US equity futures are up small this morning as yields continue to rise (SPX +17bps; NDX +5bps; US 10 year yield higher at 4.64%). As a reminder equities typically struggle when rates rise by 2 standard deviations in a given month, which in today’s terms is ~60bps. Stocks remain wobbly after yesterday's performance which saw big tech \the standout, vs the Dow and S&P equal weight down on the day. Nvidia rose 1.9% in premarket trading to a new record high after CEO Jensen Huang announced a raft of new chips, software and services. Uber also gained on news about a collaboration with Nvidia for autonomous driving technology. Overnight, Europe is broadly higher with Eurozone inflation coming in line with forecasts, though ECB survey shows consumer inflation expectations picked up. Asia closed mixed (Shanghai +71bps/Hang Seng -1.22%/Nikkei +1.97%) with Japan leading the way driven by tech strength (Tokyo Electron +11%). The yen weakened to a 6-month low in the morning before verbal intervention from Finance Minister Kato. The macro focus for today will be Richmond Fed President Barkin (voter) speaks (8am est), JOLTS (10am est, GS 7,750k, consensus 7,745k, last 7,744k), ISM Services Index (10am, GS 53.5, consensus 53.5, last 52.1), & Treasury selling $39B of 10-year notes.
In premarket trading, mag 7 names are mixed: Apple (AAPL) -1%, Nvidia (NVDA) +2%, Microsoft (MSFT) +0.3%, Alphabet (GOOGL) -0.2%, Amazon (AMZN) is flat, Meta Platforms (META) -0.7% and Tesla (TSLA) -1%. Nvidia rises 2% after CEO Huang announced a raft of new chips, software and services, aiming to stay at the forefront of artificial intelligence computing. Apple dropped 1% as MoffettNathanson downgrades the iPhone maker, citing high valuation, antitrust overhang and weakening position in China. Tesla (TSLA) slips 1% after BofA stepped away from its bullish rating, citing valuation and execution risks. Here are some other notable premarket movers:
European stocks gained after money markets shrugged off an uptick in regional inflation and kept expectations for European Central Bank interest-rate cuts steady. The Stoxx 600 rose 0.2%, clawing back earlier losses of as much as 0.4% led by gains in financial services, retail and real estate. Data showed euro-area consumer prices rose 2.4% from a year ago in December, up from 2.2% in November and matching the median estimate in a Bloomberg poll. The increase was largely driven by energy costs, which climbed for the first time since July, Eurostat said. Swaps pricing points to just over 100 basis points of ECB easing by year-end. Here are the biggest movers Tuesday:
For European markets, “a lot of bad news is priced in already,” Florian Ielpo, head of macro reserach at Lombard Odier Asset Management, told Bloomberg TV. “You have a recovery that is only starting and that recovery can come with a tad more inflation. European equities could be capturing some of that in the next 12 months.”
Asian stocks gained, boosted by the technology sector as Nvidia chief Jensen Huang’s speech fueled optimism in artificial intelligence. The MSCI Asia Pacific Index rose as much as 0.8%, with chip stocks TSMC and Tokyo Electron among the biggest contributors. Japan led gains among regional markets, followed by Taiwan. Hong Kong shares fell after the US blacklisted Tencent and other companies. Optimism for global AI-related stocks was heightened as Huang unveiled new products featuring Nvidia’s Blackwell chips at the CES trade show in Las Vegas. Shares of chipmakers and related companies have been benefitting from robust public and private investment into AI infrastructure, as well as hopes for improvement in broader tech demand.
In FX, the Bloomberg Dollar Spot Index is down 0.3%, falling for a third day as investors keep a close eye on trade tensions after US President-elect Trump denied a report that he might moderate plans for across-the-board tariffs. Washington’s move to blacklist some Chinese companies, including Tencent Holdings, served as another reminder of growing frictions. Prior to this week’s pullback, the dollar had surged more than 7% over a three-month period as traders’ anticipated that future US policies would dent global trade and boost the local economy. That said, the greenback’s retreat over the past couple of days doesn’t constitute a lasting trend, said Jacques Henry, head of cross-asset research at Silex in Geneva. “The dollar is in a rising cycle due to the resilience of its economy that’s likely to last,” he said. Meanwhile, the Canadian dollar continued its advance following Prime Minister Justin Trudeau’s resignation as head of the Liberal Party. The yen edged off a six-month low after Japan’s finance minister warned about “excessive” FX movements. Monday’s political headlines triggered the most hectic trading day in nearly two months in the currency options markets. Volumes surged to $108 billion by the close of trade, surpassing the activity seen on the Federal Reserve and Bank of Japan monetary policy announcement days last month, according to data from Depository Trust and Clearing Corp.
Treasuries are lower with front-end yields richer by around 1bp and long-end yields slightly cheaper. The Treasury curve extends steepening trend with 2s10s and 5s30s spreads wider by more than 1bp on the day; US 10-year yield around 4.63% is little changed after touching 4.64%, the highest level since May. German yield curve has more pronounced steepening move following euro-area inflation figures for December and bond sales by Germany and Austria. Gilts lag after soft demand for a UK 30-year auction. Focal points of US session include November JOLTS job openings, December ISM services index and 10-year note auction that may draw highest yield since 2007. Meanwhile, the UK’s long-term borrowing costs surged to the highest level since 1998 as investors grapple with a flood of bond sales this year. The yield on 30-year gilts climbed four basis points to 5.22% after a sale of same-maturity securities.
In commodities, oil prices advance, with WTI up 0.2% to $73.70. Spot gold adds $7 to $2,644/oz.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were mostly higher following the tech strength stateside where Nvidia briefly reclaimed the largest market cap title and closed at a fresh record. ASX 200 eked mild gains as strength in tech and telecoms picked up the slack from the weakness in the utilities, miners and materials sectors, while advances were limited amid disappointing Building Approvals data which showed a wider-than-expected contraction. \Nikkei 225 outperformed on a break above the 40,000 level with the index propelled by a weaker currency. Hang Seng and Shanghai Comp were pressured from early in the session with heavy losses in Hong Kong after the Pentagon added several companies including Tencent (700 HK) and CATL to the US list of firms alleged to help Beijing's military, while the downside in the mainland was gradually cushioned following the announcement that China is to hold a briefing on consumer goods trade-in program on Wednesday involving officials from the PBoC, MoF and NDRC.
Top Asian news
European bourses opened mostly in the red, but sentiment lifted slowly as the morning progressed to display a more mixed picture in Europe. European sectors began the morning with a slight negative bias, but now display a more mixed picture. Financial Services takes the top spot, joined closely by Retail and then by Basic Resources to complete the top 3. The latter is buoyed by gains in underlying metals prices. Banks sit at the foot of the pile, but with losses to a similar magnitude as Insurance and Healthcare.
Top European news
Geopolitics: Middle East
Geopolitics: Other
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Morning from Helsinki where I've started my work year pretty much every year (ex-Covid) for the last 25. It’s cold but I’m acclimatised as I'm just back from a very snowy ski trip in the Alps which unfortunately coincided with a pretty dreadful bout of flu or perhaps Covid. My wife and I spent the entire two weeks drained and coughing and spluttering 24/7 which wasn't fun in the cold. The kids and Brontë didn't adjust their demands accordingly though so it was hard work. I could do with a fresh two week holiday to recover.
Talking of two weeks, yesterday it was only that length of time until Donald Trump’s inauguration. Ahead of that, tariffs were back in focus yesterday, as investors faced up to competing theories about how aggressively the new administration would increase them. The big moves over the last 24 hours began with a Washington Post report, which said that Trump’s aides were looking at a plan for universal tariffs on all countries, but just covering critical imports rather than everything. The article cited “three people familiar with the matter”, and led to an immediate market reaction, as investors felt this was less aggressive than some of the earlier plans that had been suggested. After all, this would only put tariffs on sectors that were seen as critical for national or economic security, and the article led to an immediate rally in Treasuries and a weakening in the US Dollar.
But shortly after, that market reaction unwounded as Trump posted on Truth Social that the story “incorrectly states that my tariff policy will be pared back. That is wrong.” So that led to a fresh bout of concern that Trump was still going to pursue a more aggressive tariff agenda, which in turn would lead to higher inflation and a more hawkish Fed. So over the course of this episode yesterday, the 10yr Treasury yield went from 4.61% before the article, to a low of 4.57% afterwards, before bouncing back after Trump’s post to close at 4.63%. The selloff was particularly clear at the long end of the curve, and it meant the 2s10s curve steepened to 35.1bps, the steepest since May 2022. 30yr US yields (4.85%) closed at 14-month highs. The next test will be today's JOLTS and services ISM.
Those concerns about higher inflation then got fresh support from Germany’s flash CPI release, which surprised on the upside in December. It showed headline inflation rising to an 11-month high of +2.9% on the EU-harmonised measure, which was three-tenths above consensus. Moreover, it came after the Spanish CPI print also surprised on the upside last week, so that’s raising concerns about the Euro Area-wide release that’s coming out today. Indeed, yields on 10yr bunds were up +2.4bps to 2.45%, which is their highest level since July. Bear in mind as well that the 10yr bund yield has already risen for 5 consecutive weeks. So if there’s a 6th rise this week, that would be the longest run of weekly gains since 2022, back when inflation was raging and the ECB were hiking by 75bps per meeting. Our European economists have started the year with a blog series on some of the most important drivers for the continent in 2025. Part one from yesterday is here and part two this morning (link here) looks at inflation which is topical given today’s Euro Area print.
Despite all the concerns about inflation and tariffs, equities actually managed to put in a solid session on both sides of the Atlantic. The gains were stronger in Europe, with the STOXX 600 up +0.95%, whilst the CAC 40 (+2.24%) posted its strongest daily advance since September. Over in the US, the S&P 500 (+0.55%) saw a more moderate gain, rising as much as +1.3% intra-day but then losing some steam as the session went on. That rise was led by the big tech stocks, with the Magnificent 7 up +1.92% as Nvidia (+3.43%) reached a new all-time high with a market cap of $3.66trn. Nvidia’s CEO Jensen Huang in his keynote speech at the CES 2025 conference (after the closing bell) announced a raft of new chips, software and services to accelerate AI adoption in humanoid robots and self-driving cars and trucks. So there is seemingly no end to their ambition and excitement about tech and AI as we start 2025. By contrast, the equal-weighted S&P 500 was down -0.05% yesterday, as defensive sectors including utilities (-1.10%) and consumer staples (-0.98%) underperformed. So it was by no means a uniformly rosy picture.
The other notable underperformer was the US dollar, with the broad dollar index falling by -0.67% yesterday. It had been down as much as -1.2% after the Washington Post story before partially recovering after Trump’s retort. In turn, the euro saw its best day against the greenback in six weeks. That said, at 1.0387 it is still down by -7% since late September, having fallen to a 2-year low last Thursday.
Asian equity markets are mostly higher this morning outside of China. The Nikkei (+1.91%) is leading gains and is making a strong comeback after closing over -1% lower on the first trading day of 2025 on Monday. Meanwhile, the KOSPI (+0.34%) is paring back its initial stronger gains after climbing over +1% to surpass the 2,500 level for the first time since December 16. Elsewhere, the S&P/ASX 200 (+0.33%) is also edging higher. On the otherside of the ledger, Chinese stocks are lagging this morning with the Hang Seng (-2.17%) emerging as the biggest underperformer while the Shanghai Composite (-0.32%) and the CSI (-0.08%) are also trading in negative territory after the US labelled Tencent Holding Ltd. and Contemporary Amperex Technology Ltd. (CATL) - the world’s largest electric vehicle battery maker - as companies with alleged links to the Chinese military. Outside of Asia, S&P 500 (-0.15%) and NASDAQ 100 (-0.27%) futures are seeing minor losses.
In FX, the Japanese yen (-0.30%) is weakening for the second straight session, trading at 158.11 against the dollar, its weakest level since July even after Japan’s Finance Minister Katsunobu Kato stated that the government will take appropriate action against sudden foreign exchange moves.
Elsewhere yesterday, there were major political headlines out of Canada, as Prime Minister Justin Trudeau announced he’d be resigning as Liberal Party leader. The move follows significant pressure from other Liberal MPs on Trudeau to resign, and his position became increasingly uncertain after his Deputy PM Chrystia Freeland resigned last month. Trudeau will stay on as PM until a new leader is picked, and the Canadian parliament will be prorogued until March 24th in the meantime. A federal election is due to be held in Canada by October but may come sooner if opposition parties push for a confidence vote once parliament reconvenes. The Liberals are currently well behind the opposition Conservatives in the polls, with CBC’s tracker putting the Conservatives on 44% and the Liberals on just 20%.
Finally, we also got a bit of Fedspeak yesterday, with Governor Cook echoing the tone of other speakers this week. She said that “we can afford to proceed more cautiously with further cuts”, but that it was still “appropriate to move the policy rate toward a more neutral stance”. There was also some unexpected news from the Fed’s Vice Chair for Supervision, Michael Barr, who said he would step down as Vice Chair for Supervision at the end of February, or an earlier time if a successor was confirmed. However, Barr said he would continue to serve on the Fed’s Board of Governors.
To the day ahead now, and data releases from the US include the ISM services index for December, the JOLTS report for November, and the trade balance for November. In the Euro Area, we’ll also get the flash CPI release for December, and the unemployment rate for November. From central banks, we’ll hear from the Fed’s Barkin, and get the ECB’s Consumer Expectations Survey for November.