US equity futures, treasuries and the dollar are all lower as the latest tariff news sparked a risk-off move, with traders also looking ahead to testimony from Jerome Powell at 10am ET today. As of 8:00am, S&P futures are down 0.2% while Nasdaq futures drop 0.5%, as Mag 7 stocks all lower with NVDA (-1.2%) and TSLA (-0.6%) underperforming; Europe’s Stoxx 600 index was held back by tumbling mining and travel shares and a gauge of Asian stocks dropped. Trump signed the 25% tariffs on all steel and aluminum imports with no exceptions after market close yesterday. Moreover, the announcement of reciprocal tariffs is expected to arrive in the next few days, which adds further uncertainty on stocks. Gold touched a fresh record high rising as high as $2942 before retracing, while an index of the dollar dropped from Monday, and treasury yields rose. Commodities are mostly higher: oil and aluminum added 1.3% and 1.2%, respectively; Ags are also higher. Today, key macro focus are Powell’s testimony, KO/GILD/SPGI earnings and any updates from Washington.
In premarket trading, Phillips 66 jumped 5% as Elliott Investment Management has built a more than $2.5 billion stake in the oil refiner; the news follows reports that Elliott had also built up a sizable stake in flailing European energy giant BP. Coca-Cola rose 3% after profit beat Wall Street expectations as shoppers paid higher prices for the company’s sodas, energy drinks and juices. Meanwhile, amazon is one of the largest decliners for the Magnificent Seven group (GOOGL -0.4%, AMZN -0.7%, AAPL -0.4%, MSFT -0.2%, META -0.3%, NVDA -0.6% and TSLA -0.4%). Here are the other notable premarket movers:
The latest market moves underscore how investors are struggling to gauge the potential flow-on effects from Trump’s actions for global trade, corporate earnings and inflation. The European Union said Tuesday it will respond to any tariffs the US might impose on it, escalating a potential transatlantic trade dispute.
“The best approach in terms of asset allocation is to find assets that can protect you,” said Christian Mueller-Glissmann, head of asset allocation research for Goldman Sachs, on Bloomberg Television. “The big challenge is that this is going to be much more difficult from here because the tariffs are very specific.”
Trump on Monday set 25% tariffs on steel and aluminum shipments from all countries, including major suppliers Mexico and Canada, effective March 12. The president also said he would announce reciprocal levies this week on countries that tax US imports.
Aside from the global trade picture, investors will also be focused on this week’s key inflation data and Federal Reserve Chair Jerome Powell’s testimony before Congress. Expected inflation rates over the next year and three years ahead were both unchanged in January at 3%, according to results of the New York Fed’s Survey of Consumer Expectations published Monday.
“The CPI data will be the most important this week,” said Viktor Hjort, global head of credit and equity derivatives strategy at BNP Paribas. “The risks are asymmetric; if inflation were to go higher, that’s worse for credit markets than the upside if inflation were to move lower. The selloff in Treasuries today — which is a moderate one — could easily be rationalized as positions paring ahead of a pretty important data print."
European stocks hover near a record high as investors look ahead to the latest round of corporate earnings reports and weigh the potential for a broader trade war with the US. Energy and media sectors outperformed, while miners and travel were the biggest laggards. Among single stocks, Kering rallies after earnings showed a slight improvement, while Entain shares slide after a surprise CEO departure after just five months. Here are the most notable movers:
On the UK monetary policy front, Bank of England rate-setter Catherine Mann said she voted for a bumper half-point interest-rate reduction at last week’s BOE meeting to “cut through the noise” after seeing more evidence of a weakening economy. The pound weakened before paring the move. Before last week, Mann was seen as the BOE’s most hawkish rate-setter and was the only member of the Monetary Policy Committee not to back either of the previous two reductions of the cutting cycle.
Earlier in the session, Asian stocks headed for a second day of losses as traders digested the impact of US President Donald Trump’s decision to impose 25% tariffs on all imports of steel and aluminum. The MSCI Asia Pacific ex-Japan Index fell as much as 0.5%, with Chinese tech shares such as Tencent and Xiaomi among the biggest drags. Benchmarks in China declined, offsetting gains in South Korea and Taiwan. Japan was closed for a holiday. The risk-off mood in Asia reflects investors’ ongoing concern about a global trade war, with the potential for other nations to roll out retaliatory tariffs against the US. It could also affect corporate earnings, inflation and the Federal Reserve’s monetary policy.
In FX, the Bloomberg Dollar Spot Index is 0.1% lower. GBP/USD was little changed at 1.2369; Bank of England voting member Catherine Mann said she voted for a bumper half-point interest-rate reduction to “cut through the noise” after seeing more evidence of a weakening economy. The euro added 0.2% and is the strongest of the G-10 currencies.
In rates, treasuries dip before Fed Chair Jerome Powell delivers his semi-annual Humphrey-Hawkins testimony on Capitol Hill at 10am ET, while US inflation data due Wednesday also coming into view. US 10-year yields rise 4 bps to 4.54%, with the yield curve steeper as US trading gets under way, extending Monday’s widening of 2s10s and 5s30s spreads. US long-end yields are 3bp-4bp higher on the day, widening 2s10s spread by nearly 3bp, 5s30s by ~1bp. Wider losses across core European rates support higher Treasury yields ahead of Powell’s testimony. In Europe, France mandates banks for a new 30-year bond offering, adding to supply pressure. Gains in oil add to upside pressure on Treasury yields with WTI futures advancing 1.1% after rising nearly 2% Monday; commodities broadly are in focus after US President Trump set 25% tariff on steel and aluminum imports to take effect March 12. US Treasury coupon auctions resume with $58b 3-year note sale at 1pm, to be followed by $42b 10-year and $25b 30-year Wednesday and Thursday. WI 3-year yield near 4.31% is ~2bp richer than last month’s auction, which tailed by 1.2bp.
In commodities, oil advanced from near its lowest levels this year as shrinking Russian production eased concerns over a glut; Brent crude futures rose 1.3% toward $77 a barrel, after rising 2% on Monday. Gold set a fresh peak above $2,940 an ounce, before retracing some of that advance. Bullion has surged about 11% this year, setting successive records, as Trump’s disruptive moves on trade and geopolitics reinforce its role as a store of value in uncertain times. Bitcoin rises 0.8% above $98,000.
Looking at the day ahead, US economic data calendar is blank with January CPI ahead Wednesday. Fed speaker slate includes Hammack (8:50am), Powell (10am), Williams and Bowman (3:30pm).
Market Snapshot
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Tariffs
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were ultimately mixed after the tech-led gains on Wall St and as participants digested US President Trump's 25% tariffs on steel and aluminium which take effect from March 12th, while Japanese markets were closed for a holiday. ASX 200 closed flat with gold stocks underpinned after the precious metal extended on its record highs, while the tech sector took impetus from the strength seen in its US counterpart. Hang Seng and Shanghai Comp were subdued following US President Trump's latest tariff actions, while he reiterated they will do reciprocal tariffs in the next two days and is also looking at tariffs on cars, pharmaceuticals and chips with meetings to take place over the next four weeks. Furthermore, Hong Kong criticised the US tariffs and will file a complaint on US tariffs to the WTO, as well as claimed that the US has completely ignored the city's status as a separate customs territory from China.
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European bourses (Stoxx 600 U/C) are mixed and trading on either side of the unchanged mark, continuing the indecisive mood in APAC trade overnight, as markets digest Trump signing a reimposition of 25% tariffs on steel and aluminium. Markets are also awaiting updates over the next few days re. tariffs on cars/pharmaceuticals/chips. In recent trade, some downside has picked up a touch. European sectors are mixed and with the breadth of the market very narrow. Media takes the top spot, joined closely by Energy; the latter is buoyed by strength in underlying oil prices. Consumer Products was initially the outperformer, lifted by post-earning strength in Kering (+2.2%) – but the upside has since mostly pared.
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Geopolitics: Middle East
Geopolitics: Ukraine
Geopolitics: Other
US Event Calendar
Central Bank Speakers
DB's Jim Reid concludes the overnight wrap
Morning from Heathrow as the DB outlook tour hits Brussels today before I have a dinner in Paris tonight. Thankfully the Trump 2.025 outlook we published in November is still live in terms of views. On balance the risks are perhaps skewed towards a more aggressive tariff view than we had penciled in but the reality is that we'd priced in enough to suggest that the Fed wouldn't be able to cut rates this year due to elevated inflation and a combination of this and the data means we still believe this.
The tariff news has continued to build over the last 24 hours but risk assets got the week off to a solid start yesterday, with the S&P 500 (+0.67%) moving back to within 1% of its all-time high, while global bond markets saw muted moves. Yet despite the mostly positive headline moves, there were several mounting risks looming on the horizon, including the threat of reciprocal tariffs from the US, along with European natural gas prices at a two-year high. In both cases, the problem is that it’s reviving investors’ fears about inflation, which in turn is raising questions about whether we’re going to get the rate cuts that are currently priced in. So it meant the US 2yr inflation swap (+2.7bps) hit its highest level in nearly two years, at 2.75%, whilst gold prices (a classic inflation hedge) moved above $2,900 for the first time as well.
In terms of the latest on tariffs, shortly after the US market close yesterday Trump signed the executive order imposing 25% tariffs on US steel and aluminum imports, which will be effective from March 12. The tariffs will affect all countries, though Trump confirmed he was considering an exemption for Australia. Procedurally, the move revives and expands tariffs introduced back in 2018. Meanwhile, Trump commented that details on reciprocal tariffs would come over the next two days, while also saying that tariffs on metals “may go higher” and that his administration would be looking at chips and cars, two product groups he’s previously floated as potential tariff targets.
Our US economists published a piece suggesting that if sustained, steel and aluminium tariffs combined with reciprocal tariffs could increase core PCE in 2025 by an additional 30-40bps, depending on the ultimate passthrough to consumer prices. If the delayed Canada and Mexico tariffs were to ultimately go into effect as well, inflation in 2025 could be above 3.5%, though the assumption is that tariffs would have limited impact beyond this year. While our economists' baseline is that the Fed would prefer to “look through” the price level impact by keeping rates steady, their ability to do so could be constrained if inflation expectations begin to rise and / or the labour market reemerges as an additional source of inflationary pressure. Recent data suggest both these outcomes cannot be fully discounted. See their piece here.
Staying on the theme, in a piece yesterday, the FX team looked at which countries would be hit most by reciprocal tariffs, but the key point is that the impact varies widely depending on how reciprocity is defined.
Meanwhile in Europe, the main story was the mounting price of natural gas, which brought back unhappy echos of the energy crisis back in 2022. In terms of the latest, natural gas futures moved up another +4.16% to €58.04/MWh, which is their highest closing level in over two years, and more than double their levels a year ago. Now admittedly, we’re still a long way from the situation in late-2022, when prices averaged above €100/MWh, but gas storage is falling right now, and is currently at its lowest level at this point in the year since 2022. And more broadly, this is adding to the risk that inflation remains sticky above target, making it more difficult for the ECB to cut rates over the rest of the year.
Yet despite the bad news on inflation from tariffs and higher gas prices, there was some better news from the New York Fed’s Survey of Consumer Expectations. That showed inflation expectations were broadly stable in January, with 1yr and 3yr expectations unchanged at 3.0% even if the 5 year expectation edged up three tenths to 3.0%. Importantly for markets, the overall release was a contrast to the University of Michigan’s preliminary survey for February, which showed 1yr expectations surging up to 4.3%, so it helped to reassure investors that the UMich number wasn’t being replicated more broadly. After all, if inflation expectations become unanchored, that’s a huge problem for central banks as it raises the risk of a self-fulfilling prophecy where firms set prices and workers bargain for wages according to those higher expectations. And it was a big success during the recent inflationary wave that long-term US inflation expectations remained in check, helping to prevent a repeat of the 1970s. Looking forward, the focus today will turn back to the Fed, as Fed Chair Powell is delivering his semiannual testimony before the Senate Banking Committee, ahead of the CPI release for January, which is out tomorrow, before Powell's second congressional testimony of the week.
Even with the uncertain backdrop yesterday, the absence of definitive negative newsflow was sufficient for equities to put in a strong performance, with the major indices on both sides of the Atlantic moving higher on the day. Tech stocks outperformed, with the NASDAQ up +0.98%, though the Magnificent 7 (+0.42%) saw a more modest gain, weighed upon by a -3.01% decline for Tesla. The S&P 500 rose +0.67%, with the energy sector (+2.15%) the strongest performer as Brent crude oil rose +1.96% to $76.12/bbl amid a tighter supply outlook, including a Bloomberg report that Russia’s oil production fell below its OPEC+ quota in January. In Europe, the STOXX 600 (+0.58%), the FTSE 100 (+0.77%) and the DAX (+0.57%) all closed at record highs.
For bonds it was also a decent picture, despite the lingering concern about inflation. For Treasuries, the 2yr yield fell -1.3bps on the day to 4.28%, with a 2.6bps decline in the real yield more than offsetting higher breakevens, whilst the 10yr yield was little changed (+0.2bps to 4.50%). Meanwhile in Europe, 10yr yields also fell across the continent, with those on bunds (-1.0bps), OATs (-0.9bps) and BTPs (-1.7bps) all moving lower.
In Asia markets are quiet with Japan on holiday. Chinese stocks are slightly underperforming after climbing for several consecutive sessions with the Hang Seng (-0.33%) leading losses with the Shanghai Composite (-0.12%) trying to get back to flat. Elsewhere, the KOSPI (+0.73%) is bucking the negative trend while the S&P/ASX 200 (+0.06%) is flat. S&P 500 (-0.22%) and NASDAQ 100 (-0.28%) futures are lower with Treasuries not yet trading due to the Japanese holiday.
To the day ahead now, and there are lots of central bank speakers, including Fed Chair Powell’s testimony to the Senate Banking Committee. Otherwise, we’ll hear from the Fed’s Hammack, Williams and Bowman, the ECB’s Schnabel, BoE Governor Bailey, and the BoE’s Mann. Otherwise, data releases from the US include the NFIB’s small business optimism index. And today’s earnings releases include Coca-Cola.