US equity futures are higher to start the third day of Trump's presidency - and not too far from a new all time high - led by tech following blowout Netflix earnings and a fresh extension of the AI frenzy, coupled with signs that US tariffs on trade partners could be less harsh than feared. As of 8am ET, S&P futures are up 0.5%, rising for the third day in a row, and lifted by strong corporate results; Nasdaq 100 futures surge 0.9%, spurred by a 15% premarket jump in Netflix to a new all time high above $1,000 after the streamer reported a blowout quarter with record subscriber gains, and Oracle which jumped 9% after the company teamed up with SoftBank and OpenAI to form a $100 billion joint venture that will fund AI infrastructure. The Russell is lagging as Trump expands his tariff threats to include China and EU (10% as of Feb 1) as well as Canada/Mexico (25% as of Feb 1). Elsewhere, European shares ground higher with the Stoxx Europe 600 hitting a record on higher volumes; Asian stocks are also higher led by Japan, although China slumped after Trump repeated his threat to impose 10% tariffs on the nation’s goods because fentanyl was being sent from China to the US via Mexico and Canada. The dollar touched its lowest level in a month with 10Y TSY yields lower amid relief that Trump has so far held back from slapping harsher penalties on trade partners and which JPM said "the market may being viewing the tariffs threats as more negotiating tool than longer-term policy/strategy." The commodity complex is mixed with Energy leading, Precious over Base, and Ags mostly lower. Today’s macro data focus is the Leading Index and 20Y auction, as earnings ramp.
In premarket trading, Netflix shares surged 15% after the streaming company reported fourth-quarter results that beat expectations, boosted by its biggest quarterly subscriber gain in history. If Netflix’s premarket gains carry through the day, the stock will hit an all-time high and will be poised for its biggest rise since October 2023. Here are some other premarket movers:
Fears that Trump's protectionist policies would derail global growth and spark US inflation had pushed the dollar to a 13-month high earlier in the month and driven up bond yields. Instead, Trump’s first two days in office have largely been supportive of sentiment, as investors zero in on his pro-business policies.
"There was just relief that as of day one, we didn’t get the tariffs that were expected,” said Corinne Lord, a senior investment specialist at St James Place Management. “The question is to what extent we will get them compared to what he’s promised. There is still a lot of nervousness about what might lie ahead."
On Tuesday, the US president said he was still considering a 10% tariff on all goods from China, following a threat to enact tariffs of as much as 25% on Mexico and Canada by Feb. 1. Yet the only actual action he’s taken so far is the call for a review of trade practices that’s due by April 1, potentially giving China and others almost 10 weeks to avert new levies or address his demands. As a result, a catch-up trade is building for stock market laggards on bets that Trump will take a softer approach on tariffs, according to Bank of America Corp.’s monthly survey of fund managers. That’s also reflected in steady Treasury yields.
“The bond market is not buying into inflation angst from tariffs,” said Kenneth Broux, strategist at Societe Generale in London. He described Trump’s threat of a 10% levy on China as “not draconian.” Even so, few investors are straying from tech stalwarts notching new highs for the S&P 500, with bullish bets on Magnificent 7 stocks ranked as the most crowded trade in BofA’s survey. That was followed by the US dollar and cryptocurrencies.
European shares continue to grind higher with the Stoxx Europe 600 rising 0.7% and hitting a record on higher volumes as AI and electrification names lead gains, notably ENR, up 9% and SU, up 3%, on US President Trump’s announcement of large-scale investments in AI infrastructure. The Stoxx 600 industrial goods and services index, up 1.3%, and the Stoxx Europe technology index, up 1.2%, are the top performers. The UBS European desk is 60/40 better to buy with both hedge funds and long only 60/40 net buyers. The desk is active in insurance and better buyers, led by MUV2, up 4%, and is a better buyer of healthcare, led by ROG and NOVOB. It is a net seller of industrials and a two-way better seller of staples. It has also been buying luxury, energy, telcos and utilities. Here are the biggest movers Wednesday:
Asian stocks rose, with technology hardware shares gaining on optimism over President Donald Trump’s push for investment in artificial intelligence, offsetting losses in China. The MSCI Asia Pacific Index rose 0.2% after jumping as much as 0.7%, with Taiwan’s TSMC and Japan’s SoftBank the biggest contributors. Key stock gauges in Japan and Taiwan rose about 1% after Trump announced a joint venture to fund AI infrastructure that involves firms including SoftBank and OpenAI. However, the regional benchmark pared its gain as Chinese equities slumped amid renewed concern over US tariffs. Hong Kong and mainland China led declines after Trump said his threat to impose 10% tariffs on all Chinese imports was still being considered. While that’s lower than the 60% levy he touted during his election campaign, investors are bracing for further volatility as details remain far from clear.
“I think it only gets tougher from here — it’s a reminder that Trump will do something, because the first day might have given some the false impression that he might not,” said Xin-Yao Ng, an investment director at abrdn Plc. “More gradual tariffs might also delay or reduce the force of stimulus that market wants.”
In FX, the Bloomberg Dollar Spot Index falls 0.2% having reversed an earlier gain. The euro is among the better performers, rising 0.3% to a year-to-date high around 1.0450. The yen is the weakest of the G-10’s falling 0.1% against the greenback.
In rates, treasuries inch higher, with US 10-year yields falling 1 bps to 4.57%, up from a session low of 4.55%; Germany’s 10-year also little changed, showing minimal reaction to a flurry of ECB speak out of Davos, including from President Lagarde who said they are not lowering interest rates too slowly. UK’s gilts are slightly cheaper on the day. US treasury auctions this week include $13b 20-year bond reopening and Thursday’s $20b 10-year TIPS new issue; WI 20-year yield at about 4.89% is ~20bp cheaper than last month’s, which tailed by 1.5bp
In commodities, oil prices advance, with WTI climbing 0.5% to $76.20 a barrel. Spot gold rises $17 to around $2,762/oz. Bitcoin falls 2% to around $105,0000.
The US calendar is rather bare, and the only event is the December Leading index at 10am.
Market Snapshot
Top Overnight News
A more detailed look at markets courtesy of Newsquawk
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.
Top Asian News
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. 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.
Top European News
FX
Fixed Income
Commodities
Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
The planets were aligned last night both in stargazing terms and in financial markets. For those without clouds you could have seen Venus, Mars, Jupiter, Saturn, Uranus and Neptune in the sky together in a rare event. However, an even rarer event will take place on February 28th when Mercury joins in the fun and all other seven planets will be visible. Don't blink and miss it as you'll have to wait until 2492 for the next occurrence. So, if markets can't go up on February 28th when all the planets are aligned, we could be in trouble.
Six being aligned was enough for a strong performance over the last 24 hours, especially in the US, with investors reassured by the lack of day 1 tariffs from the new administration. Clearly there’s a lot of nervousness about what might still be ahead, but for markets, the decision added to the sense that tariffs still might be a leverage play where the worst outcomes don’t materialise, and it also meant some near-term inflation risk was taken off the table. Whether that optimism materialises is another matter, but in the meantime, it helped the S&P 500 (+0.88%) to close above the 6,000 mark for the first time this year, while the 10yr Treasury yield (-5.1bps) came down to 4.58%.
But even though US assets did fairly well, there was some negative reaction for the targets of Trump’s tariff threats. For instance, with Trump re-floating the idea of 25% tariffs on Canada and Mexico as soon as February 1, it meant the Mexican Peso weakened by -0.60%, although the Canadian dollar was little changed (-0.09%) by the close after trading around -1% lower early in yesterday’s session. We also got some fresh signs of how others might retaliate as well, with Canadian PM Trudeau saying that “I support the principle of dollar-for-dollar matching tariffs.” The extent of any retaliation could be a big curveball factor over the next couple of years, as so far the focus has mostly been on how the US will adjust tariffs, rather than what happens in response.
Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10% tariff on China was still on the table “based on the fact that they’re sending fentanyl to Mexico and Canada” and that this could also come into effect as soon as February 1. So Trump’s comments leave plenty of near-term uncertainty even though the trade investigations from his day 1 executive orders will take some time to play out. Against that background, Chinese equities are losing ground with the Hang Seng (-1.73%) trading sharply lower while the CSI (-1.26%) is breaking a four-day winning streak with the Shanghai Composite (-1.12%) also underperforming. The Chinese yuan (-0.23%) is also weakening after three consecutive sessions of gains, trading at 7.28 versus the dollar.
Whilst there’s definitely a fair amount of volatility in markets at the moment, that backdrop failed to stop a fresh advance for US equities yesterday, with the S&P 500 (+0.88%) up to a fresh YTD high as it reopened after the public holiday. Small-caps put in a very strong performance, with both the Russell 2000 (+1.85%) and the equal-weighted S&P 500 (+1.17%) posting a 6th consecutive advance. For all you stats collectors the S&P 500 saw more than 68% of its constituents climb for the sixth consecutive day (82.5% yesterday), an outright record since data begins in 1928. So maybe that's the impact of the planetary alignment.
The Magnificent 7 saw a smaller gain (+0.30%), primarily due to a large decline from Apple (-3.19%). That saw Apple again overtaken as the world’s most valuable company by Nvidia (+2.27%). The chip giant gained amid a strong day for AI-related stocks that came in anticipation of a new AI investment announcements from Trump. Confirmed after the US close, this saw SoftBank, OpenAI and Oracle form a $100bn joint venture to fund AI infrastructure. SoftBank Group shares are up +10.73% in Tokyo this morning following the news. In other company news, Netflix shares spiked by over +14% in after-hours trading last night after reporting its strongest ever quarterly subscriber gain. It had advanced by +1.35% in yesterday’s session. This is helping the S&P 500 and NASDAQ 100 futures trade +0.31% and +0.72% higher respectively this morning in Asia.
Treasuries also put in a robust performance yesterday, with investors becoming more relaxed about inflationary pressures following the tariff news. That got further support by the decline in oil prices, with WTI down -2.56% yesterday to $75.89/bbl, down from a recent peak above $80/bbl last week. So that helped inflation swaps to come down, with the 2yr swap falling -5.7bps on the day to 2.65%. And in turn, Treasury yields declined across the curve, with the 2yr yield (-1.0bps) down to 4.27%, whilst the 10yr yield (-5.1bps) fell to 4.58% where it's broadly stayed in the Asia session.
Over in Europe, it was a much less eventful day, but the general direction of travel was much the same, with bonds and equities moving higher across the continent. That included a 5th consecutive advance for the STOXX 600 (+0.40%), which moved up to a 3-month high, whilst the DAX (+0.25%) hit another all-time high. And in FX, the euro (+0.35%) closed above 1.04 against the dollar for the first time this year. Nevertheless, there was some weakness among the trade-sensitive sectors in light of Trump’s tariff threats on Canada and Mexico, with the STOXX 600 automobiles and parts index down -0.71%. Moreover, automakers led the declines in the DAX, with BMW (-1.79%) as the worst performer in the index yesterday reversing much of Monday's gains. In case Europe felt lower down the tariff pecking order in Trump's trade crusade last night he said “We have a $350 billion deficit with the European Union. They treat us very very badly, so they’re going to be in for tariffs.” This leaves the direction of travel quite clear for the continent.
For sovereign bonds, there was also a strong performance, with yields on 10yr bunds (-1.7bps), OATs (-2.8bps) and BTPs (-2.9bps) all moving lower. The biggest outperformance actually came from UK gilts however, where the 10yr yield was down -6.9bps following the latest labour market data. It showed that the number of payrolled employees was down by -47k in December (vs. -8k expected), and the unemployment rate in the three months to November also ticked up a tenth to 4.4%. So that helped to cement the idea that the Bank of England are on course to cut rates at their next meeting in early February, with overnight index swaps dialling up the likelihood to 93% by the close.
In the meantime, yesterday brought yet another report that the Bank of Japan are moving closer to a rate hike at Friday’s meeting, with the latest coming from Kyodo. Both market pricing and the consensus of economists now expect a 25bp hike at this meeting, so we’re now at the point where the bigger market reaction would likely come if one didn’t happen.
For today the Nikkei (+1.43%) is actually outperforming even with the hike this week being increasingly likely with Trump's AI investment plan supporting the likes of SoftBank which is currently up over 10%.
Looking at yesterday’s other data, Canada’s CPI surprised slightly on the downside at +1.8% in December (vs. +1.9% expected). In turn, that added to expectations that the Bank of Canada would deliver another cut at their meeting next week, with a cut priced as an 85% probability at the close even if it has slightly dropped to 81% this morning. Separately, the German ZEW survey’s expectations component was weaker than expected in January, coming in at just 10.3 (vs. 15.1 expected). However, the current assessment reading did pick up from its post-Covid low in the previous month, rising to -90.4 (vs. -93.1 expected).
To the day ahead now, and data releases include the UK public finances for December, along with the Conference Board’s leading index for the US in December. Otherwise, central bank speakers include ECB President Lagarde, along with the ECB’s Villeroy, Knot and Nagel.