According to the final Davos panel charged with summarizing the forum, “The world is finding an uneasy equilibrium with a more benign economic backdrop overshadowed by a panoply of geopolitical risks.” Moderating inflation and a higher global trade should offer investors encouragement despite the backdrop of war and populism, according to ECB chief Christine Lagarde as the World Economic Forum ended. “Normalization — that’s what we have begun to see,” she remarked before noting that “It is not normality that we’re heading to,” she added.

The panel summarizing the mood in Davos after a week where participants seemed to put a brave face on the global outlook. Consensus was the likelihood that a deep recession will likely be avoided despite unprecedented monetary tightening to bring inflation under control. Geopolitical news still dominates with wars in Ukraine and the Middle East, Red Sea tensions, and Trumps victory in Iowa cited as important topics by attendees.

“There’s so many uncertainties — and of course all the elections that we see around the world and what that may bring,” World Trade Organization Director General Ngozi Okonjo-Iweala noted. Her view as similar to Lagarde’s view that the world is “maybe moving towards normalization” while at the same time certainly “not normal.”

EUR Stronger vs the USD despite yesterday's strong data. The S&P posted a decent recovery, and Congress averted a partial shutdown that would have started this weekend with both the House and Senate approving the latest spending bill.

GBP Retail sales fell 3.2% MoM vs consensus of -.5%. This was a rather large miss, and the last time we saw this large a gap was during the 2008 financial crisis (outside of Covid). This will have a large impact on GDP, but many saying there is evidence from retailers that consumers purchased gifts earlier than usual this year.

CAD Firmer metal prices and positions squaring going into next weeks Bank of Canada policy meeting has slowed CADs loss today. Crude futures are unchanged at $74.08 per barrel and option volatility is down to 5.14% vs 5.255% yesterday. Odds of an April rate cut have dropped to 70% after a 100% consensus earlier this month. US two year yields are 29 bpts higher than CAD, and 10-year yields are 65 bpts in favor of the USD.

MXN The USD/MXN has been quite choppy as the market adjusts expectations for aggressive rate cuts by the Fed. Peso one-month implied volatility is 11.23%, down from 11.82%.