Futures Tumble As Yields Rise, Oil Soars

US equity futures tumbled to the lowest level since November as the global risk-off tone resumed amid a surge in oil prices pushing yields higher, with this Wednesday's CPI print the next global catalyst. Bond yields jumped (again) as the curve bear flattens and the USD resumes its move higher in what has now become a boring daily trade where the world is once again convinced the "exception" US can decouple form a world where Japan, China and Europe are all contracting and where the US can somehow keep growing (spoiler: it can't). As of 7:30am, S&P futures are down 0.8% to 5820, on pace for their 7th decline in the past 10 days, and approaching a level last seen in late-September; Nasdaq futures slump even more, down 1.1% with Mag7 names under pressure premarket with NVDA/TSLA the biggest losers. European shares dropped 0.9%, with technology names leading the declines. Credit ETFs are outperforming pre-mkt and may be an area of safety into CPI. Commodities are also stronger, led by Energy on news Biden hopes to blow up Trump's presidency by sending oil prices soaring thanks to additional US sanctions on Russian oil which may impact 1mm bpd. Today’s macro data focus is the NY Fed’s 1-yr inflation expectations.

In premarket trading, tech shares, including Tesla, Palantir and Nvidia were among the high-profile losers as a fresh rise in bond yields weighed on tech and growth stocks. Most other Mag Seven names were also broadly lower (Apple -1%,  vidia -3.3%, Microsoft -0.9%, Alphabet -0.8%, Amazon -1.1%, Meta Platforms -0.9% and Tesla -2.8%). Here are some other notable premarket movers:

• Moderna is down 20% after the company slashed its revenue guidance for 2025 which missed the average analyst estimate
• Amplitude and SEMrush shares gain after Morgan Stanley upgrades the stocks in a reshuffle of the software sector. Amplitude (AMPL US) +1%, SEMrush (SEMR US) +1%
• Insurance stocks have been oversold over the past week, according to analysts, as wildfires rip through parts of Los Angeles. Meanwhile, the National Weather Service issued a “particularly dangerous situation” warning for Malibu, the San Fernando Valley, and large portions of Ventura County.
• Watch Allstate, Travelers, AIG, Chubb, Mercury General, RLI and Skyward Specialty Insurance; also watch California utility stocks Edison International and PG&E.
• Intra-Cellular Therapies (ITCI US) shares rise 39% after Bloomberg reported Johnson & Johnson is in talks to acquire the biopharmaceutical company focused on treatments for central nervous system disorders.
• Sage Therapeutics shares soar 39% after Biogen made a non-binding proposal to acquire the remaining shares of the biopharmaceutical company following the close of markets Friday.

World markets, already in turmoil since the start of 2025, suffered a fresh setback on Friday from a blowout US jobs report - which will be revised sharply lower in a month or so - that prompted traders to slash their wagers on Fed rate cuts to less than 30 basis points for the whole of 2025. The figures sparked a selloff that wiped out the S&P 500’s year-to-date gain and sent Bloomberg’s dollar index to two-year highs. 10Y Treasury yields rose further to touch a 14-month high, up more than 15 basis points this year, and more than 100 bps higher since the Fed cut rates by 100 bps. Thirty-year borrowing costs hovered just below the psychologically key 5% threshold.

“As long as the US fixed-income market hasn’t stabilized, it will be difficult for the equity market to regain strength,” said Benjamin Melman, chief investment officer at Edmond de Rothschild Asset Management. “We need some stabilization, but as we are seeing this morning, it is not going to happen today.”

Yields jumped after a surprise wave of US sanctions by Biden on Russia - one week before the Trump inauguration - sent Brent crude futures to a five-month high above $81 a barrel. If the move reduces the global crude surplus, it could keep energy prices elevated, lifting price pressures as discussed earlier. The rise in Treasury yields and the dollar is affecting markets worldwide, raising borrowing costs across Asia and Europe. UK assets, which have been at the epicenter of the turmoil, continued to lose ground, with 10-year gilt yields holding near 2008 highs, and the pound extending last week’s 1.7% slump to trade at the weakest since November 2023. Rabobank analysts said that while the UK’s fiscal deficit was a major concern, “a large part of the move higher in UK long-term interest rates reflects the push higher in global rates, which is linked to a US-led rise in risk premia.”

Attention turns next to UK inflation data due Wednesday. The US also releases inflation figures on the same day, with economists forecasting the year-on-year print to have picked up to 2.9%. That could further reduce bets on Fed easing. Already Bank of America has moved to predicting no rate cuts at all this year, and in fact sees the risk of a hike, echoing what we said more than a month ago.

Rothschild’s Melman considers the data to be crucial, given Trump’s pledge to implement policies that are widely seen as inflationary. “If we have confirmation that the disinflation process stalled even before Donald Trump’s re-election, it could provide some more tension for US fixed income,” he said.

European shares dropped 0.9%, with technology names leading the declines. Major markets are all lower with regional indices down at least one std dev as bond yields move higher. The technology sector underperformed, with suppliers to Apple dropping the most after an analyst predicted that iPhone shipments will miss Wall Street estimates this year. Commodityh-related Equities are higher with the move higher in oil. The moves in bonds are attracting buyers. Value is leading, Cyclicals are lagging. UKX -0.4%, SX5E -0.9%, SXXP -0.7%, DAX -0.7%. Here are some of the biggest movers on Monday:

• Oxford Nanopore shares rise as much as 25%, the steepest gain since September 2021, after the British DNA-sequencing firm issued a trading update that analysts found reassuring.
• Entain shares rose as much as 9.3% after the firm reiterated its FY24 guidance, allaying fears after rival Flutter recently warned profits would take a hit in the final quarter of last year due to unfavorable US sports results.
• Porsche shares rise as much as 3.8% after the German carmaker released data saying it delivered 310,718 cars in 2024, a 3% decline from 2023. UBS analysts said the data confirms expectations on sequential volume improvement in 4Q over 3Q.
• BioMerieux shares gain as much as 6%, the most since Aug. 22, after the French medical technology firm agreed to buy the remaining 80% stake of privately held Norwegian diagnostics company SpinChip it doesn’t already own for about €111 million.
• SMA Solar shares gain as much as 16%, the most since February last year, after Jefferies raised the recommendation on the solar-equipment manufacturer to buy from hold, citing a valuation at historical lows.
• Sobi gains as much as 4.7%, the most since October, after the biotechnology firm said its full-year 2024 revenue was higher than a previous company estimate, coming in at about SEK 26 billion.
• Idorsia shares drop as much as 15% after the company said it will propose changing current terms of a convertible bond due this year in order to avoid short-term liquidity constraints.
• European chip stocks drop amid a widspread pullback in growth stocks. Apple suppliers slipped after an influential analyst on Friday projected iPhone shipments this year are likely to fall short, while STMicro dropped following a downgrade at TD Cowen and Aixtron fell after H&A downgraded the stock.
• Energy stocks outperform as crude oil jumps for a second session to hit the highest level in more than four months.

Earlier in the session, Asian stocks fell for a fourth session as sentiment remained downbeat, weighed by reduced expectations of the Federal Reserve’s interest-rate cuts and an ongoing selloff in Chinese shares. The MSCI Asia Pacific excluding Japan Index dropped as much as 1.7% to touch its lowest level since August last year. TSMC, Samsung Electronics and Hon Hai were among the largest contributors to its fall. Benchmarks in Taiwan and Philippines led declines in the region, while stocks in India sank as the rupee hit a new low. Japanese markets were closed for a holiday. Downward pressure on Asian markets has intensified after stronger-than-expected US jobs data triggered a recalibration on Fed cut expectations for this year. Sentiment has been particularly weak for Chinese stocks, with concern over increased trade tensions under Donald Trump pushing the MSCI China Index into a bear market last week. TGhe Hang Seng fell more than 1% and Shanghai Composite slips 0.4%. The ASX 200 drops 1.2% and Taiex slumps 2.3%. Japanese markets are closed for a holiday.

China has been another source of pressure for market sentiment, with shares extending losses even after data showed record exports last year, which however was driven by a rush to buy Chinese goods ahead of Trump's tariffs. The offshore-traded yuan dropped close to a record low against the dollar, forcing authorities to ramp up support for the currency and tweak capital curbs.

In FX, the dollar climbed against most majors. The pound weakens 0.6% amid UK fiscal woes and euro falls 0.3%. Offshore yuan ticks higher after PBOC boosts support for the currency.

In rates, treasuries are extending Friday’s slide with front-end yields cheaper by about 3bp, as investors further reduce expectations for Fed rate cuts  based on strong December jobs data. Additional rise in oil prices compounds upside pressure on Treasury yield, with WTI crude futures up 2% after gaining 3.6% Friday. This week’s corporate new-issue calendar is expected to be front-loaded ahead of the December CPI report Wednesday. 10-year yields around 4.78% are ~2bp cheaper on the day with bunds and gilts keeping pace. Bear-flattening leaves 2s10s, 5s30s spreads tighter by 1bp and 2.5bp on the day, extending Friday’s move. Fed-dated OIS prices in only about 4bp of Fe easing over the next two policy meetings and just 23bp by the end of the year. Corporate new-issue slate already includes several items; $40 billion to $45 billion of offerings are anticipated this week, most before the midweek release of December CPI. Treasury auctions resume Jan. 22 with 20-year bond reopening

In commodities, crude oil extended Friday’s rally on sweeping US sanctions on Russian energy industry. WTI crude futures jump almost 2% to a three-month high around $78-handle. Gold dips to near $2,685. Bitcoin is steady around $94,500.

The US economic data calendar includes December New York Fed 1-year inflation expectations (11am) and federal budget balance (2pm). Ahead this week are PPI, CPI, retail sales, housing starts and industrial production. Fed speaker slate empty for the session. Schmid, Williams, Barkin, Kashkari and Goolsbee are slated later in the week

Market Snapshot

• S&P 500 futures down 0.9% to 5,811.50
• Brent Futures up 1.2% to $80.75/bbl
• MXAP down 1.2% to 175.76
• MXAPJ down 1.8% to 549.21
• Nikkei down 1.0% to 39,190.40
• Topix down 0.8% to 2,714.12
• Hang Seng Index down 1.0% to 18,874.14
• Shanghai Composite down 0.2% to 3,160.76
• Sensex down 1.4% to 76,280.03
• Australia S&P/ASX 200 down 1.2% to 8,191.92
• Kospi down 1.0% to 2,489.56
• STOXX Europe 600 down 0.7% to 507.73
• German 10Y yield up 2.6 bps at 2.62%
• Euro down 0.6% to $1.0184
• Gold spot down 0.2% to $2,685.35
• US Dollar Index up 0.43% to 110.13

Top Overnight News

• Russian Kremlin says there are no specific preparations underway for a possible US President-Elect Trump and Russian President Putin meeting.
• Oil hit a four-month high as US sanctions on Russia’s energy industry raised supply concerns. Benchmark Brent crude futures rose more than 1% early Monday, adding to a 3.7% advance Friday when the U.S. unveiled much-anticipated curbs on Russia’s energy industry. The rise is adding to jitters in global bond markets, fueling fears of higher consumer-energy prices that could juice overall inflation. BBG
• US president-elect Donald Trump intends to push Ukraine to lower its age of conscription in an effort to stabilize the country’s front lines ahead of direct negotiations with Russia. FT
• China’s trade numbers for Dec exceeded expectations, including exports (+10.7% vs. the Street +7.5%) and imports (+1% vs. the Street -1%), although the country’s continued dependence on exports is likely to stoke trade tensions with the incoming Trump administration. RTRS
• China’s trade surplus reached a record $992 billion in 2024 as exporters raced to get ahead of Donald Trump’s policies just one week before he returns to the White House. Bloomberg Economics expects the tariff-driven front-loading will boost Chinese exports further. BBG
• The PBOC ramped up its support for the yuan with a verbal warning and tweaks to its capital controls. The offshore yuan edged higher. Governor Pan Gongsheng said policy focus will shift more to consumption. BBG
• The ECB will probably cut rates further to ensure it delivers on its price stability mandate, Chief Economist Philip Lane told a conference in Hong Kong. Governing Council member Olli Rehn said the central bank should continue cutting irrespective of what the Fed does. BBG
• Apple Inc. sold 5% fewer iPhones globally and lost ground to Chinese rivals in the final quarter of last year, reflecting the absence of Apple Intelligence in its largest market outside the US. BBG
• J&J is said to be in talks to buy Intra-Cellular Therapies, which has a market value of about $10 billion. ITCI shares up ~35% in the premarket. BBG
• US defense spending – Def. Sec. Austin recommends Congress boost the Pentagon’s budget by ~$50B, taking it to ~$1T. BBG
• Barclays expects Fed to deliver one 25bps rate cut in June 2025 (vs prev. forecast of one cut in March and one in June).

A more detailed look at global markets courtesy of Newsquawk

APAC stocks were mostly negative in reaction to the hot NFP jobs report and subsequent rise in yields as Fed rate cut bets were unwound, while risk sentiment was also not helped by the holiday closure in Japan and failed to benefit from Chinese trade data. ASX 200 was lower with underperformance in tech, financials and consumer discretionary sectors, while energy bucked the trend owing to a surge in oil prices. Hang Seng and Shanghai Comp were pressured at the open as participants awaited the latest Chinese trade data but pared some of the losses following comments from PBoC Governor Pan that they have the confidence and means to overcome difficulties in the economy and will use interest rate and RRR tools to keep liquidity ample, while sentiment then remained subdued amid the broad risk-aversion and failed to benefit from the better-than-expected Chinese trade figures.

Top Asian News

• PBoC raised the cross-border macro adjustment parameter to 1.75 (prev. raised to 1.50 in July 2023), while it held a meeting for the FX market in Beijing and pledged to strengthen FX market management, as well as discussed to resolutely keep yuan exchange rate basically stable at reasonable and balanced levels. PBoC also said it will increase forex market resilience, strengthen the forex market, deal with behaviours disrupting market orders and prevent exchange rate overshooting risks. Furthermore, it reiterated the yuan rate will stay at a reasonable and balanced level.
• PBoC Governor Pan said China's economy addressed risks and challenges in recent years, while they have confidence and means to overcome difficulties in the economy and will use the interest rate and RRR tools to keep liquidity ample. Pan reaffirmed China is to raise the fiscal deficit and will continue to be the world economy's engine. Furthermore, he said policy should shift to investment and consumption but also noted that challenges remain in China's economic development.
• PBoC Governor Pan met with BoE Governor Bailey in Beijing on Saturday and discussed financial stability and cooperation, while Pan also met with top executives from HSBC, Standard Chartered and the London Stock Exchange. It was separately reported that UK and China will explore a wealth connect program and they announced the launch of an OTC bond business with China to launch a sustainable government bond in London this year.
• HKMA said China is to encourage listings and debt issuance in Hong Kong, while the HKMA and PBoC will set up a CNY 100bln liquidity facility for trade finance. HKMA also announced to extend trading hours for the Bond Connect Southbound Scheme with the settlement time for the Bond Connect to be extended to 04:30 pm local time (08:30GMT/03:30EST) which includes USD and EUR bonds, while it is to expand onshore investor choices for international bonds through the link.
• South Korean impeached President Yoon’s lawyer said Yoon will be absent from the first hearing in the impeachment trial out of safety concerns.
• Chinese Auto Industry Association official says China's vehicles sales estimated to grow 4.7% in 2025 (vs 4.5% growth in 2024 and 12% in 2023), NEV sales seen growing 24.4% in 2025, and vehicle exports estimated to grow 5.8% to 6.2mln units in 2025. China 2024 vehicle sales +4.5% Y/Y (prev. +12% in 2023), according to the industry association; December vehicle sales +10.5% Y/Y (prev. 11.7% in November); 2024 NEV sales +39.7% Y/Y, Dec NEV sales +34% Y/Y.

European bourses began the week entirely in the red and have gradually edged lower as the morning progressed; as it stands, indices reside at worst levels with downside in excess of 1.0% for the Euro Stoxx 50. European sectors hold a strong negative bias, with only a handful of industries residing in positive territory. Energy is by far the clear outperformer today, buoyed by the strength in oil prices. Tech is the underperformer today, swept away by the risk-off sentiment and as traders digest comments from Apple watcher Ming-Chi Kuo, who said the iPhone maker is facing challenges in 2025, including stagnant iPhone growth and declining Chinese market share. US equity futures are entirely in the red, in a continuation of the downside seen following the strong NFP report; NQ -1.4% the underperformer given the broad tone, yield advances and specific Tech pressure. Barclays European Equity Strategy: Cuts UK FTSE 250 to Neutral from Overweight.

Top European News

• ECB's Vujčić says under current uncertainty, better to move gradually as the ECB is doing; expectations for gradual meeting-by-meeting approach justified; near-term expectations of markets seem justified; developments broadly in line with ECB projections. Exchange rate has not weighed much on ECB policy decisions so far, but must monitor.
• UK Chancellor Reeves said the fiscal rules set in the October Budget are non-negotiable and that there undoubtedly have been moves in global financial markets. Reeves said that they will take action to ensure that they meet fiscal rules and she is committed to having one Budget a year which will be in Autumn. Reeves also announced that the UK will earn GBP 600mln from five-year agreements made with China.
• UK Chancellor Reeves is set to tell British regulators that they need to embrace risk and "strip back" overly cautious rules that are stifling economic growth, according to The Times.
• ECB's Lane said Europe's economy is still in recovery from the pandemic and their baseline for Europe is a recovery but noted a modest Europe recovery has a downside alternative, while he expects consumption to improve this year and said there is probably more easing to come. In a separate interview, Lane said we need to make sure that the economy does not grow too slowly, via Der Standard; need to work out the middle path of being neither too aggressive or too cautious in our actions For inflation to be sustainably at target, there would need to be a further decline in services inflation from around 4% currently.
• ECB's Rehn said Europe must not get caught off guard regarding a trade war and the EU should not take a beating in the case of tariffs. Adds, the direction of rates is clear, speed and scale of cuts depends on data, via Bloomberg TV. Inflation is moving in the correct direction, quite confident it is stabilising at 2%
• Brussels Airlines said it will need to cancel a significant number of flights at Brussels Airport on Monday due to a strike.
• Fitch affirmed Austria at AA+; outlook revised to negative, while it stated the outlook for Austria’s economy remains subdued with a forecast of weak real GDP growth of 0.8% for 2025.

FX

• USD has kicked the week off on a strong footing, in extension of Friday's post-NFP buying. As it stands, markets no longer fully price a 25bps cut by the Fed this year vs. 41bps pre-NFP. For today's docket, US NY SCE is the main highlight. DXY has cracked above 110 for the first time since 10th Nov 2022; 110.99 was the high that day.
• Last week's selling pressure in EUR/USD has continued into this week with the pair slipping onto a 1.01 handle for the first time since 11th Nov 2023; 1.0163 was the low that day. This week's EZ macro calendar is a light one. However, we did hear from ECB Chief Economist Lane over the weekend, noting that there is probably more easing to come.
• JPY is the marginal outperformer across the majors with not much in the way of fresh macro drivers for Japan with Japanese markets closed today. Nonetheless, attention remains on the finely-poised 24th January policy announcement which sees a 25bps hike vs. unchanged rate as a near coin-flip. USD/JPY currently sits just below Friday's 157.22-158.87 range but is yet to breach 157.00 to the downside.
• GBP has kicked the week off on a negative footing in an extension of the selling pressure seen last week. Cable has delved to its lowest level since Nov 2023 at 1.2124. Nothing incremental from a UK standpoint has happened over the weekend, however, the ongoing advances in the UK rates space are clearly acting as a drag on the pound.
• Antipodeans are both steady vs. the broadly mildly stronger USD. Both saw some support overnight amid mild strength in the CNH after the PBoC continued to defend the currency with a firmer-than-expected reference rate setting and raised its cross-border macro adjustment parameter for the first time since July 2023 to 1.75 from 1.50.
• PBoC set USD/CNY mid-point at 7.1885 vs exp. 7.3442 (prev. 7.1891).

Fixed Income

• USTs start the week under pressure, continuing the hawkish impulse from NFP on Friday with strong Chinese export data not helping; on this, we wait to see if President-elect Trump comments on the data with reference to his touted tariffs. As it stands, USTs are at the low-end of a 107-06+ to 107-15 band, which marks another contact trough. Amidst this, yields are firmer across the curve with the short-end leading and reflecting the trimming of Fed easing expectations.
• Bunds are pressured, in-fitting with the above. The data docket has been particularly light in Europe with Italian supply the only scheduled update. A few ECB speakers have appeared today, but have had little impact on price action. Currently towards the trough of a 130.57-90 band which marks a fresh contract low. Technicians tout support at 130.48 before looking to the 130.00 mark.
• Gilts opened 59 ticks lower at the 89.00 mark, matching last week’s contract low, before extending to an incremental fresh base at 88.96. Since, the benchmark has stabilised just above opening levels. While the benchmark hit a new contract low the 10yr yield remains just shy of last week’s peak. Thus far, today’s best is 4.905% vs 4.925% from last Thursday.
• Italy sells EUR 2.75bln vs exp. EUR 2.50-2.75bln 2.70% 2027 and EUR 3bln vs exp. EUR 2.75-3bln 3.15% 2031 BTP; no real reaction in BTPs.

Commodities

• WTI and Brent prices are firmer this morning despite the stronger Dollar but against the backdrop of geopolitics. Prices gained from the open amid expectations of Russian crude supply disruption after the US recently toughened sanctions on Russia's energy sector targeting more than 200 entities and individuals, while it was also reported that Israel struck a number of Hezbollah targets in southern Lebanon.
• That being said, a couple of short-lived downticks were seen on reports that a breakthrough has been reached in Doha, a final draft of the Gaza Ceasefire and hostage release has been sent to Hamas and Israel for approval, according to an official cited by Reuters. However, it was then reported that Israel has reportedly not received a draft proposal for the Gaza ceasefire deal, according to an Israeli official.
• WTI trades towards the upper end of a USD 76.54-78.58/bbl range while Brent resides in a USD 79.76-81.68/bbl parameter.
• Spot gold is subdued amid the dollar strength but losses are cushioned by ongoing geopolitics alongside the risk-off sentiment. Currently resides in a USD 2,679.31-2,693.55/oz parameter and within Friday's USD 2,664.07-2,697.95/oz range.
• Copper holds a mild upward bias despite the dollar's strength and risk aversion, possibly on the back of better-than-expected Chinese trade data overnight coupled with hopes of a Chinese stimulus. Desks also suggested iron ore prices gained almost 2% on the back of stimulus prospects.
• Iran shipped out nearly 3mln bbls of oil stockpiled in China in which the proceeds could reportedly be used to fund its allied militias in the Middle East, according to WSJ.
• Goldman Sachs said tougher US and UK sanctions on Russian oil could lift oil prices above USD 85/bbl, while it also commented that TTF price risks remain skewed to the upside despite moderation in cold weather. Goldman Sachs also commented that while the latest round of sanctions has mostly focused on oil and the potential impact on LNG supply is very limited, it keeps global gas balances more vulnerable at the margin to tightening shocks and to the risk that TTF might need to price oil-switching in a EUR 65-86/MWh range this summer.
• Saudi Energy Minister says Saudi Arabia to enrich, sell and produce yellow cake from Uranium.
• Middle East crude benchmarks jump to premiums of around USD 3/bbl above Dubai quotes, highest since Oct 2023, according to Reuters data.
• Russia's Kremlin says hope Russia will be able to counteract the US attempt to undermine Russian companies; says the US sanctions are bound to destabilise global energy markets. Will monitor the new sanctions and seek to minimise them.
• Indian Government source is examining the impact of US sanctions on Vostok Project; says the spike in oil prices in a knee-jerk reaction; will not take Russia oil from sanctioned entities and in sanctioned vessels, via Reuters
• Six EU nations call for a lower G7 price cap on Russian oil, according to a document cited by Reuters.

Geopolitics: Middle East

• A breakthrough has been reached in Doha, a final draft of the Gaza Ceasefire and hostage release has been sent to Hamas and Israel for approval, according to an official cited by Reuters.
• Israeli Finance Minister says the Gaza ceasefire deal is a catastrophe for Israel's national security. Says will not be a part of surrender deal that will include the release of terrorists and the cessation of war.
• Israel has reportedly not received a draft proposal for the Gaza ceasefire deal, according to an Israeli official.
• Israeli official says they are "Waiting for Hamas' answer, the hostage deal outline is clear. Israel has come a long, long way", according to Reporter Stein.
• Israeli PM Netanyahu is to send the head of Mossad to Qatar for hostage talks, according to the PM’s office cited by Reuters.
• Israeli PM Netanyahu spoke with US President Biden on Sunday in which they discussed negotiations for a Gaza ceasefire and a hostage deal, while Biden stressed the immediate need for a ceasefire and return of hostages, as well as the need for a surge in humanitarian aid enabled by a stoppage in the fighting.
• Israel's Foreign Minister said Tel Aviv is determined to reach a truce agreement in Gaza, according to Israeli media cited by Asharq News.
• Israel's army said it targeted a number of Hezbollah targets in southern Lebanon based on intelligence information, according to Sky News Arabia.
• Syria’s de facto ruler Al-Sharaa said he discussed with Lebanon’s caretaker PM Mikati the issue of Syrian deposits in Lebanese banks, while Mikati said they will work with Syria to secure the land borders and follow up on land and sea border delineation.
• Western and Arab foreign ministers and diplomats began a regional conference with Syrian Foreign Minister Shibani in Riyadh on Sunday.
• German Foreign Minister said Germany proposes a smart approach to sanctions so the Syrian population gets relief and a quick dividend from the transition of power, while Germany will provide an additional EUR 50mln to Syria for food, emergency shelters and medical care.

Geopolitics: Ukraine

• Ukrainian President Zelensky said Ukrainian soldiers captured North Korean military personnel in Russia’s Kursk region, while he later commented that Kyiv is ready to hand over North Korean soldiers if North Korean leader Kim can organise their exchange for Ukrainians captive in Russia. It was separately reported that a South Korean lawmaker said North Korean troop fatalities in Ukraine exceeded 3,000.
• Russia took control of the settlements of Shevchenko, Kalynove and Yantarne in eastern Ukraine, according to TASS.
• Russian Foreign Ministry said new US sanctions against the energy sector are an effort to harm Russia’s economy at the cost of risking destabilisation of global markets and Russia will respond to Washington’s hostile actions.
• US President Biden said on Friday that as long as they keep Western Europe united on Ukraine, there is a real chance Ukrainians can prevail, while he added that Russian President Putin is in tough shape right now and it is important that Putin does not have more breathing room to do what he is doing.
• US President-elect Trump’s incoming National Security Adviser Waltz said he expects a call between Trump and Russian President Putin in the coming days and weeks, according to an ABC News interview.

Geopolitics: Other

• White House said US President Biden discussed trilateral maritime security and economic cooperation with the leaders of Japan and the Philippines, while they discussed China’s dangerous, unlawful behaviour in the South China Sea and agreed on the importance of continued coordination in the Indo-Pacific.
• Denmark’s government sent private messages to the Trump team expressing a willingness to discuss increased US military and security presence in Greenland, according to Axios.
• Japan will test hypersonic missile tracking with space sensors and will deploy sensors which is set for a first launch in fiscal 2025 to resupply the International Space Station, according to Nikkei.

US Event Calendar

• 11:00: Dec. NY Fed 1-Yr Inflation Expectat, prior 2.97%
• 14:00: Dec. Federal Budget Balance, est. -$73.8b, prior -$366.8b

DB's Jim Reid concludes the overnight wrap

It's hard to determine what's icier at the moment, global bond markets or the weather across much of Northern Europe and even New York where sub zero temperatures have been the norm in recent days. The good news is that the icy ground added 70 yards to my drives on the golf course yesterday. The bad news is that they were invariable bouncing into the rough, a bunker or a ditch!

As the weather warms up a bit, whether the deep freeze in bond markets continues may be determined by how US CPI on Wednesday materialises after Friday's blockbuster payrolls report. Elsewhere in the US the main highlights are the New York Fed 1-yr inflation expectations (today), PPI (tomorrow), retail sales (Thursday), building starts and permits and industrial production (Friday), and the unofficial start of earnings season on Wednesday with a selection of big banks reporting.

Outside of the US, the key events are UK CPI and European Industrial production (Wednesday), UK monthly GDP and the ECB account of the December meeting (Thursday) and China GDP on Friday. The full calendar of events, including central bank speakers, is at the end as usual but lets now go through the main highlights in more details.
There’s nowhere else to start other than Wednesday’s US CPI that occurs after 10yr UST yields climbed +16.1bps last week to close Friday at their highest since October 2023.

Our economists expect headline (+0.40% mom forecast vs. +0.31% last month) to be impacted by strong food and energy and eclipse a tamer core (+0.23% vs. 0.31%). This would ensure a YoY rate of 2.9% (+0.2pp) and 3.3% (unch) respectively. The core rate’s steady decline from late 2022 petered in the second half of 2024 around current levels and that’s before Trump’s policies take effect. See our economists’ preview here with a registration link to their webinar immediate after the release. Amongst other things they discuss how rents will boost this month’s release but with signs of rental disinflation ahead. The curve ball going forward will of course be policy.

For US PPI on Tuesday, headline (+0.4% vs. +0.4%) and core (+0.2% vs. +0.2%) will likely be similar in magnitude to CPI but as ever we will be most focused on the PPI categories that feed into the core PCE deflator namely, health care services, airfares and portfolio management. Elsewhere Thursday's retail sales is likely to be strong given holiday spending trends in December with headline (+0.6% vs. +0.7%), ex auto (+0.5% vs. +0.2%), and retail control (+0.3% + 0.4%) all firm.

In terms of earnings, the kick-off on Wednesday sees JPMorgan, Goldman Sachs and BlackRock report. Bank of America and Morgan Stanley will follow on Thursday, when investors will be also closely watching the Taiwanese semiconductor company TSMC. Our US equity strategists preview the upcoming earnings season here and expect S&P 500 earnings growth near 13% in Q4, similar to the low double-digit growth seen in recent quarters.

There are also a few political points of interest this week with Senate confirmation hearings for Trump's cabinet nominees including Secretary of Defense, Secretary of State and Attorney General among others. In France, the new Prime Minister Bayrou will deliver his General Policy Statement tomorrow (see our European economists' preview of France's 2025 budget here) which will likely be followed by a vote of no confidence which at this stage he will likely win due to abstentions from the far right and the socialist party. The note from our French economist provides an up to date state of play in French politics and answers some questions as to what is likely to happen next.

Overnight in Asia, markets are catching down to Friday's falls despite stronger than expected Chinese exports data this morning (YoY growth of 10.7% vs 7.5% expected). The CSI 300 is down -0.52%, with the Hang Seng declining even more (-1.20%). Elsewhere in the region, the Kospi has dropped by -1.04% so far with Japanese markets closed for a holiday. Meanwhile, US equity futures show continued risk-off sentiment with the S&P 500 losing -0.44% and the Nasdaq 100 down by -0.60% as we go to print. As you'll see below a further spike in Oil isn't helping.

Recapping last week now and the main story for markets was the relentless bond selloff, with long-end borrowing costs pushing higher across the world. Several data releases pushed that selloff forward, with the main ones being the ISM services index on Tuesday and the US jobs report on Friday, which showed that nonfarm payrolls were up by +256k in December (vs. +165k expected). On top of that, the unemployment rate fell a tenth to 4.1%. And the moves got even more support after the University of Michigan’s 5-10yr inflation expectations ticked up to 3.3% in January, the highest since 2008.

All that reignited concerns that the Fed and other central banks would have to keep rates higher for longer. In fact by the weekend, markets were only pricing 29bps of cuts by the Fed’s December meeting, down from 39bps at the start of the week. And in turn, that pushed the 10yr Treasury yield up +16.1bps (+7.0bps Friday) to 4.76%, which is its highest closing level since October 2023. That momentum was clear in Europe too, where yields on 10yr bunds moved up +17.0bps (+2.8bps Friday) to 2.59%, their highest since July. It also marked a 6th consecutive weekly increase for the 10yr bund, which is the first time that’s happened since 2022, back when the ECB were hiking by 75bps per meeting.

One of the worst affected countries was the UK last week, which came under intense market pressure. For instance, their 10yr gilt yield was up +24.5bps (+2.7bps Friday) to 4.84%, which was its biggest weekly jump in the last year. Moreover, it pushed the 10yr yield up to its highest level since 2008, adding to the risk that the government could break its fiscal rules unless they announced another round of fiscal consolidation. That pressure was also evident on the pound sterling, which was the worst-performing G10 currency last week, weakening by -1.74% (-0.76% Friday) against the US Dollar to $1.2207, its lowest closing level since November 2023.

Those bond moves weren’t helped by fresh rises in commodity prices, which added to fears about inflationary pressures. Brent crude oil saw its highest weekly close since July at $79.76/bbl, with a +3.69% jump on Friday after the outgoing Biden administration announced a new broad set of sanctions against the Russian oil industry. Brent crude futures are up another +1.88% this morning. In addition, copper posted its biggest weekly gain since September, with a +5.66% rise (-0.13% Friday), whilst gold was up +1.88% (-0.89% Friday).

Finally, equities put in a divergent performance around the world. In the US, the S&P 500 fell for a second week running with a -1.94% decline (-1.54% Friday). Similarly in Asia, Japan’s Nikkei fell -1.77% (-1.05% Friday), and China’s Shanghai Comp was down -1.34% (-1.33% Friday). However, European equities put in a much stronger performance, with the STOXX 600 up for a third consecutive week with a +0.65% gain (-0.84% Friday), whilst the DAX was up +1.55% (-0.50% Friday). Impressive outperformance.