pass them down the line. For market participants, this means volatility in sectors reliant on cross-border trade, with companies shifting strategies to remain competitive.

The comments on Ukraine add another dimension. By suggesting that Zelensky should express more appreciation, Trump draws attention to ongoing tensions regarding military and economic aid. This fuels speculation about potential shifts in diplomatic priorities, while bringing uncertainty over resource agreements. The reference to minerals—as yet unresolved—raises the question of how future negotiations might unfold, particularly given the broader geopolitical stakes.

His statement about Ukraine negotiations suggests willingness to engage in talks with multiple parties, yet the stance on Canada and Mexico reflects a different approach. Tariffs on North American trade partners appear locked in, with no apparent interest in finding a middle ground. Businesses relying on these supply routes may soon need to account for long-term disruptions, since comments like these indicate that sudden policy reversals are unlikely.

Trader Reactions And Market Positioning

For those tracking near-term price movements, such announcements create fast-moving conditions. The quick reaction in currency and equity markets serves as a reminder that traders are factoring these developments in almost instantly. This makes it necessary to stay ahead of how policies are likely to be perceived, rather than waiting for formal agreements to materialise.

All of this comes as tariff-related concerns continue to ripple through multiple sectors, affecting everything from industrial production to commodity pricing. As companies reassess supply lines and margins, shifts in market positioning could follow—giving traders an incentive to monitor upcoming statements for further adjustments. Anything hinting at enforcement measures or retaliatory steps could add to the recent trading patterns, with momentum building around these policy shifts.

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Trump has announced that reciprocal tariffs will be implemented on April 2. He communicated this via Truth Social, encouraging American farmers to increase domestic agricultural production in response to these tariffs.

He referred to the upcoming changes as an opportunity for farmers, expressing a directive to prepare for growing more products for the US market. Trump is also expected to address infrastructure issues in a later speech.

Impact On Supply Chains

What this means is straightforward. Import taxes are going up, and Donald wants farmers to prepare by planting more crops and raising more livestock to meet an expected rise in demand at home. This isn’t just about trade barriers; it’s about reshaping supply chains. Goods that once moved across borders with ease are now going to cost more when they enter the United States. That changes prices, demand, and investment decisions.

For those tracking how this affects global pricing, there’s immediately a need to assess how foreign producers will respond. If exporting to the US becomes less profitable, those same products could start flooding other markets. If that happens, price shifts won’t be contained to just one country. The way commodities are priced depends on a balance of supply and demand across multiple continents, so expectations need to adjust now rather than after the numbers confirm what was foreseeable.

Donald framing this as a chance for domestic agriculture to expand sends a message that more policies in this direction may follow. That alone is something to monitor. When government policy actively pushes an industry in a particular direction, supporting measures often come soon after. These could include subsidies, relaxed regulations, or financing incentives designed to speed up production. That would, in turn, affect input markets and logistics in ways that will take time to settle.

Meanwhile, infrastructure remains another factor. If roads, ports, or storage facilities receive investment based on the expectation of increased agricultural output, transport companies and suppliers could see ripple effects long before any hard data reflects the shift. When supply chains adjust, those paying attention to logistical efficiencies often see the advantages first.

Urgency Of Action

We are now at a stage where waiting too long increases risk. Reacting only after trends are confirmed often means absorbing extra costs after the best opportunities have passed. Whether in raw materials, transport, or pricing shifts in competing markets, every delay matters.

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Alberto G. Musalem, President of the St Louis Fed, has expressed concerns regarding recent consumer and housing data, indicating potential downside risks. While the outlook remains for solid growth, he emphasises a patient approach to policy in order to meet the Federal Reserve’s objectives.

Musalem plans to closely monitor inflation expectations if conflicts arise between the Federal Reserve’s dual goals. Currently, longer-term inflation expectations appear to be broadly stable. Though he expects the economy to continue growing, he has concerns regarding potential signs of weakening consumption or reduced business confidence in the future.

Uncertainty In Consumer Spending

Alberto’s remarks reflect uncertainty about how consumer spending and the housing market could shift in the months ahead. While broader economic growth appears stable, he is not ignoring the possibility that demand could weaken. Any slowdown in consumer activity or hesitation from businesses to invest may influence future decisions.

Monetary officials are adopting a cautious stance, with patience taking priority over any rush to adjust policy. Inflation expectations remain steady for now, but that does not mean policymakers consider the job finished. If inflation data begins to diverge from forecasts or market conditions show signs of stress, adjustments may follow.

We should particularly note Alberto’s attention to potential conflicts between price stability and employment targets. If inflation does not ease as expected, or hiring slows more than anticipated, there may be difficult policy choices ahead. He has not suggested any immediate course of action but remains focused on ensuring long-term goals are met without unnecessary disruption.

External risks are also a factor in this approach. Changes in global trade, ongoing geopolitical tensions, or unforeseen disruptions may shift expectations faster than previously thought. Officials are unlikely to react to short-term noise, but sustained signs of strain would be harder to ignore.

Outlook And Policy Readiness

At this point, we can take away a few things. Expectations continue to lean towards steady growth, but not without risks. Consumption trends, business sentiment, and inflation remain central to upcoming decisions. Policymakers remain on guard, prepared to respond if needed, but are not rushing to adjust anything unless a change is warranted.

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Donald Trump has a packed schedule planned for the afternoon. He is expected to announce decisions regarding tariffs on Mexico and Canada.

Additionally, a meeting is scheduled to discuss the situation in Ukraine. One agenda item includes the potential suspension of military aid from the United States.

Trade Policy Announcements

Donald has a busy afternoon ahead, with important announcements lined up. He is set to reveal his decisions on tariffs involving Mexico and Canada, a matter that has already drawn plenty of attention. These measures could have a direct impact on trade flows, potentially affecting prices and supply chains across industries.

Later in the day, discussions will turn to Ukraine. Among the topics is a proposal to halt military assistance from the United States, a move that would carry both economic and political consequences. If this decision moves forward, there could be immediate reactions in the markets tied to defence contracts and international relations. Investors will need to assess how this might shift expectations in both the short and long term.

With Donald’s agenda packed, traders should remain aware of market sensitivity. Policy changes like tariffs and military funding affect risk calculations, particularly when uncertainty is high. Any shift in sentiment could alter positioning in currency and commodities markets, with knock-on effects in bonds and equities.

Market Reactions And Expectations

The next few weeks are likely to be fast-moving. Keeping a close eye on statements and decisions will help in making sense of the possible reactions across multiple asset classes. As events unfold, the direct link between policy announcements and pricing movements will become clearer. Watching for shifts in expectations could provide useful insight when positioning for the coming sessions.

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The GDPNow US growth tracker has decreased to -2.8% for Q1, down from the previous estimate of -1.5%. This adjustment follows recent data releases from the US Census Bureau and the Institute for Supply Management.

The nowcast for first-quarter real personal consumption expenditures growth dropped from 1.3% to 0.0%, while real private fixed investment growth fell from 3.5% to 0.1%. This marks a 5-percentage point shift in just two business days.

Economic Momentum And Demand Weakness

A change of this size in such a short time is not something to overlook. When projections fall this sharply, they are signalling more than just minor adjustments. The revision reflects weaker-than-expected demand and investment, both of which are fundamental to economic momentum. A flattening in personal consumption expenditures indicates that households are spending less than anticipated, while the near-stagnation in private fixed investment suggests businesses are growing more cautious.

This shift did not happen in isolation. Incoming data from the Census Bureau and the ISM played an important role, feeding into the model and pushing expectations downward. The recalibration highlights how quickly sentiment can adjust when fresh numbers challenge prior assumptions. It also reflects how sensitive GDP tracking tools are to new inputs, especially when those inputs align with a broader cooling in activity.

We should take note of the speed at which the adjustment occurred—a five-percentage point movement in two business days is rare. Such a sharp correction suggests that earlier estimates may have been misaligned with underlying trends, rather than just reflecting normal fluctuations. A downward revision of this scale raises concerns about how other economic indicators might adjust in the coming weeks. If similar patterns emerge elsewhere, confidence in near-term stability could falter further.

Understanding what is happening beneath the surface is just as important as seeing the final numbers. A flat reading for personal consumption suggests that spending patterns may be shifting, potentially in response to tighter financial conditions or changes in income expectations. Meanwhile, a near halt in private fixed investment implies that companies may be reconsidering expansion efforts. If businesses continue holding back on capital commitments, the effects could extend beyond just a quarterly GDP reading.

Market Sentiment And Future Expectations

Economic forecasting models are built to adjust when fresh data comes in, but it is worth recognising the broader message they are sending. This latest shift is not just a minor recalibration—it reflects a reassessment of growth prospects at a time when many were hoping for stability. These revisions carry weight because they influence expectations and, in turn, market positioning.

In the coming weeks, the focus will be on whether additional data reinforces this downtrend or offers some counterbalance. If further releases continue to disappoint, assessments of future activity will need to adjust again. Markets are sensitive to these recalibrations, and how they adapt will depend on whether upcoming numbers confirm or challenge the current trajectory.

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Howard made it clear that the President is weighing his options on tariffs, with an announcement scheduled for tomorrow. Although actions have been taken to strengthen border security, he believes more must be done to tackle the fentanyl crisis.

Trade Policy Considerations

This suggests that trade policy is being viewed as a tool to address broader concerns, rather than being considered in isolation. Given this, we need to examine how markets might react. If new tariffs are introduced, sectors reliant on international supply chains could see increased costs. This would likely influence pricing strategies, corporate earnings, and, in turn, market sentiment. For those who track price movements closely, sudden volatility could present opportunities but also raise risks that require adjustments in strategy.

Howard’s suggestion that existing measures are insufficient also raises the possibility that this will not be the last major policy shift. If tariffs are used as leverage on other matters, further announcements could follow. Recent history shows that abrupt shifts in trade policy have sometimes led to extended market turbulence. Participants will need to stay alert for additional signals beyond tomorrow’s statement.

Market Reactions And Future Moves

What comes next will depend on how this decision aligns with the expectations already reflected in pricing. If the outcome largely matches predictions, reactions could be limited. But if the administration delivers something unexpected, whether through scope or severity, there may be knock-on effects beyond immediate price moves. Those tracking this closely will need to stay flexible, as ripple effects could spread across multiple sectors.

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In January 2025, US construction spending decreased by 0.2%, which was below the expected figure of 0.0%. This follows an increase of 0.5% in December 2024.

January’s construction spending in the United States contracted by 0.2%, failing to meet the forecasted flat reading of 0.0%. This comes after December saw a 0.5% rise, marking a slowdown at the start of the year. With expectations pointing to stable expenditure, the downward revision raises doubts about building activity moving forward.

Impact On Economic Output

The latest figure suggests reduced momentum in one of the key areas of economic output. Homebuilding, commercial projects, and public works all contribute to how capital is deployed, shaping demand in various industries. Weakness in these areas can filter through to materials, employment, and financing, leading to ripple effects beyond construction itself. Given last month’s decline, adjusting risk assessments might be necessary.

For those monitoring broader economic movements, this shift matters. December’s stronger reading had indicated resilience, but that optimism did not carry over into January. If further declines occur, longer-term trends could change, influencing not only investment decisions but also other market segments tied to building and infrastructure. This means upcoming reports will need closer attention, particularly in determining whether January’s decline was an outlier or the start of a more persistent slowdown.

Future Considerations

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The Canada S&P Global Manufacturing PMI for February 2025 recorded a decline to 47.8, down from 51.6 in the previous month. Input cost inflation hit its peak since April 2023, influencing both consumer spending and corporate investment.

Tariff uncertainties on goods crossing the Canada-United States border have negatively affected the manufacturing sector. The survey indicated a notable decrease in output, driven by falling new orders both domestically and internationally.

Decline In Manufacturer Confidence

Manufacturers are now exhibiting lower confidence levels, the weakest since April 2020. This downturn has led to reductions in purchasing and employment since January, compounded by rising input prices attributed to a stronger US dollar.

A reading below 50.0 indicates contraction, meaning factory activity in Canada has weakened in February. This drop below neutral follows a brief expansion in January, highlighting a sharp turn in sentiment. With firms scaling back purchases and cutting jobs, concerns over future demand have risen sharply. The pressure from higher costs has led to tighter spending within businesses, limiting new investment and hiring.

Price increases, mainly influenced by currency fluctuations, have compounded these challenges. A stronger US dollar has raised the cost of imported materials, narrowing profit margins. Firms have struggled to pass these costs onto clients, leading to squeezed earnings. At the same time, uncertainty over trade barriers has discouraged long-term planning, affecting both production schedules and inventory decisions.

Economic Risks And Business Strategy Shifts

For those tracking these developments, the combination of weaker demand and rising costs presents a complex set of risks. The decline in factory orders, particularly from buyers abroad, reflects a broader pullback in global trade. The effects of this stretch beyond just output figures; they shape market expectations around economic momentum in Canada.

Survey respondents reported hesitancy in committing to capital spending, mirroring patterns last seen in early pandemic months. This reluctance suggests concerns about the broader economic environment, making near-term forecasts sensitive to any further disruptions. If cost pressures remain unchecked while orders continue to decline, businesses may shift strategies further, adopting more defensive positions in spending and hiring.

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Claudia Sheinbaum stated that her team has backup plans in place and will communicate their decisions shortly. She emphasised the importance of making independent choices regardless of developments in the United States.

In a previous statement, Sheinbaum advised maintaining composure and not misinterpreting President Trump’s remarks. She noted that discussions on security and trade continue, with an agreement expected to be finalised within the week.

Consistent Approach

Today’s remarks align with her earlier comments from February, reflecting a consistent approach to the ongoing situation.

Claudia’s remarks reaffirm her position from earlier in the year, showing that her approach has not changed despite recent developments. Her assurance that alternative strategies are already being considered suggests that adjustments will be made if necessary. She has not provided a specific timeline beyond stating that updates will come soon, though her confidence implies that discussions are progressing without interruption.

Her insistence on independent decision-making, regardless of shifts in sentiment from Washington, reinforces the idea that external pressure will not dictate policy. This echoes previous statements in which she dismissed concerns over rhetoric from the United States, urging observers to focus on direct negotiations instead. The reassurance she offered today fits within this pattern, though it remains to be seen how this will translate into specific steps.

Her remarks on trade and security reflect ongoing discussions that are expected to yield concrete outcomes in the coming days. She has now reiterated that these conversations are advancing as expected, reinforcing the notion that earlier projections remain intact. The consistency in her messaging suggests that there has been little deviation from prior expectations.

Market Reactions

For those watching these developments closely, her statements indicate that existing agreements are still on track. Any adjustments that do take place will be communicated directly by her team, in line with her promise to provide clarity soon. The lack of urgency in her words suggests that there is no immediate concern, but also implies that the situation requires continued attention.

Given that she has not hinted at any unexpected shifts, the focus now turns to how markets respond in the short term. While her message is one of steady progress, reactions may vary depending on how quickly further details emerge. Until new information is released, attention will remain on upcoming announcements, particularly regarding the finalisation of agreements she referenced earlier.

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