Congratulations to Eagles fans on your second-ever Super Bowl victory. Today we’re covering the falling odds of Fed rate cuts, Trump’s latest tariffs, China inflation, and more. First time reading? Join over 190,000 self-directed investors and sign up here.

Declining bets

The prospect of cheaper borrowing costs keeps getting dimmer. 

The mixed January jobs report led traders to pull back their already-dwindling bets on a March rate cut from the Federal Reserve, as well as those for the rest of the year.

Early Monday, markets assigned 93.5% chance of no move next month. That’s up from 86% before the latest employment data and 75% four weeks ago.

What’s more, markets now point to roughly 54% odds that the central bank cuts interest rates either once or not at all in 2025, up from 42% Thursday. 

The US says it added 143,000 jobs in January, less than the expected 175,000. Meanwhile, the unemployment rate dipped from 4.1% to 4.0%. 

One notable detail beneath the headline numbers was that the jobs data from October, November and December were revised higher, as the chart below from ING illustrates. 

That brought the average payroll gain for 2024 to 166,000 per month, down from the prior estimate of 186,000, and points to a stronger trend than many assumed. 

On one hand the data eases some concerns over cracks in the labor market. However, it doesn’t help the case for those looking for lower borrowing costs. 

The University of Michigan’s latest survey has similarly weighed on policy bets. Respondents’ one-year inflation expectations climbed to 4.3% this month, up from 3.3% in January, data out Friday showed.

“The jump in expected inflation reduces the likelihood that the Fed will be cutting the federal funds rate again anytime soon,” said strategists at Yardeni Research. “For now, we remain in the none-and-done camp in 2025.”

This week’s economic updates are sure to rattle expectations further: 

• Monday: Fed Chairman Jerome Powell speaks before Congress

• Wednesday: January CPI

• Thursday: January PPI

• Thursday: Initial weekly jobless claims

Tariffs, too, remain top of mind for investors and policymakers. They certainly muddy the outlook, even as they ring somewhat contradictory.

If tariffs indeed drive near-term inflation as some investors fear, that makes rate cuts less likely. But the longer the Fed waits to cut rates, the risks of slowing growth rise, which raises the need for cuts. 

This question Morgan Stanley posed to clients on Monday captures the conundrum: 

The Fed will soon have to pick a side of this balancing act. Markets have already laid their bets.

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Elsewhere:

🚢 President Trump is planning more tariffs. He said Sunday he plans to introduce new 25% tariffs on all steel and aluminum imports to the US starting Monday. He also said he intends to announce reciprocal tariffs Tuesday or Wednesday against all countries, matching the tariff rates levied by each nation: “If they charge us, we charge them.” (Reuters)

🇨🇳China’s consumer inflation hit a five-month high. Beijing released its January report that showed consumer prices increased 0.5% year-over-year, above the expected 0.4% and the prior month’s 0.1%. Producer prices, meanwhile, fell 2.3% compared to a year ago to make the 28th straight month of declines. (CNBC)

📈BP stock surged 7.4% early Monday. Shares of the oil giant are on the rise after reports emerged that activist investor Elliot Management has built a stake in the struggling firm. The size of the position is not yet clear, though Elliot has a history of being aggressive as a shareholder. BP reports earnings Tuesday. (FT)

🪙 Trump says no more pennies. The president said he has directed the US Treasury to stop minting new pennies, which famously cost two pennies to create each. The US Mint reported losing $85.3 million in the fiscal 2024 year from the 3.2 billion pennies it produced. (NBC)

Rapid-fire: 

• President Trump suggested that the US may not have as much debt as previously thought, hinting that Elon Musk’s DOGE has found irregularities with Treasuries (Reuters)

• Just under 900 deals were announced in the US in January, one of the weakest deal-making starts to a year in a decade (WSJ)

• McDonalds is expected to report another quarter of same-store sales declines after the bell Monday (CNBC)

• Investors’ expectations for stocks have never been this high to start a presidential term (Bloomberg)

• Consumer Financial Protection Bureau staffers have been told to work remotely as its Washington DC HQ was shuttered (CNBC)

• Consumer sentiment dropped roughly 5% in the University of Michigan’s preliminary February reading (WSJ)

• President Trump said he supported an agreement that would let Nippon Steel invest in — rather than acquire — US Steel (WSJ)

• A Super Bowl recap in case you missed the game (Bleacher Report)

Last thing:

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