US equity futures are flat, recovering from earlier losses after China’s restrained response to US tariffs, and a last-minute reprieve for Canada and Mexico. As of 8:00am ET, S&P futures are flat, having dropped 0.5% earlier after China tariffs went into effect at midnight and China retaliated; Nasdaq futures rose 0.2% thanks to a bid for parts of the Mag7/semis complex (GOOGL +0.7%, AMZN +0.5%, AAPL -0.5%, MSFT flat, META +0.6%, NVDA +0.4% and TSLA +0.5%). Unlike yesterday, USD is weaker to start the session, dropping 0.2% as some traders flagged relief that the worst-case scenarios seem to be avoided. The bond market reaction is muted, with the yield curve bear steepening 1-2bps; the 10Y yield rose 2bps to 4.58%. Commodities are lower with energy getting hit and WTI crude oil futures falling more than 2% to YTD low. Today’s macro focus is on JOLTS and Factory Orders
In premarket trading, Chinese stocks listed in the US are broadly higher as analysts say Beijing’s retaliatation to Donald Trump’s tariffs is relatively measured and appears to be aimed at increasing its bargaining power at trade talks (Alibaba +1.5%, Nio +1%, PDD +2%). Palantir shares soared as much as 20% after the software company gave a forecast that is stronger than expected, citing demand for its AI products. For context, PLTR raised its 2025 revenue guidance by $200MM and its market cap grew by $30BN. Just don't call it a bubble. Elsewhere, Merck, PepsiCo and Estée Lauder all declined on disappointing outlooks. PayPal tumbled 6% after posting fourth quarter results. Here are some other notable movers:
A mixed bag of corporate results, meanwhile, did little to give the market direction. “The tariff issue is not going away as fast as one could have hoped for,” said Andrea Tueni, head of sales trading at Saxo Banque France SAS. “Sure, earnings are providing some oxygen but there’s a bigger game at play here. We’re only at the beginning of a long process so my advice is to proceed cautiously.” Traders are also awaiting results Tuesday from Alphabet, as well as data on US factory- and durable-goods orders.
The Stoxx 600 trimmed declines and traded up 0.1% last, revering a 0.4% loss, as traders point to China’s restrained response to US tariffs and as investors juggle the risk of a global trade war with a slew of positive earning reports from the region. Financial services and telecommunications shares are the biggest laggards, while technology and banking shares lead the outperforming sectors. UBS shares dropped as concern over a potential increase in capital requirements outweighed better-than-expected results. Vodafone fell after the communications firm noted worsening conditions in Germany. BNP Paribas rose on a surge in trading revenue, while Infineon Technologies AG jumped after the chipmaker forecast revenue that beat analyst estimates. Here are the biggest movers Tuesday:
Earlier in the session, Asian equities pared gains in afternoon trading Tuesday, as the US imposed a 10% tariff on all Chinese imports and China retaliated to the new levies. The MSCI Asia Pacific Index was up 1.2%, trimming an earlier rise of about 1.5%. President Donald Trump’s earlier deals to delay 25% tariffs on Canada and Mexico for a month had given the market hope for a similar pause on the China duties, sending Hong Kong shares higher in the morning. China announced an investigation into Google and put new levies on a range of US products in an apparent retaliatory move, moments after the US tariffs of 10% kicked in. The Hang Seng China Enterprises Index was up 3.5%, after earlier having trimmed gains to 1.7%, as traders saw the measures as positioning for trade talks.
In FX, the greenback was up against all its Group-of-10 peers during the Asia session, yet lost traction after the Tokyo fix; China proxies like the Australian and New Zealand dollars lead declines. the Mexican peso and Canadian dollar are both little changed after Monday’s tariff reprieve boosted both currencies. The Swiss franc and Swedish krona are the best performing G-10 currencies. The yen falls 0.4%, pushing USD/JPY to 155.30.
In rates, treasuries hold small, long-end-led losses as the US trading day begins, steepening the yield curve. 10-year TSY yields are ~2bps cheaper on the day at ~4.58%, outperforming bunds and gilts in the sector by 1.5bp and 4bp; Canadian bonds extend Monday’s outperformance of Treasuries with 10-year sector richer by around 2bp on vs US 10-year. The 30-year yield is higher by nearly 3bp at about 4.82%, approaching Friday’s high, and 2s10s and 5s30s spreads also top Monday’s wides. Gilts lead a selloff in European government bonds as UK 10-year yields climb ~6 bps to 4.54%. French bonds spreads narrow for a third day. Focal points of US session also include JOLTS job openings data at 10am New York time.
On today's calendar, we get the December JOLTS and factory orders (10am). Fed speaker slate includes Bostic (11am), Daly (2pm) and Jefferson (7:30pm).
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A more detailed look at global markets courtesy of Newsquawk
APAC stocks traded higher as the region reacted to US President Trump's delay of tariffs against Canada and Mexico for a month, while the additional 10% tariffs on China took effect and prompted an immediate retaliation by China. ASX 200 was initially led higher by strength in tech and miners but ultimately settled flat owing to the US-China tariff frictions. Nikkei 225 briefly climbed back above the 39,000 level with the biggest gainers and losers dictated by earnings releases. Hang Seng surged amid hopes that China would also reach a tariff deal with the US after President Trump stated that he would probably speak with China within 24 hours, but then briefly wobbled after China announced tit-for-tat tariffs against the US.
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European bourses (Stoxx 600 -0.3%) began the day mixed, and traded modestly on either side of the unchanged mark, despite a mostly positive APAC session. Price action today has been very choppy, with sentiment initially slipping into the morning, before bouncing back to display a mixed picture in Europe. European sectors hold a slight negative bias, with only a handful of industries holding in the green. Tech is outperforming today, as it pares back some of the significant Trump-induced losses seen in the prior day. The sector has been propped up by strength in Infineon (+11.2%), which soared at the open after it reported strong headline metrics and lifted its Q1 guidance above expectations. Financial Services underperforms today, weighed on by losses in UBS (-5.7%); the Swiss bank reported a Q4 profit beat and a USD 3bln share buyback.
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Fixed Income
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Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
If you're feeling dizzy this morning I can't blame you as the past 24 hours have seen a big roundtrip for many assets classes as strongly negative sentiment gave way to a relief rally on news that the planned 25% tariffs against Mexico and Canada would be delayed.
That turnaround started shortly after the US open, as it was confirmed that the tariffs on Mexico would be delayed by a month, with a similar step then confirmed for Canada shortly after the US equity close. The S&P 500 had been down as much as -1.93% before comments on the Mexico tariff delay, but the index rose about 1% immediately after and finished the day down -0.76%. This morning in Asia, S&P (-0.27%) and NASDAQ 100 (-0.40%) futures have reversed initial gains as tariffs on China have gone ahead with China already announcing retaliation (more below).
The swings have been much more extreme for the likes of the Mexican Peso, which surged from almost -3% at the session’s lows to close +1.03% stronger on the day, and Canadian 10yr yields, which went from trading -18bps lower to close +1.1bps higher at 3.07%.
The tariff delays came as leaders of Canada and Mexico announced new border measures, following calls with Trump. The Mexican President had agreed to supply 10,000 soldiers to the US border, which Trump posted “will be specifically designated to stop the flow of fentanyl, and illegal migrants into our Country.” Towards the end of the post, he also said that there would be negotiations, saying “I look forward to participating in those negotiations, with President Sheinbaum, as we attempt to achieve a “deal” between our two Countries.” Similarly, Canada’s PM Trudeau announced several security steps on top of a recent $1.3bn border plan, including appointment of a Fentanyl Czar, a new US-Canada joint strike force and $200m on a “new intelligence directive on organized crime and fentanyl”. Again, Trump posted that the delay would be used “to see whether or not a final Economic deal with Canada can be structured”. New executive orders formally delay the tariffs until March 4th.
Although US futures have dipped, along with the rest of Asia after China's immediate retaliation came though, markets remain higher and are rebounding from yesterday's sell off. The Hang Seng (+1.80%) is leading the way even after trimming its opening gains of almost +4.00%. Elsewhere, the Nikkei (+0.76%) and the KOSPI (+1.13%) are also higher with the S&P/ASX 200 flat. Meanwhile, Chinese markets remain closed due to the Lunar New Year holiday and will reopen tomorrow. Headlines are coming through as I type but China's countermeasures include an investigation against Google for alleged anti-trust violations, imposing export controls on Tungsten related materials, and a 10% tariff on many US goods. It seems they will start on February 10th so there may be time for negotiation.
While markets are generally breathing a sigh of relief, relative to where we were over the weekend, the past few days have raised ongoing questions over Trump’s tariff policy plans. Some immediate concessions on the border issues have avoided immediate severe escalation, but Trump’s comments suggest that he will look to use the delay to leverage broader economic concessions. Indeed, with tariffs being arguably the strongest economic tool that is almost fully at the President’s discretion, we should surely expect that these will continue to be used to both create negotiating leverage and pursue different objectives such as supply security, revenue generation and trade deficit reduction. And some of these, notably using tariff revenue to help fund offset tax cuts, would require actual implementation of new tariffs. So there are reasons to expect lingering uncertainty in markets, and we are seeing this to some extent. Notably, while the Mexican Peso and Canadian Dollar are now virtually in line with their levels before the more firm tariff news started to break last Friday, S&P 500 futures are still more than -1.5% lower than they were at the time. It's unlikely that this is the end of the story.
Recapping some of the broader moves from yesterday now and there were still sizable declines for the headline indices, including the S&P 500 (-0.76%) and the STOXX 600 (-0.87%), but it was the trade-exposed sectors where the biggest losses occurred. For instance, European automakers slumped, with the STOXX Automobiles & Parts Index down -2.22%, with major losses for the likes of Volkswagen (-4.03%). To be fair, some of the more defensive sectors fared relatively better, with gains for healthcare (+0.40%), energy (+0.42%) and consumer staples (+0.68%) in the S&P 500.
When it came to FX there were also some pretty clear moves, with the dollar index initially surging by as much as +1.2%, but then paring back those gains almost all the way back to Friday’s close levels. In addition to swings for the Mexican peso and Canadian dollar, the US dollar strength came as the Euro weakened by -0.79% on the day to $1.0280 at the European close yesterday, though it is now back up to $1.0313. That came in part as markets were anticipating future tariffs against the EU as well, with The Telegraph reporting that among the Trump administration “some want to put a 10 per cent tariff” on all EU imports though there’s no broad agreement on this yet.
For US Treasuries, there was a sizeable curve flattening yesterday, which came as investors priced in stronger near-term inflation and dialed back their expectations for Fed rate cuts, with the move partially reversing as the tariff delay news came through. The 1yr inflation swap jumped from 2.65% on Friday to as high as 2.82% before retreating to 2.73% by the close. And fed funds futures are now pricing 41bps of cuts by the December meeting, down from 47bps before the weekend. In turn, that led to a notable rise in front-end Treasury yields yesterday, with the 2yr yield up +5.1bps to 4.25%. The 10yr yield was up +1.6bps to 4.56% after falling as low as 4.46% intra-day.
Whilst the tariff news dominated the agenda yesterday, there was some positive data from the US with the ISM manufacturing print for January. That moved up to 50.9 (vs. 50.0 expected), marking its highest level since September 2022. The subcomponents were also fairly good, with employment back in expansionary territory at 50.3, whilst new orders moved up to the highest since May 2022, at 55.1.
The other main data print yesterday was the flash Euro Area CPI for January, which was a bit higher than the consensus expected. It showed headline inflation coming in at +2.5% (vs. +2.4% expected), whilst core inflation remained at +2.7% (vs. +2.6% expected). However, when it came to European sovereign bonds, the tariff news dominated the agenda, meaning that yields on 10yr bunds (-7.6bps), OATs (-9.5bps) and BTPs (-5.1bps) all fell back.
Finally in France, the Prime Minister François Bayrou used article 49.3 of the constitution in order to force through the budget without a vote. The far-left France Unbowed have said they’d file a no-confidence motion, but the Socialists said they wouldn’t support it.
To the day ahead now, and data releases from the US include the JOLTS report of job openings for December, along with factory orders for December. From central banks, we’ll hear from the ECB’s Villeroy, along with the Fed’s Bostic and Daly. Finally, today’s earnings releases include Alphabet, Pfizer and PayPal.