- Stocks grind higher as sentiment is lifted on reports that the Trump team is looking at gradual tariff hikes month-by-month of 2-5%.
- DXY is a touch higher, antipodeans lead, JPY gives back Monday's gains.
- Fixed Income is off best levels ahead of US PPI.
- Crude under increasing pressure as a Gaza ceasefire looms; based metals mixed, but precious metals eke mild gains.
- Looking ahead, US PPI, EIA STEO, Fed Discount Rate Minutes, Speakers including Fed’s Schmid & Williams.
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EUROPEAN TRADE
EQUITIES
- European bourses began the morning on a strong footing, Euro Stoxx 50 +1.0%, and continued to gradually edge higher as the morning progressed; indices generally reside just off session highs. Positivity today stems from Bloomberg reports that the Trump team is looking at gradual tariff hikes month-by-month of 2-5%.
- European sectors hold a strong positive bias, with only a few industries residing in negative territory. Autos takes the top spot, closely followed by Technology; the pair benefiting from reports of a “gradual” Trump tariff hike. Retail is underperforming today, pressured by post-earning results from JD Sports, which cut FY25 guidance; although, Ocado’s update was much more positive, but unable to prop up the sector. Energy is also on the backfoot today.
- US equity futures are entirely in the green, with modest outperformance in the NQ (+0.7%), after underperforming in the prior trading day.
- BP (BP/ LN) Q4 Trading Statement (USD): Q4 impairment 1.0-2.0bln; oil trading result is expected to be weak; now expects other businesses & corporate underlying annual charge to be around 0.6bln (vs prev. view of 0.3-0.4bln) amid FX rates. Upstream production in Q4 is expected to be lower Q/Q, with production lower in oil production & operations and in gas & low carbon energy.
- UK CMA is to investigate Alphabet's (GOOGL) Google search services, to be completed within nine-months.
- Click for the sessions European pre-market equity newsflow
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FX
- DXY has trimmed the softness seen overnight following a Bloomberg report that US President-elect Trump's team is reportedly studying month-by-month tariff hikes of 2%-5%; this is seen as less onerous than expected. It is worth noting that the article caveats that Trump is yet to review or approve the plan. DXY is currently contained within a 109.33-68 range. US PPI and speak from Fed's Williams and Schmid due.
- EUR is a touch firmer vs. the USD with incremental newsflow from the Eurozone on the light side aside from a slew of ECB commentary. ECB hawk Holzmann has been on the wires this morning stating that he does not think ECB can lower rates too quickly with core inflation still closer to 3% than 2%. EUR/USD has gained a firmer footing on a 1.02 handle with a current session peak at 1.0277.
- JPY has reversed yesterday's gains vs. the USD as Japanese participants return to market. In terms of Japanese newsflow, BoJ Deputy Governor Himino stated they will likely hike rates if economic forecasts are realised and that while the direction is for further rate hikes, they must carefully watch various upside and downside risks at home and abroad. USD/JPY has broken above the top end of yesterday's 156.90-157.96 range with a current session peak at 158.02.
- GBP slightly softer vs. the USD and EUR. Fresh incremental drivers for GBP at the start of the week have been lacking with markets instead opting to look ahead to tomorrow's CPI metrics. Cable briefly made its way onto a 1.22 handle vs yesterday's 1.21 base (lowest since November 2023).
- Antipodeans are both at the top of the G10 leaderboard in the wake of reporting by Bloomberg that US President-elect Trump's team is reportedly studying month-by-month tariff hikes of 2%-5%. AUD/USD has clambered further off yesterday's multi year low at 0.6130 and has been as high as 0.6207.
- RBI Governor reportedly signals he's open to a more flexible INR, according to Bloomberg.
- PBoC set USD/CNY mid-point at 7.1878 vs exp. 7.3161 (prev. 7.1885).
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FIXED INCOME
- USTs were initially firmer, but now reside around the unchanged mark. The primary overnight update was reports that President-elect Trump’s team is discussing a gradual tariff approach that could be done on a month-by-month basis, a Bloomberg report which helped to lift the risk tone and provide yields with some respite. As it stands, USTs find themselves at the lower-end of a 107-11 to 107-18+ band with yields softened across the curve and the belly leading thus far, as such there is no overt flattening/steepening bias in play. US PPI and Fed speak from Williams and Schmid due.
- OATs are trading slightly better than Bunds having picked up on commentary from the PS leader to a 121.29 session high. The leader said they could be near an agreement. Ahead, French PM Bayrou will present a government statement in the National Assembly from 14:00GMT and then a debate will follow. More recently, the PM has reportedly told political leaders that he will not suspend, nor repeal President Macron's pension reform law, according to Reuters sources; but did not spark a move in OATs.
- Bunds are modestly lower, and have been trading directionally in-fitting with USTs but perhaps losing out to France on domestic updates and Italy on the risk tone, with BTPs the current EGB outperformer and at highs of 117.80 with upside of c. 20 ticks on the session. A German Bobl auction had little impact on price action.
- Gilts are flat, and at the lower-end of an 89.36-89.72 band. Specifics for the UK light so far aside from a I/L auction, which garnered decent demand as the b/c topped 3.0x. As it stands, we await a speech from Chancellor Reeves which is expected this afternoon in the House of Commons (timing TBC, likely around 12:00GMT).
- UK sells GBP 1bln 1.25% 2054 I/L Gilt: b/c 3.06x & real yield 2.126%.
- Germany sells EUR 3.793bln vs exp. EUR 5bln 2.4% 2030 Bobl: b/c 2.5x, avg. yield 2.42% & retention 24.14%.
- Netherlands sells EUR 1.915bln vs exp. EUR 1.5-2.0bln; average yield 2.953% (prev. 2.804%).
- Demand for new Greek 10-year bond exceeded EUR 31bln, new price guidance of mid-swaps +102bps, according to IFR.
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COMMODITIES
- Crude is choppy and taking a breather from the gains seen in the prior session. On the Hamas-Israel deal, there have been numerous reports suggesting that a Gaza ceasefire deal could be announced today; more recently, NBC reported that the agreement between Israel and Hamas is nearing completion - this sparked pressure in the oil complex. WTI slipped from USD 79.05/bbl to USD 78.70/bbl and Brent from USD 81.05/bbl to USD 80.80/bbl over the course of five-minutes.
- Since, reports out of Qatar and more recently via Hamas on the Gaza agreement progress has weighed on the complex further to lows of USD 78.08/bbl and USD 80.20/bbl respectively.
- Precious metals eke mild gains despite the firmer Dollar (albeit off highs). Optimism stems from reports that US President-elect Trump's team is studying month-by-month tariff hikes of 2%-5%. Spot gold trades in a current USD 2,664.35-2,675.36/oz range.
- Mixed trade across base metals despite the firmer Dollar, but copper remains somewhat stable near monthly highs with the broader market risk profile also positive.
- TVP Polish state broadcaster says a ship has been circling around the Baltic pipeline, citing foreign ministry sources.
- Japanese aluminium stocks at key ports stood at 323.6k/MT at end-Dec (285.5k/MT end-Nov), via Marubeni.
- Pressure is mounting for US oil services group SLB (SLB) to exit Russia operations, according to FT.
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NOTABLE DATA RECAP
- Italian Industrial Output YY WDA (Nov) -1.5% (Prev. -3.6%, Rev. -3.5%); Industrial Output MM SA (Nov) 0.3% vs. Exp. 0.2% (Prev. 0.0%, Rev. 0.1%)
NOTABLE EUROPEAN HEADLINES
- ECB's Holzmann says hopes to meet 2% inflation target by year-end; do not think ECB can lower rates too quickly, core inflation is still closer to 3% than 2%.
- French PM Bayrou will deliver a crucial policy speech to lawmakers on Tuesday, according to Bloomberg. Speech due @ 14:00GMT. Click for Newsquawk analysis.
- France's Socialist Party (PS) leader says they could be near an agreement with the Government, via BFM TV.
- Citi expects the BoE to deliver consecutive interest rate cuts from August 2025 (prev. forecast from May).
NOTABLE US HEADLINES
- US President-elect Trump's team reportedly studies month-by-month tariff hikes of 2%-5% with Bessent, Hassett and Miran discussing gradual tariffs, although Trump still hasn’t reviewed or approved the gradual tariff idea, according to Bloomberg.
- US President-elect Trump does not plan to attend the World Economic Forum in Davos but may make virtual remarks to the gathering, according to a source familiar with the planning cited by Reuters.
- US President Biden administration has awarded a further USD 210mln in tech hub grants, according to the Commerce Department.
GEOPOLITICS
MIDDLE EAST
- Israeli Official says "we are in a critical period", hope we can enter into closing period, but "we" are not there yet.
- Hamas says talks have reached the final steps, expresses hope that this round of negotiations ends in a clear and inclusive deal.
- Qatari Foreign ministry spokesperson says "we have reached the final stages of the [Gaza] agreement"; "still some details stuck, largely about implementation", via Al Jazeera.
- NBC reports that the agreement between Israel and Hamas is nearing completion.
- "The Doha consultations [Israel-Hamas talks] will end today and the agreement will be announced unless there is any emergency that temporarily postpones it.", sources told Al-Quds.
- Israel and Hamas work on finishing touches to the hostage deal, according to the WSJ.
- Sky News Arabia sources say a thousand Hamas prisoners arrested by the Israeli army after October 7 will be released. Israel will have the right to veto any name in the lists of prisoners wanted to be released by Hamas and the movement agreed to this.
- Israeli army announced sirens were activated in central Israel after a rocket launch from Yemen and Israeli media reported the suspension of flights from Ben Gurion Airport due to rocket fire from Yemen, while the Houthi group said it targeted Israel's Ministry of Defence with a ballistic missile, according to Asharq News. In relevant news, an Al Jazeera correspondent reported more than 20 strikes in two hours on Gaza City and the central and southern Gaza Strip.
- Israel and Hamas are close to a possible hostage and ceasefire deal that will likely be announced on Monday night or Tuesday morning in which 33 hostages will be released during the first phase, with a staged withdrawal of IDF forces from Gaza other than an undefined security perimeter. However, in terms of when the ceasefire deal would be signed and if it would be signed, there was still uncertainty if it was hours away, days away, or could still unravel, according to sources cited by Jerusalem Post.
- US President-elect Trump said they are getting very close to an Israeli hostage deal and could have a deal done by the end of the week, while it was also reported that Trump's envoy conveyed to Israeli PM Netanyahu a strongly worded message from Trump calling on him to conclude a deal, according to Channel 14 citing an Israeli government official.
- US Secretary of State Blinken is to present a post-war plan for Gaza on Tuesday.
RUSSIA-UKRAINE
- Russian Foreign Minister Lavrov says the US is seeking to disable the TurkStream gas pipeline.
- Senior Ukrainian Official says they launched a "massive attack" which hit multiple targets in the Engels, Saratov, Kazan, Bryansk and Tula regions of Russia.
- Russia's Kremlin says there is 'nothing new' regarding President-Elect Trump's statement about meeting Russian President Putin
- Russia downed more than 200 Ukrainian drones overnight, according to Shot Telegram channel. It was also reported that an industrial enterprise was damaged in the Russian city of Engels after a drone attack.
OTHER
- North Korea fired an unknown projectile towards the East Sea, while the South Korean military later announced that North Korea fired multiple short-range missiles off its east coast. Furthermore, South Korean acting President Choi said North Korea's missile launch is a violation of UN Security Council Resolutions and they will sternly respond to North Korean provocations.
- Philippines National Security Council spokesperson said they were surprised about the increasing aggression being shown by China in deploying a 'monster ship' in the Philippines' exclusive economic zone and that it is an alarming and clear effort on the part of China to intimidate Filipino fishermen. The spokesperson added that the intention of the Chinese government is to normalise presence in South China Sea waters with the presence of the 'monster ship' and they will not stop challenging Chinese presence in Philippine waters.
CRYPTO
- Bitcoin is on a firmer footing and back above USD 96k with Ethereum also stronger and just above USD 3.2k
APAC TRADE
- APAC stocks traded mixed following the similar performance stateside where price action was choppy as most indices attempted to nurse post-NFP losses although the Nasdaq remained pressured on tech weakness, while Japanese stocks were heavily pressured on return from the long weekend.
- ASX 200 gained with outperformance in the commodity-related sectors but with the upside capped after weak consumer confidence data.
- Nikkei 225 slumped as it took its first opportunity to react to the post-NFP higher yield environment and last week's source reports of the BoJ mulling a rate decision for its meeting next week, while comments from BoJ Deputy Governor Himino also suggested the upcoming meeting is live.
- Hang Seng and Shanghai Comp outperformed despite the recent announcement by US and allies of new controls on AI chips, with participants awaiting the PBoC and FX regulator's looming briefing on financial support for the economy, while there was also a report that the Trump team is studying gradual month-by-month tariff hikes of 2%-5%.
NOTABLE ASIA-PAC HEADLINES
- India is likely to project nominal GDP growth of 10.3-10.5% in its budget for the next fiscal year, via Reuters citing sources; expects this fiscal year's budget gap to come in 10-20bps lower than initially predicted 4.9% of GDP.
- China to cut pay of staff at the top three financial regulators by "about half", including the PBoC; with effect this month, according to Reuters citing sources.
- US President-elect Trump is considering trade lawyer Jeffrey Kessler for a key China role heading the Commerce Department's Bureau of Industry and Security.
- China is increasing its scrutiny of exports by Apple (APPL) and other US tech companies which is hampering their efforts to expand production in Southeast Asia and India as tighter customs checks related to dual-use technology export controls have resulted in delays of days and weeks on shipments of production equipment to Vietnam and India, according to people familiar with the matter cited by Nikkei.
- PBoC Deputy Governor says will adjust and improve policy force and its pace at proper time to support China's FY economic and social development targets; to continue to take measures to keep CNY level basically stable at reasonable and balanced level. PBoC Deputy Governor says will adjust and improve policy force and its pace at proper time to support China's FY economic and social development targets; to continue to take measures to keep CNY level basically stable at reasonable and balanced level.
- US lawmakers urged President Biden to extend January 19th deadline to prevent TikTok ban if Supreme Court does not block the law, while was separately reported that China discussed the sale of TikTok's US operations to Elon Musk as a possible option, according to Bloomberg.
- BoJ Deputy Governor Himino said in conducting monetary policy, it is necessary to pay close attention to short-term developments in economic activity, prices, and financial conditions and noted that inflation expectations have risen from below 1.0% to around 1.5%. Himino said they will likely hike rates if their economic forecasts are realised and while the direction is for further rate hikes, they must carefully watch various upside and downside risks at home and abroad. Furthermore, he said in guiding policy, determining the timing of policy change is difficult and important, as well as noted the board will likely debate whether to hike rates and make a decision at next week's policy meeting. Furthermore, he stated it is not a normal state for real rates to stay negative for a prolonged period once shock and deflationary factors dissipate, while he added it is not possible to telegraph the monetary policy decision as the outcome of the policy meeting depends on discussions at the meeting.
- Japanese Economy Minister Akazawa said the BoJ considering a rate hike and the government's aim to exit deflation are not contradictory.
DATA RECAP
- Australian Westpac Consumer Confidence Index (Jan) 92.1 (Prev. 92.8); MM (Jan) -0.7% (Prev. -2.0%)
- New Zealand NZIER Confidence (Q4) 16.0% (Prev. -1.0%); QSBO Capacity (Q4) 91.3% (Prev. 89.1%)
- Indian WPI Inflation YY (Dec) 2.37% vs. Exp. 2.3% (Prev. 1.89%)
- China Yuan Lending (end-Dec): 7.6% Y/Y vs exp. 7.6%
