- European bourses are modestly firmer, US futures edge higher with the RTY outperforming ahead of the first full day of trade as Trump returns to office.
- USD bounces back from Monday's selling as tariff threats loom; the Loonie underperforms as Trump signals tariffs on Canada & Mexico.
- Benchmarks have pared initial early morning upside, with USTs a little firmer whilst Bunds dip into the red.
- Crude and base metals on the backfoot amid Trump tariff rhetoric.
- Looking ahead, Canadian CPI, NZ CPI (Q4), Earnings from Charles Schwab Corp, D.R. Horton, KeyCorp, 3M Company, Fifth Third Bancorp, Forestar Group Inc., Prologis, Netflix, United Airlines, Interactive Brokers Group Inc, Seagate Technology plc, Progress Software Corp., Capital One Financial Corp.
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MONDAY/TRUMP RECAP
- US markets were closed for Martin Luther King Jr. Day, although US equity futures were bid with outperformance in the Russell while ES, NQ and YM saw mild gains. T-Note futures were also underpinned with morning weakness pared after reports that President Trump is to avoid day-one tariff policies, which ultimately was confirmed and largely dictated trade for the session. Significant action was seen in CAD and MXN on the comments around potential 25% tariffs, DXY initially suffered on the lack of day-one tariffs but then rebounded somewhat on the CAD- & MXN-related comments. Amidst this, USD/JPY swung between gains and losses in tumultuous price action.
- Donald Trump was sworn in as the 47th US President, while President Trump said in the Inaugural Address that the golden age of America begins now and he will sign a series of executive orders as widely expected. Trump said he will direct his Cabinet to defeat record inflation and will launch astronauts to Mars, while he added that all illegal entry will be halted and he will reinstate 'Remain in Mexico' policy, as well as send troops to the southern border. Furthermore, Trump said he will declare a national energy emergency and reiterated his 'drill baby, drill' catchphrase, while he will begin an overhaul of the trade system, will tariff and tax foreign countries to enrich US citizens, as well as establish an 'External Revenue Service'.
- US President Trump signed rescissions of 78 Biden-era actions orders and memoranda, while he also signed documents on a federal hiring freeze, mandating workers to return to in-person full-time immediately and the withdrawal from the Paris Climate Treaty. Trump also revoked Biden's 2023 Executive Order on AI policy and Biden's Executive Order that set a target of 50% of new vehicle sales by 2030 as EVs.
- A draft Trump trade memo directed federal agencies to investigate and remedy persistent US trade deficits that harm the US economy and seeks to address unfair trade practices and currency manipulation by foreign countries. The trade memo also seeks to ensure trade deals including USMCA prioritise American workers, farmers and businesses, while it seeks to combat the import of counterfeit products and contraband that threaten public health and erode tariff revenues. President Trump is to assess China's adherence to the US-China trade agreement to determine if enforcement or changes are required.
- US President Trump’s administration sent a new document to Republican lawmakers detailing immediate priorities and it was stated that Trump will announce the America First Trade Policy. It was also announced that Trump will take bold action to secure the border and protect American communities, while he will unleash American energy by ending Biden’s policies of "extremism" and all agencies will take emergency measures to reduce the cost of living.
- Click here for a detailed summary.
EU
- US President Trump said they will straighten out the deficit with the EU through tariffs or by them buying US oil and gas.
CANADA/MEXICO
- Thinking in terms of 25% tariffs on Mexico and Canada and thinks that they will do it on February 1st.
CHINA
- US President Trump signed the order related to delaying the TikTok ban and said he may do a TikTok deal or may not, but if he does a TikTok deal, the US should be entitled to half of TikTok and if he doesn't sign, then TikTok is worthless. Furthermore, Trump said they could put tariffs on China if they make a TikTok deal and China doesn't approve it, while he floated the idea of universal tariffs on anyone doing business with the US but said they are not there yet.
GEOPOLS
- US President Trump said he will meet with Russian President Putin but doesn't know when and he will try to end the Ukraine war as quickly as possible. Trump added that he could speak to Putin very soon and that Ukrainian President Zelensky wants to make a deal, while he commented that Putin is destroying Russia by not making a deal.
- US President Trump said he is not confident regarding the Gaza ceasefire deal, while he rescinded Biden sanctions on Jewish settlers who committed violence against West Bank Palestinians. It was separately reported that Trump was expected to lift the freeze on the supply of one-ton bombs to Israel, according to Walla News.
- US presidential adviser Mike Evans said Trump will punish every country that supports Hamas, according to Sky News Arabia.
COMMODITIES
- US President Trump signed an order on unleashing energy production and repealed Biden's 2023 memo barring oil drilling in some 16mln acres in the Arctic, according to the White House which said it will prioritise development of Alaska's LNG potential, including the permitting of all necessary pipeline and export infrastructure.
- US President Trump said they will probably stop buying oil from Venezuela and don't need their oil.
CRYPTO
- Crypto was reportedly not mentioned as an immediate priority in a document sent by Republican lawmakers, according to Punchbowl.
EUROPEAN TRADE
EQUITIES
- European bourses (Stoxx 600 +0.1%) opened with a strong negative bias, with only a couple of indices remaining afloat. As the morning progressed, sentiment in the complex gradually improved, to currently display a mixed picture in Europe.
- European sectors are mixed vs initially opening mostly in the red. Trump's inauguration has sparked some considerable moves across sectors in Europe; Autos, Basic Resources and Utilities have all been hampered thus far. The latter is in focus after Trump said he will end leasing to some wind farms.
- US equity futures are entirely in the green, with clear outperformance in the economy-linked RTY on the first day of cash equity trade under the second Trump administration.
- Apple (AAPL) Q4 iPhone sales in China fell 18.2% Y/Y, according to Counterpoint Research
- Click for the sessions European pre-market equity newsflow
- Click for the additional news
- Click for a detailed summary
FX
- The dollar is showing a resurgence after yesterday's heavy selling pressure which was triggered by news that President Trump refrained from imposing tariffs on day one of his Presidency. That being said, optimism on the trade front was dashed overnight after Trump remarked that he is thinking of 25% tariffs on Mexico and Canada and thinks that they will do it on February 1st. DXY made an incremental new low overnight at 107.86 before returning to a 108 handle and rising as high as 108.79.
- EUR is notably weaker vs. the USD following a particularly strong showing yesterday amid relief that Trump refrained from enacting tariff action on day one of his Presidency. That optimism has faded somewhat following Trump's threats on Canada and Mexico overnight as well as him stating that the US will straighten out the deficit with the EU through tariffs or by them buying US oil and gas.
- JPY is softer vs. the USD but to a lesser extent than peers given that more cyclically exposed currencies were hit overnight following Trump's tariff threat. USD/JPY delved as low as 154.79 overnight, finding support just above its 50DMA at 154.77.
- GBP is on the backfoot vs. the broadly firmer USD and marginally softer vs. the EUR. This morning's UK jobs data saw the unemployment rate tick higher to 4.4% from 4.3% as expected (usual data caveats apply), whilst headline wage growth picked up to 5.6% from 5.2% as expected. Cable currently sits towards the middle of yesterday's 1.2161-1.2345 range.
- Antipodeans are both on the backfoot as some of yesterday's trade optimism faded overnight following the aforementioned report of Trump considering tariffs on Mexico and Canada. AUD/USD yesterday was able to propel itself from a 0.6189 base to a 0.6286 peak (highest since 7th Jan). However, a bulk of this move was pared during the APAC session with the pair delving as low as 0.6209.
- After some reprieve yesterday, both the Loonie and Mexican Peso are notably lower vs. the USD following comments from US President Trump that he is thinking of 25% tariffs on Mexico and Canada and thinks that they will do it on February 1st. ING notes that "at this point, there is more downside room for CAD and MXN to fall should Trump follow through with the tariff threat".
- PBoC set USD/CNY mid-point at 7.1703 vs exp. 7.2888 (prev. 7.1886).
- Click for a detailed summary
- Click for NY OpEx Details
FIXED INCOME
- USTs have been gradually fading from best throughout the morning as we prepare for Trump’s first full day back in office. As it stands, USTs are holding around Monday’s 108-24+ best. Monday price action was fairly contained up until the WSJ piece (re. tariffs) drove USTs to a 108-24+ peak.
- Gilts are trading in-line with European peers, specifics for the Gilt market focused on the UK labour report which saw the wage metrics increase but largely as expected while the unemployment and payroll measures both point to the market loosening. Metrics which helped Gilts gap higher by 21 ticks at the open, however the overnight rally in USTs was likely the main driver behind this with Gilts playing catch up this morning. Gilts currently in 91.51-79 parameters.
- Bunds began the morning modestly in the green with yields slightly softer by extension but largely contained with newsflow light so far. German ZEW came in mixed with a significant miss in the Economic Sentiment metric while Current Conditions eclipsed the forecast range, but remained at very low levels; accompanying commentary was, unsurprisingly, downbeat. Action which leaves Bunds towards the lower-end of 131.82 to 132.15 parameters.
- France saw over EUR 100bln of demand for its syndicated bond sale, via Reuters citing lead manager.
- Spain has mandated a 10yr benchmark bond, via Reuters citing lead manager.
- Germany sells EUR 0.945bln vs exp. EUR 1bln 2.10% 2029 and EUR 908mln vs exp. EUR 1bln 2.30% 2033 Green Bund.
- UK gets record of GBP 119bln in orders for 2040 gilt syndication, via Bloomberg TV.
- Click for a detailed summary
COMMODITIES
- Softer trade across the crude complex this morning as markets digest Trump's executive orders alongside implications of the new administration for the oil market over the next four years, with the Dollar also on a firmer footing following yesterday's slide. On energy, Trump said he would declare a national energy emergency and reiterated his 'drill baby, drill' catchphrase. Furthermore, US President Trump signed an order on unleashing energy production and repealed Biden's 2023 memo barring oil drilling in some 16mln acres in the Arctic, according to the White House. Brent trades in and at the bottom of a USD 78.90-80.46/bbl range.
- Mixed trade across precious metals amid the tentative mood around markets as Trump was sworn in as the 47th President yesterday. Spot gold steadily extended on yesterday's gains and currently trades in a USD 2,702.81-2,733.06/oz range after topping the peak set last Thursday (USD 2,724.78/oz).
- Base metals lower across the board following Trump's latest tariff-related rhetoric dampening demand in the base metal space.
- Saudi Aramco's Chief says he still sees a healthy oil market, when asked about US President Trump's energy comments, via Reuters. Will wait and see how sanctions on Russia translate into tightness in the market, still at an early stage. Expecting additional oil demand this year of around 1.3mln/bpd. On LNG, we are working with our partners and looking at expanding our position.
- Uniper (UN0 GY) CEO says it is positive if US President Trump sends more gas to Europe.
- Click for a detailed summary
NOTABLE DATA RECAP
- UK Average Week Earnings 3M YY (Nov) 5.6% vs. Exp. 5.6% (Prev. 5.2%); Average Earnings (Ex-Bonus) (Nov) 5.6% vs. Exp. 5.5% (Prev. 5.2%)
- UK ILO Unemployment Rate (Nov) 4.4% vs. Exp. 4.4% (Prev. 4.3%)
- UK Employment Change (Nov) 35k vs. Exp. 33k (Prev. 173k); HMRC Payrolls Change (Dec) -47k (Prev. -35k, Rev. -32k); Claimant Count Unem Chng (Dec) 0.7k (Prev. 0.3k, Rev. -25.1k)
- EU ZEW Survey Expectations (Jan) 18.0 (Prev. 17)
- German ZEW Current Conditions (Jan) -90.4 vs. Exp. -93.0 (Prev. -93.1); ZEW Economic Sentiment (Jan) 10.3 vs. Exp. 15.3 (Prev. 15.7); Germany's ZEW says the second consecutive year of recession caused economic expectations in Germany to fall. Lack of private household spending and subdued demand in the construction sector continue to stall the German economy. If these trends continue in the current year, Germany will fall further behind the other countries in the EZ.
NOTABLE EUROPEAN HEADLINES
- EU is to reportedly raise concerns with the US over its decision to restrict exports of AI chips from the likes of NVIDIA (NVDA) to some member states, according to Bloomberg sources.
- ECB's Villeroy says "if the pace of rate cuts is steady, there is no need to make them bigger", via Bloomberg TV; in terms of easing, it will be entirely data dependent. No question on the neutral rate; if ECB carries on, can be at 2% neutral rate by summer. Perspective of inflation is quite assured. On growth, is slightly positive thus far but not enough.
- UK Chancellor Reeves backs plans for looser limits on mortgage lending and favours proposals by the financial regulator for banks to take more risks to boost home ownership, according to FT.
- UK Chancellor Reeves reportedly intervenes in a car finance mis-selling case to protect lenders in which she launched an effort to shield car loan providers from multibillion-pound payouts, according to FT.
- ECB's Kazimir said a rate cut next week is all but certain and two to three more will probably follow, while he added that recent data suggest 25bps back-to-back rate cuts should continue although heightened uncertainty means the ECB must remain nimble in case things change, according to Bloomberg.
- EU's Commissioner Dombrovskis said the EU and US are strategic allies, while he added they need to preserve the EU-US trade relationship and they are ready to defend the EU's economic interests.
- EU finance ministers agreed to stay united in the approach to the new US administration and stated that a more competitive EU economy is the best answer to potential economic challenges from the US, while they also agreed it is in the EU and US interests to develop a strong economic relationship.
- German Car Association VDA says in discussion with the new US President, it is clear that showing economic strength is the best answer
NOTABLE US HEADLINES
- BofA January Global Fund Manager Survey states investors are bullish on the USD and equities, bearish everything else (most underweight bonds since October 2022).
- JPMorgan (JPM) executive Erdoes says US banks under President Trump are "in the beginning of go-mode" and "animal spirits are alive", via FT citing Davos remarks; adding, it is "hopeful" that his regulatory approach would boost the US economy.
- US Speaker Mike Johnson’s tax adviser Derek Theurer is expected to take a job in the Treasury Department - he would play a "key role" in shaping Republican tax plans, according to Punchbowl.
GEOPOLITICS
MIDDLE EAST
- Israeli Military says forces have begun an operation in the West Bank city of Jenin.
- Hamas said a second batch of hostages will be released on Saturday as planned.
RUSSIA-UKRAINE
- Ukraine's Military says it hit Russian oil depot in Voronezh region for the second time in a week
- Ukrainian President Zelenskiy said US President Trump's peace through strength policy is an opportunity to achieve just peace and he looks forward to active and mutually beneficial cooperation with Trump.
- Falling Ukrainian drone triggered a new fire at an oil storage depot in southern Russia's Voronezh region, according to the regional governor.
OTHER
- Russian President Putin tells Chinese President Xi that he "thinks last year was a very fruitful year for us". Putin says China ties are "self sufficient"
- South Korea said the denuclearisation of North Korea must still be the goal for world peace, following a report US President Trump said that Pyongyang is a nuclear power.
CRYPTO
- Bitcoin is on the backfoot, and continues to slip after US President Trump refrained from mentioning crypto in his first day in office; BTC -5.1% at USD 102.5k.
APAC TRADE
- APAC stocks were mixed as the initial broad-based risk-on sentiment after US President Trump refrained from imposing tariffs on the first day of his return to the White House, was ultimately soured after he later flagged potential 25% tariffs on Canada and Mexico which could be imposed from the start of February.
- ASX 200 was led higher as outperformance in the top-weighted financials sector and gold miners helped pick up the slack from the weakness in energy and defensive stocks.
- Nikkei 225 briefly wiped out its opening gains with price action largely influenced by tariff rhetoric and a firmer currency.
- Hang Seng and Shanghai Comp were mixed after the recent tariff-related fluctuations in asset classes, while President Trump also floated the idea of universal tariffs on anyone doing business with the US but added that they are not there yet.
APAC NEWS
- China's Vice Premier says China's stable economic growth will provide strong impetus for global economic development. "China does not pursue a trade surplus". "China's door of opening up will not close". "Sincerely welcome more foreign companies to invest into China"
