Newsquawk European Market Wrap - 17th January 2025

• European stocks and fixed income higher, USD up, crude a touch softer


• Trump stated he had a "very good" call with Chinese President Xi


• UK retail sales provided the latest disappointing release for the GBP

EQUITIES

• 
  European bourses (Stoxx 600 +0.8%) opened modestly firmer across the board and have continued to climb throughout the session; indices look to end the day near session highs.


• 
  European sectors held a strong positive bias, with Construction & Materials and Basic Resources topping the pile; sentiment in the sectors lifted after positive Chinese GDP and activity data overnight. Healthcare was the clear laggard, dragged down by losses in Novo Nordisk (-4.4%) after the US Government selected 15 additional drugs to negotiate directly with partaking drug companies – a move which could reduce the price of weight loss.


• US equity futures are entirely in the green, with clear outperformance in the NQ, as Tech-giants return to gains amid the relatively lower yield environment. In terms of post-earning movers, Truist (+3%, EPS, rev. & NII beat), SLB (+2%, EPS and rev. topped expectations), Fastenal (-5%, top and bottom line missed). More recently, US President Trump said "I just spoke to Chairman Xi Jinping of China. The call was a very good one for both China and the U.S.A. It is my expectation that we will solve many problems together, and starting immediately.", via Truth Social. Comments which spurred little price action in the equities complex.

FX

• 
  USD - DXY higher with the dollar initially gaining some strength at the hands of a softer GBP and JPY. From a macro perspective, today's calendar was quiet aside from a beat in US IP data. Markets continued to digest the fallout from a busy week which has largely been characterised by a soft outturn for inflation data, mixed retail sales and a dovish interjection yesterday by Fed's Waller who stated that 3-4 cuts are possible this year (vs. current market pricing or circa 42bps of loosening). Yesterday’s Senate hearing of Treasury Secretary nominee Scott Bessent proved to be non-incremental as attention shifts towards Monday's inauguration of incoming President Trump. Ahead of which, Trump stated he had a "very good" call with Chinese President Xi. DXY remained within yesterday's 108.82-109.38 trading band.


• 
  EUR - Softer vs. the USD but to a lesser degree than peers in quiet EZ-specific newsflow other than comments from dovish GC member Stournaras noting that easing should continue with a series of cuts and news that French PM Bayrou survived a no-confidence motion against the government. Next week sees the release of PMI metrics which, if soft, could see attention return to the EZ growth outlook after concerns have mounted in recent weeks over sticky inflation in the bloc. EUR/USD was contained within yesterday's 1.0259-1.0314 range.


• 
  GBP - On the backfoot in what has been an indecisive week for Cable with the pair broadly pivoting around the 1.22 mark until today. Today's selling pressure has been triggered by a soft outturn for UK retail sales which unexpectedly contracted on a M/M basis. Capital Economics writes that "today’s release is further evidence that the economy had very little momentum at the end of last year". Market pricing for the BoE was little changed with around 21bps of easing seen for the Feb meeting and 66bps of cuts forecast by year-end. Cable briefly broke below yesterday's low @ 1.2174 before trimming downside.


• 
  JPY - Softer vs. the USD after two hefty sessions of gains. Source reporting surrounding the BoJ continued to indicate that a 25bps hike is likely on the horizon. The Nikkei reports that a majority of BoJ board members are poised to approve a rate hike next week with the final decision set to come after Trump's inauguration. Market pricing sees around an 80% chance of a move. USD/JPY just about briefly dipped below 155 with a 154.99 low before returning to levels closer to 156.


• 
  Antipodeans - Both softer vs. the USD and unable to benefit from a better-than-expected outturn for Chinese GDP, retail sales and industrial production. AUD/USD selling picked up in the afternoon and saw the pair take out the bottom end of yesterday's 0.6191-0.6245 trading band but stop shy of Monday's 4 year low @ 0.6130. NZD/USD initially pivoted around the 0.56 mark before taking out yesterday's 0.5582 low after printing its lowest level since October 2022 on Monday @ 0.5541.

FIXED

• Benchmarks generally began the session with modest gains. Gilts outperformed after a soft set of Retail Sales for December which rounded off a week of dovish data and leaves an 80% chance of a Feb. BoE cut. We now await BoE’s Bailey at 17:00GMT.
  


• Note, pricing didn’t move much after the release as participants await next week’s Flash PMIs, any fiscal updates and Trump’s inauguration for potential global yield action. After the data, Gilts hit a 91.96 peak but are set to end the session off best but still with gains of over 250 ticks from the week’s 89.00 open.
  


• Amidst this, Bunds were driven to an initial 131.88 peak before extending to a 131.97 high for the session. European specifics featured a modest revision to Final Core HICP and numerous ECB speakers, though nothing which has significantly moved the dial.


• During the European morning, JGBs experienced some modest underperformance in the wake of yet more source reports indicating that the BoJ is likely to hike next week barring a significant Trump-driven move post-inauguration; reminder, Japanese CPI due the session before the BoJ.


• 
  USTs peaked at 108-27+ before pulling back and slipping into the red as the risk tone continues to strengthen. No follow through from an interview with Fed dissenter Hammack (2026 voter) in the WSJ.


• On the data front, US Building Permits, Housing Starts, Industrial Production and Capacity Utilisation all came in firmer than forecast, adding to the existing pullback in USTs.


• Most recently, some two-way action was spurred via a Truth from President-elect Trump on his call with Chinese President Xi, Trump said the call was good for both nations and he expects to “solve many problems” with Xi; action driven on one hand on the positive risk angle and on the other the narrative of less inflationary tariffs.


• As it stands, benchmarks are set to end the session with modest gains but back in proximity to the unchanged mark having pulled back from mentioned highs. Focus now turns to MLK Jr day on Monday; while a market holiday, it is unlikely to be a quiet session given the inauguration of Trump from 17:00GMT.

COMMODITIES

• 
  Crude Futures - Eventually turned lower amid the stronger Dollar coupled with positive vibes surrounding an Israel-Hamas ceasefire. Prices were initially firmer on the back of a constructive risk profile alongside the beats across the board in Chinese GDP and activity data. That being said, the Chinese Stats Bureau offered mixed commentary in which it noted the impact of external environment changes is deepening, domestic demand is not sufficient, and economic operations still face many difficulties and challenges but also stated that positive factors will outweigh negative factors for China's economy in 2025. Elsewhere, Colonial Pipeline now estimates an earlier-than-expected restart of Line 1 on Friday after it made progress with on-site work to identify the source of a leak on Line 1 and began repairs. Looking at technicals, the desk at ING posits that "the market is in overbought territory and so overdue a correction." WTI Feb resides in a current 78.07-79.44/bbl range and Brent Mar trades within 81.37-81.93/bbl.


• 
  Precious Metals - Mostly subdued price action in the metal complex as the Dollar continues to grind higher, and the Middle Eastern geopolitical landscape more constructive after yesterday's blip surrounding last-minute tweaks to the Israel-Hamas deal. Palladium narrowly outperforms whilst silver lags, although prices saw a couple of upticks (amid the dollar downside) after US President Trump said he had a "very good" conversation with Chinese President Xi. Spot gold resided in a USD 2,702.74-2,717.43/oz range - well within Thursday's USD 2,690.05-2,724.78/oz parameter.


• 
  Base Metals - Mostly lower as the Dollar extended highest throughout the session before waning off best levels after positive commentary from US President-elect Trump and Chinese President Xi. Despite the constructive Chinese data overnight and the risk appetite in the European morning, the complex was overshadowed by the firmer Dollar towards the latter part of the session. 3M LME copper ekes mild gains and resides in a current narrow USD 9,131.00-9,295.50/t range. Elsewhere, iron ore prices notched a weekly rise with Dalian iron ore ending daytime trade at +1.3% with traders citing the Chinese GDP data.


• Russian seaborn oil product export fell -9% Y/Y in 2024 after refineries faced challenges including drone attacks, according to data cited by Reuters.


• 
  Russian President Putin says will cooperate greatly with Iran in the field of energy, according to Sky News Arabia.

EUROPEAN DATA

• UK Retail Sales MM (Dec) -0.3% vs. Exp. 0.4% (Prev. 0.2%, Rev. 0.1%); Ex-Fuel -0.6% vs. Exp. 0.1% (Prev. 0.3%, Rev. 0.1%)


• 
  UK Retail Sales YY (Dec) 3.6% vs. Exp. 4.2% (Prev. 0.5%, Rev. 0.0%); Ex-Fuel YY 2.9% vs. Exp. 3.6% (Prev. 0.1%, Rev. -0.5%)


• 
  EU HICP-X F&E MM (Dec) 0.3% vs. Exp. 0.4% (Prev. -0.4%); HICP Final MM (Dec) 0.4% vs. Exp. 0.4% (Prev. -0.3%); HICP-X F&E Final YY (Dec) 2.7% vs. Exp. 2.8% (Prev. 2.8%); HICP Final YY (Dec) 2.4% vs. Exp. 2.4% (Prev. 2.4%); HICP-X F,E,A&T Final YY (Dec) 2.7% vs. Exp. 2.7% (Prev. 2.7%)


• 
  EU Current Account NSA,EUR (Nov) 34.62B (Prev. 32.0B) Current Account SA, EUR (Nov) 26.98B (Prev. 25.8B)

CENTRAL BANKS

• 
  ECB's Stournaras says easing should continue with a series of cuts, via Bloomberg.


• 
  ECB's Nagel says there is no doubt that the German economy is experiencing a pronounced growth weakness. Should not rush on the path to monetary policy normalisation; discussions around a 50bps cut is not a bad thing, it is part of the job.


• 
  ECB's Elderson says they face risks if they cut too quickly or slowly, not yet done with easing, via Dagblad.


• 
  Fed's Hammack (2026 voter; dissenter) says Fed can be patient on rate cuts; inflation remains an issue; adds that monpol is only moderately restrictive, WSJ reports.


• 
  Reuters Poll: Federal Reserve to hold at 4.25-4.50% on 29th January, according to all 103 economists, while 61/103 look for a cut to 4.00-4.25% in March.


• 
  BoJ is reportedly likely to hike in January barring any major Trump-driven market shocks, via Reuters citing sources; will make no major change to guidance that they will keep increasing rates. BoJ is unlikely to offer explicit guidance on the pace of future tightening or how far rates could eventually go, while source added "the market seems to have gotten the BoJ's message".


• 
  BoE's Taylor says pre-emptive cuts make sense, via Yorkshire Post.


• 
  PBoC says Chinese economy has solid foundation and reasonable current account surplus, China's cross border capital flows are balanced and has sufficient FX reserves.

GEOPOLITICS

• Reports suggest that the demand by Israel's Finance Minister Smotrich were met, following him stating to PM Netanyahu that he would resign if not.


• Israel security cabinet begins meeting to vote on Gaza ceasefire, hostage release deal, according AFP.


• "Israel's security cabinet ratifies Gaza agreement", according to Al Jazeera.


• Hamas says issues regarding ceasefire deal resolved on Friday, according to a statement.


• EU reportedly considering whether to drop a sensitive trade investigation against China over alleged coercive activity targeting Lithuania, according to Bloomberg.


• 
  "The Political-Security Cabinet voted in favor of the hostage deal and recommended that the government approve it", according to Axios' Ravid.


• 
  Chinese President Xi held a phone call with US President-elect Trump, according to Xinhua.


• 
  US President Trump says "I just spoke to Chairman Xi Jinping of China. The call was a very good one for both China and the U.S.A. It is my expectation that we will solve many problems together, and starting immediately.", via Truth Social. "We discussed balancing Trade, Fentanyl, TikTok, and many other subjects. President Xi and I will do everything possible to make the World more peaceful and safe!"


• 
  Chinese President Xi, regarding his call with US President-elect Trump, says they both place great importance on interactions and hope for a positive start to China-US relations during the new presidential term


• 
  EU and Mexico reportedly struck a deal on revamped free-trade agreement, according to Bloomberg.

NORTH AMERICAN DATA

• US Building Permits: Number (Dec) 1.483M vs. Exp. 1.46M (Prev. 1.493M)


• US Housing Starts Number (Dec) 1.499M vs. Exp. 1.32M (Prev. 1.289M, Rev. 1.294M)


• US House Starts MM: Change (Dec) 15.8% (Prev. -1.8%, Rev. -3.7%)


• US Industrial Production MM (Dec) 0.9% vs. Exp. 0.3% (Prev. -0.1%, Rev. 0.2%)


• US Manuf Output MM (Dec) 0.6% vs. Exp. 0.2% (Prev. 0.2%, Rev. 0.4%)


• US Capacity Utilization SA (Dec) 77.6% vs. Exp. 77.0% (Prev. 76.8%, Rev. 77.0%)

NOTABLE APAC NEWS

• Chinese Cabinet meeting notes that it will strengthen policy support for employment and provide supportive services to actively promote high-quality and sufficient employment

17 Jan 2025 - 15:00- EquitiesData- Source: Newsquawk