In a series of significant economic and geopolitical developments, President Donald Trump has ordered a 25% import tax on all steel and aluminum entering the United States. This move comes amid concerns about inflation risks, highlighted by the surprising increase in the US Consumer Price Index (CPI) for January, which grew by 0.5% on a seasonally adjusted month-to-month basis. Concurrently, President Trump and Russian President Vladimir Putin engaged in a 90-minute phone call, agreeing to initiate negotiations aimed at resolving the ongoing conflict in Ukraine.
The newly imposed tariffs are expected to have far-reaching implications for global trade dynamics. These measures are likely to impact the cost structure of US industries reliant on imported metals, potentially escalating inflationary pressures. The US CPI data released on Wednesday surprised analysts with its upward trajectory, underscoring emerging inflation risks that may be exacerbated by the tariffs.
In Europe, the economic landscape is characterized by mixed signals. The euro area's industrial production data for December is anticipated to reflect a minor decline of 0.6% month-to-month. However, forecasts suggest that Germany might see a more pronounced drop in its industrial output. In response to these developments, Bundesbank President Joachim Nagel asserted that the European Central Bank (ECB) should pursue a gradual easing of its policy rather than striving to attain the "neutral" interest rate, estimated to be between 1.75% and 2.25%.
Japan also faces economic challenges as its wholesale inflation for January exceeded expectations, registering at 4.2% year-on-year. This uptick in inflation could influence Japan's monetary policy decisions moving forward. Meanwhile, the Swedish Riksbank's Vice Governor Per Jansson delivered a speech emphasizing the importance of trust and flexibility in navigating future economic landscapes.
Financial markets responded to the higher-than-expected US inflation data with notable movements. US Treasury yields experienced a significant increase, reflecting investor concerns about future interest rate hikes. However, Central and Eastern European (CEE) currencies, including the Polish zloty (PLN), Czech koruna (CZK), and Hungarian forint (HUF), benefited from these developments, outperforming the euro.
The United Kingdom reported positive economic growth figures, with the economy expanding at an annual rate of 1.4% in the fourth quarter. This exceeded market expectations of 1.1%, offering a glimmer of optimism amid prevailing economic uncertainties.
As global economies grapple with these shifts, attention turns to upcoming economic releases and policy statements. The US Producer Price Index (PPI) for January and weekly jobless claims are scheduled for release, providing further insights into the health of the US economy. Additionally, Riksbank Vice Governor Anna Bunge highlighted that inflation has been near the target of 2%, with indicators suggesting alignment with this benchmark in the future.