- European bourses trade at best levels, Stoxx 600 makes a record high; NQ outperforms as President Trump announces a USD 500bln AI investment.
- USD tilts lower as markets await further developments from the Trump administration.
- USTs are a little firmer, Bunds bounce on ECB Lagarde remarks, who is seemingly not too concerned about US tariffs at this point in time.
- A softer dollar supports oil and precious metals, but base metals trade mixed on tariff threats.
- Looking ahead, Supply from the US, Earnings from Procter & Gamble Co., Abbott, Johnson & Johnson, Halliburton Company, Ally Financial, Amphenol Corp., Comerica, GE Vernova Inc., Travelers Companies, Commerce Bancshares Inc., First Community Corp., Kinder Morgan, Inc., Alcoa, Discover Financial Services, RLI Corp. & Steel Dynamics.
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EUROPEAN TRADE
EQUITIES
- European bourses (Stoxx 600 +0.7%) began the session on a modestly firmer footing, but sentiment continued to improve as the session progressed – with a more pronounced bid following commentary via ECB's Lagarde (details below). As it stands, indices generally reside at session highs; the Stoxx 600 hit a fresh record high, currently at 529.60.
- European sectors hold a strong positive bias, with only a handful of sectors residing in the red. Industrial Goods tops the pile, joined closely by Insurance and Healthcare to form the top 3 performers. Insurance is lifted by Munich Re and Hannover Re, which both received broker upgrades at HSBC. Telecoms is found at the foot of the pile.
- US equity futures are entirely in the green, with clear outperformance in the tech-heavy NQ after US President Trump announced a USD 500bln AI infrastructure investment in the US – which includes a JV between OpenAI, Softbank and Oracle; the latter gains 8.4% in pre-market trade.
- Other pre-market movers include Netflix (+15%) after it reported blockbuster earnings; the Co. reported strong headline metrics, record subscriber gains and plans to raise prices.
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FX
- DXY is lower in the wake of yesterday's heavy selling pressure which was triggered by relief over a lack of tariff actions by Trump on day one of his Presidency. That being said, overnight, Trump has threatened both the EU and China with tariffs and is reportedly pushing for an early renegotiation of the US trade deal with Mexico and Canada. DXY sits towards the bottom end of yesterday's 107.92-108.79 band.
- EUR is marginally firmer vs. the USD after a particularly strong showing at the start of the week on account of Trump refraining from any explicit tariff actions on day one of his Presidency. Trump remarked overnight that the "European Union treats us badly and the EU will be in for tariffs". In an interview at Davos, ECB President Lagarde appeared to downplay concerns surrounding tariffs. EUR/USD has just broken above the top end of yesterday's 1.0341-1.0435 range.
- JPY is softer vs. the USD despite some fleeting support after reports that Japanese PM Ishiba is to present an investment plan to US President Trump at the summit, according to Kyodo. USD/JPY currently sits within yesterday's 154.76-156.23 range.
- GBP a touch softer vs. the USD and EUR in the wake of higher-than-expected December borrowing data alongside an upward revision to the prior presents another headwind for the Chancellor and her fiscal space. Cable comfortably on a 1.23 handle and in close proximity to yesterday's best at 1.2359 (as context, the low from yesterday sits at 1.2228).
- Mildly diverging fortunes for the antipodeans. NZD/USD has had to digest CPI metrics with the headline Y/Y printing at 2.2% vs. Exp. 2.1%. However, ING notes that the closely monitored non-tradable index slowed slightly faster than expected from 4.9% to 4.5%; lowest level since Q4 2021. ING suggests this paves the way for a 50bps RBNZ cut next month (priced at 65%).
- PBoC set USD/CNY mid-point at 7.1696 vs exp. 7.2642 (prev. 7.1703).
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FIXED INCOME
- USTs are awaiting fresh tariff updates from US President Trump. Overnight, Trump spoke about potential measures on China and the EU. As it stands these remain hypothetical with the President yet to initiate measures though the February 1st date he continues to reference is moving ever closer. USTs are firmer by a handful of ticks and have been moving directionally with EGBs (see Bunds) in the European morning. Holding at the upper-end of 108-19 to 108-28 bounds, with yields lower across the curve which itself is flattening very modestly.
- Bunds saw some modest pressure early doors on the UK PSNB data (see below), thereafter the main move of the morning came via ECB’s Lagarde at Davos. An interview from which the main takeaway was Lagarde seemingly not being too concerned about US tariffs at this point in time, a reading-between-the-lines assessment which drove EGB upside. As a reminder, Trump overnight said “...the EU will be in for tariffs.”. Specifically, Bunds were driven to a 132.22 peak as Lagarde spoke, posting upside of 28 ticks on the session at the time and setting a new WTD high, resistance now not seen until 132.57 from earlier in the month.
- Gilts began the session on the back foot, gapping lower by 11 ticks after a much larger than expected December PSNB figure and an upward revision to the prior. Metrics which further illustrate the challenges the Chancellor is facing on the UK’s public finances. For reference, in an interview this morning Reeves stuck to her usual lines on the subject.
- Books for the Spanish 10yr syndication in excess of EUR 150bln.
- Germany sells EUR 1.129bln vs exp. EUR 1.5bln 2.60% 2041 and EUR 0.392bln vs exp. EUR 0.5bln 2.50% 2044 Bund Auctions
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COMMODITIES
- Slight upward bias across the crude complex as the dollar pulls back from overnight highs and sentiment across Europe is now firmer. That being said, upside is capped by tariff threats from US President Trump who flagged a 10% levy on China in retaliation to fentanyl flows from the country, whilst noting Europe could be hit by tariffs too. Brent Mar resides in a USD 78.81-79.70/bbl parameter.
- Precious metals are firmer across the board the back of the softer dollar, with the schedule today relatively light aside from equity earnings. Spot gold extends on gains to trade in a USD 2,741.96-2,762.41/oz range.
- Base metals are mixed despite the softer dollar and constructive risk mood, but likely amid China's underperformance amid the US tariffs threats, whereby US President Trump said they are talking about a 10% tariff on China for sending fentanyl. Copper futures mildly pulled back after the prior day's intraday rebound with prices not helped by the underperformance in China. 3M LME copper resides in a narrow USD 9,206.50-9,279.50/t range.
- Accident reported at 18k/T of oil reservoirs located in Ray City, Iran, according to Tasnim. [NOTE: subsequent reports indicated the fire is at a LNG site rather than an oil site]
- Citi Brent outlook revisions (USD): Q1-2025 75/bbl; Q2-2025 68/bbl; Q3-2205 63/bbl; Q4-2025 60/bbl. 2025 average of 67/bbl. WTI: 2025 view revised up to 63/bbl.
- Indonesia's Energy Minister says price cap of USD 6/MMBTU may be raised due to global gas prices
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NOTABLE DATA RECAP
- UK PSNB, GBP (Dec) 17.811B GB (Prev. 11.249B GB, Rev. 11.800B GB); PSNCR, GBP 19.876B GB (Prev. 12.983B GB, Rev. 13.128B GB)
NOTABLE EUROPEAN HEADLINES
- ECB's Lagarde says no immediate US tariffs were her expectation, it is a smart approach, via CNBC; does not mean to say that tariffs won't happen, will be more selective. Reasonably optimistic about the future. Confident EZ inflation target over course of 2025. There are downside risks to EZ growth in 2025. Not overly concerned about the export of inflation in Europe. Exchange rate will be of interest, and may have consequences. "We will see if early-2025 delivers a reduction in services inflation". Does not believe the ECB is behind the curve. Gradual moves in rates "come to mind currently". Attentive to energy, haven't anticipated a declined in energy prices.
- ECB's Nagel says confident that EZ inflation will return to the 2% target by mid-year, according to Spiegel.
- ECB's Escriva says the ECB will not pre-commit to a decision, markets expect a 25bps rate cut - is the most likely scenario. Incoming information points towards converging to the 2% inflation goal. There are downside risks to growth. Unclear whether there will be inflation spillovers from US policy. To retain full optionality is more important than ever.
- ECB's Stournaras says rates should be lowered at the order of 25bps each time to get close to the 2% target by the end of the year Possible US tariffs would speed up rate cuts in the Eurozone.
- ECB's Villeroy says it is too early to tell but inflationary effects from the new US administration could be expected. Disinflation in Europe is still on track.There could be a decoupling between ECB and Fed on rates, but it is not an issue. There is a risk that the benefits of disinflation and monetary easing are lost by policy fragmentation and too lax fiscal policy.
- ECB's Knot says he sees little obstacles to another cut in January, via Bloomberg TV; data is encouraging and confirms they will return to target. New downside risks from trade policies (regarding growth), inflation outlook is not as clear. Comfortable with market expectations for the next two meetings. Meeting-by-meeting approach to policy decisions has worked well.
- UK Chancellor Reeves, when asked about UK bank ring-fencing, says we "always keep an open mind". says "our public finances are now in order". Will meet fiscal rules.
- SNB Chair Schlegel says its not discussing a new CHF cap at the moment; cannot exclude negative rates. Does not like negative rates but can use them. Not uncomfortable with inflation currently. Intervention has worked in the past and would be willing to do it again. SNB is prepared to intervene in the FX market if required. Inflation is well inside SNB target range and over SNB forecast cycle. Cannot exclude negative interest rates. Not uncomfortable with inflation at present. Reiterates ready to intervene in FX market as necessary. When questioned on the prospect of the US labelling them as a currency manipulator again, says this is not something that would influence their intervention decisions.
- EU Defence Commissioner Kubilius says they need to spend more, better and European in defence
NOTABLE US HEADLINES
- US President Trump said they are talking about a 10% tariff on China from 1st February for them sending fentanyl to Canada and Mexico, while he added that the European Union treats the US badly and that the EU will be in for tariffs.
- US President Trump is using tariffs threat to push for an early renegotiation of US trade deal with Mexico and Canada, according to WSJ.
- US President Trump announced an AI project with OpenAI, SoftBank (9984 JT) and Oracle (ORCL) to form a JV called Stargate which will invest at least USD 500bln in AI infrastructure in the US and will create 100k jobs. Trump said he is going to help through emergency declarations and will make it possible to get the electricity production needed. Furthermore, Stargate will begin immediately to build infrastructure, while Oracle's Chairman Ellison said data centres are under construction in Texas with expansion to other locations too and SoftBank CEO Son said they will immediately deploy USD 100bln in AI investment.
- China could agree to ByteDance selling TikTok as part of a broader deal with the US which would cover issues such as trade, via FT citing sources; talks are at an early stage.
- Indian PM Modi is reportedly considering lower tariffs and more imports to counter threats from US President Trump, via Bloomberg citing sources; India could purchase additional whisky, steel and oil from the US.
GEOPOLITICS
MIDDLE EAST
- Lebanese media report an Israeli drone attack in the Hasbaya area in southern Lebanon, north of Mount Hermon, via Kan 11's Kais.
- "Israel is trying to extend the 60-day deadline for the withdrawal of forces from Lebanon by three days", according to Lebanese press cited by Israeli journalist Kai.
RUSSIA-UKRAINE
- Russian Deputy Foreign Minister Ryabkov says as of today, there is a "small window of opportunity" for agreements with new US administration, via Interfax.
- US President Trump said if Russian President Putin does not come to the table on Ukraine, it is likely that he would put sanctions on Russia, while he added that they are looking at the issue of sending weapons to Ukraine, as well as noted the European Union should be paying more on Ukraine and should equalise spending on Ukraine. Furthermore, Trump said he is looking to speak with Russian President Putin soon and told Chinese President Xi to help settle the Ukraine issue.
- US Secretary of State Rubio and Japanese Foreign Minister Iwata discussed concerns over North Korea's political and security alignment with Russia and China's support for Russia's defence industrial base.
OTHER
- Australia, India, Japan and the US said they reaffirmed a shared commitment to a free and open Indo-Pacific after the first Quad ministerial meeting of the new Trump presidency. Furthermore, the Quad countries strongly oppose any unilateral actions that seek to change the status quo by force or coercion, while they will meet on a regular basis in the coming months to prepare for the next leaders' summit hosted by India.
CRYPTO
- Bitcoin is back on a firmer footing and climbs to just shy of USD 105k; Ethereum is around USD 3.3k.
APAC TRADE
- APAC stocks traded mixed as most major indices took impetus from the gains on Wall St after President Trump's first full day back in office although Chinese markets lagged after Trump suggested 10% tariffs on China for sending fentanyl to Mexico and Canada which ends up in the US.
- ASX 200 notched mild gains amid strength in tech, industrials and financials but with gains capped by losses in miners.
- Nikkei 225 outperformed and surged above the 39,000 level with SoftBank among the biggest gainers after President Trump announced an AI project with OpenAI, SoftBank and Oracle to form a JV which will invest at least USD 500bln in AI infrastructure.
- Hang Seng and Shanghai Comp were pressured after US President Trump warned of 10% tariffs on China from February 1st for sending fentanyl which overshadowed the PBoC's substantial CNY 1.16tln reverse repo operation.
NOTABLE ASIA-PAC HEADLINES
- China is to allow foreign financial institutions to offer new types of financial services in some free trade zones, similar to those provided by Chinese financial institutions, according to Reuters. To support cross-border purchases of certain types of financial services at some free trade zones.
- Chow Tai Fook Jewellery (1929 HK) - Q4 retail sales growth -14.2%, Q4 same store sales growth in China -16.1%
- Japanese PM Ishiba to present investment plan to US President Trump at the summit, according to Kyodo.
- China releases plan for promoting the entry of medium and long term funds into the market. To increase the ratio of insurance money in stock market. Guide big state owned insurers to raise a share invest. Expand the scale of swap facilities for securities firms. Promote the use of refinancing tools to support share buybacks and increases in holdings.
- China is to cap pay at central gov't owned financial firms ay CNY 1mln/year, via Reuters citing sources
- US President Trump said he has met with TikTok owners and he is open to Elon Musk buying TikTok, while he is thinking of telling someone to buy TikTok and give half of it to the US.
- SK Hynix (000660 KS) is scheduled to hold its Q4 conference on Thursday, during which it is expected to remark that operating profit hit a record KRW 8tln peak with AI memory chip s accounting for 42% of sales, via journalist Nystedt.
DATA RECAP
- New Zealand CPI QQ (Q4) 0.5% vs. Exp. 0.5% (Prev. 0.6%); YY (Q4) 2.2% vs. Exp. 2.1% (Prev. 2.2%)
- RBNZ Sectoral Factor Model Inflation Index (Q4) 3.1% (Prev. 3.4%)
