By Davide Barbuscia

NEW YORK (Reuters) – Giant U.S. asset managers overseeing well over $20 trillion are anticipating continued price pressures because of President Donald Trump’s immigration and trade policies, a scenario that will likely keep threatening the bond market this year.

Vanguard, the world’s second-largest asset manager, which manages over $10 trillion, said in a first-quarter fixed income outlook report seen by Reuters that it expects “progress on inflation to stall,” with core measures of price pressures stuck above the Federal Reserve’s 2% target and above 2.5% for most of 2025.

Trade and immigration policies implemented by Trump’s Republican administration could complicate the picture further, it said in a report written by its active fixed income team, led by Sara Devereux, the global head of fixed income group.

“While our base-case outlook is positive, we emphasize that the uncertainty created by the incoming administration creates a broader range of potential outcomes for growth, inflation, and monetary policy, both domestically and abroad,” it said.

Investors are waiting for more announcements from the new administration about policies on tariffs, immigration and tax cuts. Trump, who began a second term in the White House on Monday, vowed this week to hit the European Union with tariffs and said his administration was discussing a 10% punitive duty on Chinese imports – lower than the 60% he promised during his 2024 presidential campaign.

He also said he was thinking of imposing 25% tariffs on imports from Canada and Mexico on Feb. 1.

The impact of Trump’s policies on inflation and growth will depend on their scope and sequencing, said Libby Cantrill, PIMCO’s head of public policy, and Allison Boxer, an economist at the bond-focused investment firm, which manages $2 trillion in assets.

But in a scenario where tariffs increase and budget deficits widen due to expected tax cuts, growth could decelerate this year while inflation rises. “In our baseline outlook, we expect modestly higher core inflation of around 20 to 40 basis points in the U.S. in 2025,” they wrote in a note on Thursday. “The negative growth effects would likely be of a similar size.”

Vanguard also warned about the possibly negative-growth impact of tariffs, depending on their size and distribution. “Geopolitical retaliation could increase business uncertainty and further constrain growth,” it added.

RISING YIELDS

U.S. government bond yields, which rise when prices decline, have surged over the past few months, partly in anticipation of pro-growth policies under a Trump administration which could also reignite price pressures, complicating the Fed’s efforts to bring inflation down to its target.

Benchmark 10-year yields declined marginally after Trump’s inauguration on Monday, as his tariff talk was less aggressive than feared. Yields were last at 4.65%, down from more than a one-year high of 4.8% last week but still about 100 basis points higher from September, when the Fed started easing rates.

BlackRock (NYSE:BLK), the world’s largest asset manager with $11.6 trillion in assets, expects yields will keep rising due to a combination of higher inflation and rising government debt levels. It is bearish on long-term government bonds, expecting 10-year yields will keep rising above 5%.

“We have never before seen today’s combination of sticky inflation, higher policy rates and high and rising debt levels,” the BlackRock Investment Institute, the asset manager’s research arm, said in a note this week.

“This combination represents a fragile equilibrium supporting investor demand for long-term bonds,” it said.

By Leika Kihara

TOKYO (Reuters) – The Bank of Japan is expected to raise interest rates on Friday to levels unseen since the 2008 global financial crisis, as a broad worldwide stocks rally calms policymakers’ fears U.S. President Donald Trump’s tariff threats could upend markets.

With traders almost fully pricing in the chance of a rate hike, attention now shifts to any clues BOJ Governor Kazuo Ueda’s post-meeting briefing could offer on the pace and timing of subsequent increases in borrowing costs.

At the two-day meeting concluding on Friday, the BOJ is widely expected to raise its short-term policy rate from 0.25% to 0.5% – a level Japan has not seen in 17 years.

The move would underscore the central bank’s resolve to steadily push up interest rates near 1% – a level analysts see as neither cooling nor overheating Japan’s economy.

“Market hasn’t shown much negative reaction to Trump’s comments, so the BOJ will probably proceed with a rate hike,” said Naomi Muguruma, chief bond strategist at Mitsubishi UFJ (NYSE:MUFG) Morgan Stanley (NYSE:MS) Securities.

A hike by the BOJ would be the first since July last year when the move, coupled with weak U.S. jobs data, shocked traders and triggered a rout in global markets in early August.

Keen to avoid a recurrence, the BOJ has prepared markets with strong signals by Ueda and his deputy last week that a rate hike was on the cards. The remarks caused the yen to rebound as markets priced in a roughly 90% chance of a rate increase.

In a quarterly outlook report due after the meeting, the board is expected to raise its price forecasts on growing prospects that broadening wage gains will keep Japan on track to sustainably hit the bank’s 2% inflation target.

As inflation has exceeded the BOJ’s target for nearly three years and the weak yen has kept import costs elevated, Ueda is likely to stress that more rate hikes are forthcoming.

Many analysts already expect the central bank to hike rates again later this year, barring a Trump-induced market shock that hits global growth and Japan’s fragile economic recovery.

“After hiking to 0.5%, the BOJ will probably raise rates at a pace of roughly twice a year. As such, the next rate hike could happen in September,” said Mari Iwashita, executive economist at Daiwa Securities.

“Much will depend on how U.S. growth and inflation plays out, how that will affect the Federal Reserve’s policy and moves in the dollar/yen,” she said.

The domestic political calendar may also affect the BOJ’s rate-hike timing with an upper house election slated for July, when premier Shigeru Ishiba’s minority coalition could struggle to garner votes, some analysts say.

Since taking the helm in April 2023, Ueda dismantled his predecessor’s radical stimulus programme in March last year and pushed up short-term interest rates to 0.25% in July.

BOJ policymakers have repeatedly said the bank will keep raising rates, if Japan makes progress in achieving a cycle in which rising inflation boosts wages and lifts consumption – thereby allowing firms to continue passing on higher costs.

By Sarah Marsh and Andreas Rinke

BERLIN (Reuters) – German opposition leader Friedrich Merz, tipped to become the next chancellor, said on Thursday he wanted to win back the lost trust of key allies and ensure Berlin is more assertive on the global stage in a speech laying out his foreign policy plans.

He also said calls by U.S. President Donald Trump, who returned to power on Jan. 20, for Europe to do more to defend itself presented an opportunity for the continent to strengthen.

Germany’s partners have struggled in recent years to strategise with Berlin due to infighting within Chancellor Olaf Scholz’s awkward three-way coalition, Merz said in a speech that focused more on Europe than transatlantic relations.

That discord ultimately led to the coalition’s collapse late last year, prompting a snap election on Feb. 23 that Merz’s conservatives are on track to win by a large margin.

If elected head of government, Merz said, he would create a national security council anchored in the chancellery to better coordinate all issues that touch on foreign, development and defence policy across the different ministries, so Berlin would speak with one strong voice.

“The times when European partners received different answers from Berlin – depending on whether they were in the Chancellery, the Foreign Office or the Ministry of Finance – must be a thing of the past,” Merz told the event in Berlin.

The 69-year-old conservative, who was a deputy in the European Parliament from 1989-94, said he would expect all cabinet members to regularly attend EU Council meetings in Brussels to ensure Germany’s voice was well represented.

He would only appoint ministers and deputy ministers from his party who were able to communicate in English.

“The overriding maxim of (my) government will therefore be that Germany can be relied on again, we keep our word, we will make decisions – and once a decision has been made we stick to it,” he said.

FENCE-MENDING WITHIN EUROPE

Key would be fixing relations with top European allies, he said. Germany needed to speak more with Poland and better coordinate stances with France for the European Council, which groups the 27 heads of government in the European Union.

Merz also said Germany would no longer restrict weapons deliveries to Israel, he said, rather send it whatever it needs.

“It must become unmistakably clear again: Germany is

not caught between two stools, (rather) Germany stands firmly on the side of Israel,” he said.

Europe also needs to reform its military procurement system to get more bang for its buck, he said. Currently European countries were developing, producing and maintaining 178 weapons systems compared to just 30 for the United States.

“These redundancies cost a lot of money and waste potential,” he said. “I want ‘Made in Europe’ to match the quality and quantity of defence equipment of the USA.”

Asked about Trump’s insistence the United States needed to take control of Greenland from Denmark, he played down the remarks, saying they amounted to a strategy to focus attention on the strategic importance of the vast Arctic island.

Denmark acknowledged earlier this month that it had long neglected the defence of Greenland.

Merz further urged the United States and the EU to finally agree on a free trade deal rather than fall into a tariff spiral, as many fear with Trump and his “America First” agenda, that would only make everyone poorer.

By Padraic Halpin and Conor Humphries

DUBLIN (Reuters) – Micheál Martin was elected Irish prime minister for the second time by a coalition of the country’s two large centre-right parties and independent lawmakers on Thursday, a day later than scheduled after opposition protest derailed an initial vote.

The coalition is the second in a row between historic rivals Fine Gael and Fianna Fail, who between them have led every government since the foundation of the state, with independents replacing junior coalition partner the Green Party, which lost most of its seats.

The initially scheduled vote to elect Martin on Wednesday descended into chaos when the parliament was suspended four times after opposition protests over speaking rights for independent lawmakers supporting the incoming coalition.

An agreement by both sides that government-supporting independents cannot for now retain extended speaking rights from the opposition benches paved the way for Martin to be elected.

Martin, 64, was prime minister from 2020-2022 before handing the position to Fine Gael for the second half of the term. Under the deal struck following the Nov. 29 election, outgoing prime minister Simon Harris is set to return as premier in late 2027.

Harris will replace Martin as deputy prime minister and is also likely to take over as foreign minister later on Wednesday while Fine Gael’s Paschal Donohoe, chair of the group of euro zone finance ministers, is tipped to return as finance minister.

The government is bracing for the fallout from the return to the White House of U.S. President Donald Trump, whose pledges to cut corporate tax rules and impose tariffs pose a potentially major threat to Ireland’s foreign multinational-focused economy.

The coalition has pledged to use a tax windfall from the country’s cluster of U.S. multinationals to continue to increase public sector investment, fix infrastructure deficits and cut taxes, while also building Ireland’s sovereign wealth funds.

Martin, who was first elected to parliament 36 years ago, was a senior member of the Fianna Fail government that signed up to an EU/IMF bailout in 2010 and led to an unprecedented 2011 electoral collapse just after he took over as leader.

The former history teacher, who has held several senior ministries including health, trade and education, led a swift recovery in the party’s fortunes to return them to government nine years later.

(Reuters) -Miner Freeport-McMoRan (NYSE:FCX) beat fourth-quarter profit estimates on Thursday, helped by higher copper prices.

Average copper prices rose in the fourth quarter, helped by signs of more stimulus in top consumer China, falling inventories and as U.S. job growth accelerated in September, pointing to resilience in the world’s largest economy.

Quarterly average realized price for copper was $4.15 per pound, compared with $3.81 per pound a year ago.

On an adjusted basis, the company earned 31 cents per share in the quarter, compared with the analysts’ average estimate of 20 cents per share, according to data compiled by LSEG.

WASHINGTON (Reuters) – The number of Americans filing new applications for unemployment benefits rose marginally last week, suggesting that solid job growth likely continued in January.

Initial claims for state unemployment benefits increased 6,000 to a seasonally adjusted 223,000 for the week ended Jan. 18, the Labor Department said on Thursday. Economists polled by Reuters had forecast 220,000 claims for the latest week.

Freezing temperatures that have gripped large parts of the country and fires in Los Angeles could boost claims in the coming weeks. Aside from the weather distortions, the labor market continues to chug along, keeping the economic expansion on track. Last week’s claims data covered the period during which the government surveyed businesses for the nonfarm payrolls component of January’s employment report.

Nonfarm payrolls increased by 256,000 jobs in December. The economy added 2.2 million jobs last year, averaging 186,000 positions per month, down from 3.0 million in 2023.

Labor market sturdiness was among factors that prompted the Federal Reserve to dial back its projected interest rate cuts for this year to only two from the four it estimated in September when it launched its policy easing cycle.

An immigration crackdown by President Donald Trump’s new administration as well as plans for tax cuts and broad tariffs, which economists have warned are inflationary, also added to caution among U.S. central bank officials on the course of monetary policy. Mass deportations and restrictions to legal immigration could hamper the labor market, economists said.

No rate cut is expected at the Fed’s policy meeting next week. The Fed has cut its benchmark overnight interest rate by 100 basis points to the current 4.25%-4.50% range since September. The policy rate was hiked by 5.25 percentage points 2022 and 2023.

Data next week on the number of people receiving benefits after an initial week of aid, a proxy for hiring, could offer more clues on the health of the labor market in January.

The so-called continuing claims rose 46,000 to a seasonally adjusted 1.899 million during the week ending Jan. 11, the claims report showed.

By Nell Mackenzie

LONDON (Reuters) – Hedge funds have turned optimistic about European companies that sell things people want but don’t necessarily need, especially luxury goods, according to a Goldman Sachs note on Wednesday seen by Reuters on Thursday.

Consumer discretionary stocks in Europe like household appliances, luxury items and leisure have sparked renewed buying interest in hedge funds.

However, they have sold short those stocks exposed to U.S. President Donald Trump’s potential tariffs, the note said.

“As the tariff landscape evolves, hedge funds have increasingly shorted tariff-exposed names,” the note said.

Disclosed short positions in Italian spirits group Campari (LON:0ROY) reached an all-time high, according to a separate report from research firm Breakout Point.

Campari has three production sites in Mexico, the main one producing tequila under its Espolon brand, and one in Canada that produces local whisky brand Forty Creek, according to its latest sustainability report.

According to Citi, Campari imports 27% of its U.S. sales from Mexico and Canada, Reuters reported on Monday.

Hedge funds with disclosed positions in Campari included Citadel and investment managers Arrowstreet Capital and Gladstone Capital (NASDAQ:GLAD) a regulatory filing from the Italian markets authority showed.

Citadel declined to comment. Arrowstreet Capital, Gladstone Capital and Campari did not immediately respond for a request for comment.

A trader shorts an asset expecting its value to fall.

Most of this activity since mid-December has focused on stocks in Europe, whereas activity in UK equities remained relatively muted, the note said.

In 2024, luxury was a prime short target for hedge funds. But since this most recent earnings season kicked off, speculators have changed their bearish tune.

The number of hedge funds buying makers of European cars and car parts compared to those who are selling has shrunk to a “multi-year low,” the note said.

Investing.com – The European Central Bank may begin to slow the pace of anticipated interest rate cuts this year in the third quarter, according to analysts at Deutsche Bank (ETR:DBKGn).

Economists widely expect the ECB to slash rates by a quarter of a percentage point at its upcoming policy meeting next week, after having slashed borrowing costs four times to address weak growth and cooling inflation in the currency bloc.

Traders increased these bets this week after US President Donald Trump stopped short of formally slapping sweeping new import tariffs on the Eurozone, with money markets now anticipating a total of four drawdowns in 2025. That would bring the rate the ECB pays on deposits by Eurozone lenders to 2% by the end of the year.

Meanwhile, policymakers at the central bank have bolstered forecasts for a reduction at the ECB’s January meeting. ECB President Christine Lagarde, along with a slate of other officials at the central bank, have supported bring down rates further.

Lagarde, in particular, told CNBC at the World Economic Forum in Davos, Switzerland this week that a “gradual move is certainly something that comes to mind at the moment”.

Writing in a note to clients on Thursday, the Deutsche Bank analysts led by Mark Wall said they see the ECB cutting by 25 basis points at each of its Governing Council’s four gatherings in the first half of 2025.

The analysts are then predicting the ECB will slow its cutting cycle in the second half, reducing rates by a quarter-point at both its September and December meetings.

“This view is predicated on the assumption of below-trend growth, moderately below target inflation and risks to inflation that are skewed to the downside,” the analysts said.

However, they flagged that there remains a risk that the ECB could opt to slow down cuts as soon as the second quarter.

By Valentina Za

MILAN (Reuters) – The European Commission is investigating the extent to which EU rules on crypto assets protect the redemption rights of the bloc’s investors in identical e-money tokens (EMTs), the value of which is pegged to that of a single official currency.

France’s Autorité de contrôle prudentiel et de résolution (ACPR), the country’s banking and insurance supervisor, last year asked the European Banking Authority to establish whether it would be possible to have technically identical and fully fungible EMTs issued by both an entity licensed in the European Union and by another elsewhere not subject to EU rules.

The EBA then turned the matter over to the EU Commission as it is a matter of interpretation of EU law.

The EU in 2023 adopted an extensive set of rules for crypto assets, known as MiCAR, under which issuers of EMTs must receive supervisory clearance to operate and hold reserves, including as bank deposits, against tokens sold to ensure they can repay investors when required to.

In the United States, President Donald Trump has vowed to ease the regulatory burden faced by cryptocurrency companies, with the U.S. Securities and Exchange Commission this week creating a task force to work on new rules.

Some issuers operate both within and outside the EU. For example, Circle, whose U.S. dollar-pegged ‘USDC’ is the world’s second largest stablecoin by market value, operates in the EU as Circle SAS. USDC issued by Circle SAS are fully fungible with those issued by Circle LLC.

France’s ACPR also asked whether, in case of identical EMT issuance both within and outside the EU, it would be possible to allow only EU customers to present redemption requests to the EU-based entity.

ACPR declined to comment further.

“The MiCA regulation already has quite a bit of flexibility built in, to avoid stifling innovation,” said Andrea Resti, a finance professor at Milan’s Bocconi University.

“To start interpreting the rules in ways that have not been clearly spelled out in the text could engender risks and weaken the effectiveness of the newly minted rules.”

(Reuters) – Mexico’s annual inflation rate slowed to its lowest level in almost four years in the first half of January, official data showed on Thursday, settling under 4% and bolstering bets the central bank will continue to lower borrowing costs.

In Latin America’s second-largest economy, 12-month headline inflation came in at 3.69% in early January, statistics agency INEGI said, the lowest since February 2021 and within the central bank’s 3% target, plus or minus one percentage point.

Annual inflation was below both the previous month’s 4.44% and the 3.78% forecast by economists polled by Reuters.

In December, the Mexican central bank delivered its fifth interest-rate cut last year, taking it to 10.00% with a 25-basis-point reduction. At the time, the bank’s board noted that further and larger cuts could be considered in the future.

Mexico’s closely watched core consumer price index, considered a more reliable measure of price trends as it excludes volatile energy and food prices, rose 0.28% in the fortnight.

The annual core rate came in at 3.72%, exceeding market predictions of 3.68% and the previous month’s 3.62%.