The Reserve Bank of India cut rates for the first time in 5 years. The Bank of Mexico continued monetary policy easing

At the end of Thursday, the Dow Jones Index (US30) was down 0.28%. The S&P 500 Index (US500) was up 0.36%. The Nasdaq Technology Index (US100) added 0.51%. Initial jobless claims came in slightly above projections but remained in line with recent months, while labor costs and productivity rose less than expected. The long-awaited Non-Farm report will be released today. Economists estimate that the US added 154,000 jobs last month, up from an impressive 256,000 in December. The unemployment rate will come in at 4.1%, the same as last month. Average hourly earnings growth will be 0.3%, also in line with December. Trump’s tariff policy and a strong labor market will support the US dollar, which will put pressure on risk assets such as EUR, GBP and especially CAD and MXN. Gold and silver may also come under pressure amid rising government bond yields. The dollar will be under pressure if the labor market data comes out unexpectedly worse than expected. In this case, risk sentiment may be reevaluated. In such a scenario, stock indices will continue to grow steadily, and gold will continue to renew its historical highs.

The Bank of Mexico cut its benchmark interest rate by 50 bps to 9.50%. This is in line with the global downward trend in inflation, although inflation persists in major economies, especially in services. Domestically, economic activity contracted in Q4 2024 and is expected to weaken in 2025, with employment growth slowing and downside risks persisting. Core inflation fell to 3.69% in mid-January 2025 and core inflation was 3.72%. While core inflation continues to decline, persistent service sector inflation has led Banxico to maintain its inflation prognoses, expecting core inflation to converge to the 3% target by Q3 2026. The bank said further rate cuts may be appropriate depending on the pace of disinflation and the economic outlook.

The Canadian dollar traded above 1.43 per dollar, pausing a rally that led to a seven-week high of 1.431 hit on January 5, as recent economic data shifted focus to the Bank of Canada’s increasingly soft outlook. Canada’s key economic indicator showed a sharp contraction in buying activity, with Ivey’s January 2025 PMI falling to 47.1 from 54.7 in December, well below market expectations of 53.

Equity markets in Europe were mostly up yesterday. Germany’s DAX (DE40) rose by 1.47% to set a new record high. France’s CAC 40 (FR40) closed 1.47% higher, Spain’s IBEX 35 (ES35) gained 1.55%, and the UK’s FTSE 100 (UK100) closed 1.21% higher. The growth of indices was supported by good corporate reports. Despite mixed results from Dutch giant ING, growth was led by banks, with BBVA, Santander and UniCredit shares up 3-6%. Traders put aside fears of a trade war and the impact of tariffs, focusing on a new round of corporate earnings and the next moves by central banks. Rumors of a peace plan for Ukraine due next week also helped improve market sentiment.

The US natural gas (XNG/USD) prices rose above $3.35/MMBtu, helped by a larger-than-expected drawdown in storage inventories. The EIA reported a withdrawal of 174 billion cubic feet (bcf) from storage for the week ended January 31, slightly above analysts’ expectations of 168 bcf. The volume also exceeded last year’s 110 bcf decline and was in line with the five-year average. Colder-than-normal conditions February 10-14 are expected to boost heating demand.

Asian markets are predominantly steady yesterday. Japan’s Nikkei 225 (JP225) rose by 0.61%, China’s FTSE China A50 (CHA50) gained 0.99%, Hong Kong’s Hang Seng (HK50) jumped 1.43%, and Australia’s ASX 200 (AU200) gained 1.23%.

The Reserve Bank of India (RBI) cut its key repo rate by 25bps to 6.25%, marking the first-rate cut since May 2020 during its February meeting. The move came amid slowing economic growth and global trade uncertainty, as expected. The Central Bank expects GDP growth of 6.7% in FY 2025-26, maintaining its inflation estimates at 4.2%, with estimates of 4.5% in Q1, 4.0% in Q2 and 3.8% in Q3.