Newsquawk European Market Wrap - 11th February 2025

• Stocks choppy, USD mixed vs. peers, fixed steady, crude bid


• Trade remained in focus after Trump vowed to launch reciprocal tariffs


• EC President von der Leyen said unjustified tariffs on the EU will trigger firm and proportionate countermeasures

EQUITIES

• 
  A very choppy session for European bourses today; initially opening higher, before succumbing to some mild downward pressure soon after. Sentiment then picked up into afternoon trade, to reside towards the mid-point of the day’s range. The indecisive trade can be attributed to markets digesting President Trump signing 25% tariffs on steel and aluminium and as traders await updates over the next few days re. tariffs on cars/pharmaceuticals/chips. On an index level, DAX 40 cash topped 22,000 for the first time – marking an ATH.


• 
  European sectors held a positive bias vs mixed for most of the session, albeit with the breadth of the market fairly narrow. Banks took the top spot, joined closely by Energy; the latter buoyed continued strength in underlying oil prices. Consumer Products were marginally in the red; Kering (U/C) initially posted gains north of 6%, but looked to finish the session flat – sales declined 12% (as expected), and saw positive developments in China; though its Gucci-sales fell short of expectations.


• 
  US equity futures are modestly lower across the board, as markets digest the latest Trump tariff updates, though did pick up following the cash open; the President is set to sign executive orders at 15:00EST/20:00 GMT. In terms of stock specifics; Coca Cola (+3.5%, headline metrics beat), Coty (-1.6%, EPS soft and FY outlook disappointed), Dupont (+5%, outlook in line). In prepared remarks from Fed Chair Powell, he largely reiterated comments made at the most recent FOMC Press Conference – as such little move was seen in the complex.

FX

• 
  USD - Trump's tariff regime remained the main focus throughout trade thus far after the President signed proclamations to reimpose a 25% tariff on steel and aluminium imports and declared there are no exceptions or exemptions, effective March 12th. Furthermore, Trump said they are looking at tariffs on cars, pharmaceuticals and chips and will hold meetings over the next four weeks, while they will do reciprocal tariffs over the next two days. US President Trump is expected to sign executive orders on Tuesday at 15:00EST/20:00GMT. Fed Chair Powell testimony provided little sway on the USD, noting that the Fed does not need to be in a rush to adjust policy. Fed hawk Hammack noted that it is likely appropriate to hold rates steady for some time. DXY briefly took out yesterday's 108.44 peak before pulling back a touch. CPI due tomorrow.


• 
  EUR - Marginally firmer vs. the USD after a session of shallow losses yesterday. In the early stages of the Trump Presidency, markets were relieved that no immediate action was taken against the EU. However, the recent imposition of steel tariffs by the US has brought this to an end. Actions have subsequently triggered a response from the bloc with European Commission President von der Leyen stating that unjustified tariffs on the EU will not go unanswered; they will trigger firm and proportionate countermeasures. It remains to be seen how hard, if at all, the EU's auto sector will be targeted. ECB thought-leader Schnabel due to speak @ 17:00GMT. EUR/USD held above the 1.03 mark and trades towards the top end of yesterday's 1.0282-1.0336 range.


• 
  GBP - Firmer vs. the USD after three sessions of losses in the wake of last week's "dovish" cut from the BoE. 50bps dissenter Mann has been on the wires overnight and throughout the morning justifying her decision to go back a larger rate reduction. Mann noted that her decision was made on the basis that she is an activist policy maker and wished to "cut through the noise" by taking bold action. Note, Mann favours continued restrictiveness in the future. Cable managed to make its way back onto a 1.24 handle with a session peak @ 1.2413.


• 
  JPY - JPY saw some fleeting support vs. the USD in early European trade following as markets digested the latest ramp-up in global trade tensions (see above for details). Fresh macro drivers for Japan were lacking overnight with the nation away for holiday. As such, impetus for the pair in the near-term may be dictated more by the USD leg of the equation. USD/JPY heads out the session towards the top end of yesterday's 151.17-152.53 band.


• 
  Antipodeans - Both a touch higher vs. the USD. Focus for AUD has been on the recent imposition of steel tariffs by the US. Australian PM Albanese said President Trump agreed to consider an exemption for Australia on steel tariffs. Trump later declared no exceptions or exemptions. AUD/USD back above its 50DMA @ 0.6275 and briefly matched yesterday's 0.6286 peak. After struggling yesterday, NZD/USD picked itself up but was unable to threaten yesterday's 0.5664 peak.

FIXED

• 
  Overall, a bearish session for benchmarks as participants digest the inflationary implications of Trump’s latest tariffs and commitments to respond from the EU, among others.


• 
  EGBs bore the brunt of this bearish bias given the inflationary implications of Trump’s measures on the bloc, while USTs were pressured but slightly more cushioned on account of a Japanese holiday (no overnight cash trade) and more pertinently into Chair Powell.


• 
  Testimony from Powell which, as expected, was essentially a repeat of the last FOMC statement/press-conference and as such sparked no reaction in benchmarks leaving them at session lows of 108-29, 132.76 and 93.07 for USTs, Bunds and Gilts respectively.


• From the upcoming Q&A, we look for Powell’s view on his meeting with the Treasury Secretary which was reported as being “constructive”; additionally, to see if Powell comments on Trump’s tariffs, though he will likely reiterate uncertainty ahead.


• Prior to this, Gilts were weighed on early-doors by an extensive text release from BoE arch-hawk Mann who explained her 50bps dovish-dissent; text which made clear that her activist and hawkish approach remain with Gilts coming under renewed pressure during the Q&A where she said “a 50bps cut now and 50bps next time would not be a full reading” of her remarks.


• 
  In the European morning, Gilts and BTPs briefly saw some respite as demand for their upcoming syndications was particularly elevated, and on the back of this the UK is to sell a record GBP 13bln in the 2035 syndication.


• 
  OATs underperformed EGB peers throughout the second half of the European session on account of 2056 syndication being announced by France, an update which has sparked some modest widening of OAT-Bund yield spreads; 10yr spread back above 73bps.


• 
  Netherlands sells EUR 2bln vs exp. EUR 1.5-2.0bln 2.75% 2047 DSL: average yield 2.773% (prev. 0.403%)


• 
  Italy poised to raise EUR 13bln from new 15-year BTP bond, final orders at EUR 133bln, according to lead.


• 
  UK to sell GBP 13bln of 4.5% 2035 Gilt via syndication (a record), according to a bookrunner; orders in excess of GBP 140bln.


• 
  Germany sells EUR 3.777bln vs exp. EUR 5bln 2.40% 2030 Bobl: b/c 2.0x (prev. 2.52x), avg. yield 2.17% (prev. 2.42%) & retention 24.60% (prev. 24.14%).


• 
  France to sell May 2056 OAT via syndication.


• 
  Reuters poll: US 10yr Treasury yield to hold steady at 4.53% in three months (vs. 4.40% in Jan poll); 16 out of 21 strategists said 10yr Treasury yield more likely to be higher than forecast in three months than lower

COMMODITIES

• 
  Crude Futures - Firm trade across the crude complex on Tuesday amid Middle Eastern geological updates and in the aftermath of tariff escalations after US President Trump signed proclamations to reimpose a 25% tariff on steel and aluminium imports and declared there are no exceptions or exemptions, effective March 12th. In geopolitics, the Israel-Hamas ceasefire looks fragile, with Gaza ceasefire mediators fearing a breakdown of the agreement, while Hamas is to delay the hostage release planned for Saturday until further notice; Israeli Defence Minister Katz said in response to Hamas delaying Israeli hostages that this is a complete violation of the ceasefire agreement and he instructed the IDF to prepare for any scenario in Gaza. Further, US President Trump said if all Gaza hostages aren't returned by noon on Saturday, he would say cancel the ceasefire and "let all hell break out". Elsewhere, Russia's First Deputy Energy Minister believes sanctions won't hinder oil trade with India and more time is needed to assess the impact of the latest sanctions. Meanwhile, it was reported Russia's Saratov oil refinery has suspended operations for safety reasons after Ukrainian drone attacks, according to Reuters sources. WTI Mar resided in a USD 72.31-73.68/bbl range while Brent Apr looks to end the European session towards the upper end of a USD 72.31-73.68/bbl parameter. No move was seen on Fed Chair Powell as he largely reiterated recent commentary. Ahead, traders will be on watch for macro developments (i.e. tariffs, geopolitics) ahead of the EIA STEO and Private Inventory data.


• 
  Nat Gas - European nat gas initially traded lower before reversing to gains and to levels on either side of EUR 59/MWh. Desks pin the rise on bolstered demand from colder weather alongside dwindling storage, supply issues, and weaker power generation from renewables.


• 
  Precious Metals - Lower trade across precious metals with silver and palladium hampered by the implications of US levies, but spot gold seeing its losses cushioned by some haven flows. Silver has both monetary and industrial uses, with around half of its demand coming from industrial applications (electronics, solar panels, etc.). Palladium is almost entirely an industrial metal, mainly used in catalytic converters for cars. Gold pulled back after printing a fresh high overnight at USD 2,942.78/oz (vs current low 2,881.56/oz). No move was seen on Fed Chair Powell as he largely reiterated recent commentary.


• 
  Base Metals - Lower across the board amid the implication on demand from the aforementioned tariffs. Furthermore, US President Trump said they are looking at tariffs on cars, pharmaceuticals and chips and will hold meetings over the next four weeks, while they will do reciprocal tariffs over the next two days. Trump also commented that tariffs on metals could go higher and he does not mind if other countries retaliate. 3M LME copper sat towards the bottom end of a USD 9,322.00-9,452.55/t range at the time of writing.


• 
  Russian Deputy PM Novak says will looking to proposals regarding possibility of gasoline export ban.


• Russia's Nornickel says the Co. plans to sell all 2025 produce; Co. is in active talks on a JV in China.


• India's oil minister expects more Venezuelan oil to come to the market.


• China's CNPC to boost crude imports from Kazakhstan, according to Xinhua

EUROPEAN NEWS

• 
  European Commission President von der Leyen says unjustified tariffs on the EU will not go unanswered; they will trigger firm and proportionate countermeasures.


• EU Trade Ministers set to hold video conference on Wednesday after Trump confirms steel and aluminium tariffs.


• EU Trade Commissioner Sefcovic says they are looking into the possibility of stronger trade ties with Gulf-nations.


• 
  "Britain is not expected to join the EU in retaliating against the US after Donald Trump announced plans to hit steel imports with 25% tariffs", according to Times' Swinford. "The EU said it will 'react to protect the interests' of businesses, workers and consumers". "But senior govt sources said that retaliatory tariffs would have little impact and would ultimately serve to provoke Trump further". "Starmer, Reynolds and Lammy have all been very clear that Britain is philosophically opposed to tariffs of any kind".


• Spain pushes to double the EU budget to over EUR 2tln, via Politico; Spain is urging a repeat of the joint borrowing scheme (used post-Covid).

CENTRAL BANKS

• 
  BoE's Mann said UK inflation is less of a threat as corporate pricing power weakens and pricing is coming very close to 2% target-consistent levels in the year ahead, while she added that demand conditions are weaker than before and that she had changed my mind on that, according to FT.


• 
  BoE's Mann says as an activist policy maker, she opted for 50bps cut in February to 1) ‘cut through the noise’, 2) anchor expectations through the inflation hump, and 3) acknowledge structural impediments and macroeconomic volatility in longer term. On the Bank Rate: "I note that respondents in our Market Participants’ Survey have been consistent in putting this longer-run average at about 3-3½ percent. I’m more likely at the higher end of that range." "I expect that Bank Rate will average well above the nominal equilibrium rate implied by the estimates set out in the August 2018 Inflation Report". "it seemed to me that the two quarter-point cuts last year had not appreciably loosened financial conditions.". "Indeed, the projections in the February Monetary Policy Report were conditioned on a path for Bank Rate that is above four percent for the entirety of the forecast horizon which, given my assessment of the UK outlook, was not consistent with achieving the 2% target sustainably.". On being the activist policymaker, "The activist policymaker needs to maintain policy rate discipline and restrictiveness even after this immediate decision. This ensures that, as we move through the inflation hump, expectations remain anchored both in the near and longer term.".


• 
  BoE's Mann says "my active rate policy does not mean cut, cut, cut". "A 50bps cut now, 50 next time would not be a full reading of what I have said". Looking to see that wage settlements will be moderate and that firms pricing power is moderate. Not expecting additional second-round effects.


• 
  BoE's Governor Bailey says there is a reaction taking place against regulation, they must not forget the lasting damage done by the GFC.


• 
  Fed's Hammack (2026 voter): likely appropriate to hold rates steady for some time, patient approach to rates will provide time to assess the economy. Still not clear that inflation keep moving down to 2%, getting inflation to target is paramount. Inflation risks skewed to the upside. Economy is in a good place, job market is solid. Monetary policy only "moderately restrictive". Best to take time to assess impact of any tariffs, lots of uncertainty around US gov't policy. Will evaluate Trump economic and trade policies as they come in. Rate hike is not her base case, and economy is on a good position. May be close to the neutral rate.


• 
  Fed Chair Powell says we do not need to be in a hurry to adjust policy and policy is well-positioned to deal with risks and uncertainties. Can maintain policy restraint for longer if economy remains strong and inflation does not move toward 2%. Can ease policy if labor market unexpectedly weakens or inflation falls more quickly than expected. US economy strong overall; inflation is closer to 2% goal but still somewhat elevated. Unemployment rate is low and steady; labour market is solid and not a source of inflationary pressures. Framework review will not include a focus on inflation target, which will remain 2%. Unemployment rate is low and steady; labour market is solid and not a source of inflationary pressures.


• 
  Riksbank's Siem says interest rate is now at a level that seems to be consistent with inflation at target level in the short and long term; makes monetary policy well positioned to manage future challenges

GEOPOLITICS

• Egyptian sources say that "Trump's threat to cut off aid to Egypt would mean that the peace treaty between Israel and Egypt "would have no meaning," and that the tension in relations between the United States and Egypt was the greatest in three decade". Egyptian President's expected visit to Washington is expected to be postponed.


• 
  Russia's Kremlin says there are contacts with the Trump team which are intensifying, nothing yet in terms of a possible settlement to the conflict in Ukraine.


• 
  Russian Deputy Foreign Minister meets the US envoy, according to RIA.


• Journalist Kais reports, citing Al Arabiya, that Egypt has made a final decision on Gaza and refuses to withdraw from it.


• 
  Israeli "security cabinet is now convening at the Prime Minister's Office in Jerusalem to discuss Israel's response to Hamas's postponement of the release of hostages", via Times of Israel.


• 
  Yemen's Houthi Group Leader said says group is ready to launch attacks on Israel if they resume attacks on Gaza.

NOTABLE NORTH AMERICAN NEWS

• 
  US Speaker Johnson intends to begin presenting outlines of his budget reconciliation package today, he believes he’s “very close” to a final budget resolution, according to Punchbowl.


• 
  Goldman Sachs (GS) CEO says new administration is going to run a growth-oriented agenda but broad policy landscape in US is still uncertain.


• Punchbowl's Sherman says "US Speaker Johnson indicated in a private meeting of the Elected Leadership Committee Monday afternoon that he would NOT bring up Senator Graham's budget resolution if it passed the Senate".


• 
  The US duties on China could be paused if “serious headway” is made on fentanyl when Trump and Xi next speak, according to WSJ's Wei, "In other words, no headway yet, and that’s why no call, and no pause on the tariffs"

NORTH AMERICAN DATA

• 
  US NFIB Business Optimism Idx (Jan) 102.8 (Prev. 105.1)


• 
  US Redbook YY 5.3% (Prev. 5.7%)


• 
  Bank of America Consumer Check Point (Jan 2025): Some chills, but no shadows; January spending per household was up a solid 1.9% Y/Y; Seasonally Adjusted card spending -0.4% MM (largely weather related)


• 
  Canadian Building Permits MM (Dec) 11.0% vs. Exp. 1.7% (Prev. -5.9%, Rev. -5.6%)

11 Feb 2025 - 15:09- MetalsResearch Sheet- Source: Newsquawk