Newsquawk European Market Wrap - 20th January 2025

• European stocks jump, fixed income off lows while dollar slumps and crude is sold


• Price action driven by WSJ article stating Trump is to refrain from imposing day-one tariffs


• Focus today lies on Trump’s inauguration while US markets are closed for MLK day

EQUITIES

• European bourses (STOXX 600 +0.4%) began the morning modestly firmer/flat, but after the WSJ article indices have seen upside, in fitting with the broader risk tone, to sit at session highs at the time of writing. Regarding the journal piece citing a memo, it noted that US President-elect Trump is set to lay out his vision for trade but will refrain from imposing tariffs at this stage. Elsewhere, newsflow has been light, with the US on holiday and ahead of US President-elect Trump's inauguration.


• European sectors are broadly firmer, with only Utilities, Energy, Health Care and Insurance in the red. Banks is the day’s best-performing sector, albeit marginally so, and supported by Commerzbank (+2.8%) gains after the FT reported that the Co. is exploring cutting thousands of jobs as it aims to fight off advances from UniCredit (+1.8%). Elsewhere, Santander (+2.5%) is reportedly considering a UK exit due to a high-cost base, ring-fencing regime and an independent board, via the FT citing a former exec.


• US equity futures (ES +0.7%, NQ +0.7%, RTY +1.5%) are entirely in the green and also supported by the WSJ article, as prior to the news they were at session lows, albeit in thin ranges on account of the US holiday. As such, cash is closed today on account of the Martin Luther King Jr. Holiday. In terms of levels, Goldman Sachs, as part of its US Strategy, reiterated its year-end S&P 500 at 6500 vs the last close of 5,966.

FX

• 
  USD - DXY sold off on the day of Trump’s inauguration with notable weakness seen in response to reports in the WSJ citing a memo that Trump is set to lay out his vision for trade but will refrain from imposing tariffs at this stage. Highlighting this, DXY fell from c. 109.1 to lows of 108.17. Trump will likely dominate this week's calendar with the Fed in its blackout period and a lack of tier 1 data highlights. Note, today is a market holiday. DXY currently sits within a 108.17-109.34 range, breaking below the Friday low of 108.83.


• 
  EUR - The Euro rallied, largely in response to the aforementioned WSJ article that Trump will refrain from imposing tariffs on his first day in office. EUR/USD hit a peak of 1.0430 from earlier lows of 1.0267 but initially failed to hold on to the 1.04 handle. The Euro was already buoyed by hawkish commentary from ECB’s Schnabel, suggesting that the Bank is getting closer to the point at which it needs to look at how much further it can cut interest rates. Elsewhere, Austria's Holzmann remarked that a January rate cut (27bps currently priced) is not a foregone conclusion, ECB risks credibility cutting rates when CPI is increasing. From a data perspective, German PPI metrics were softer-than-expected with attention ahead on Friday's flash PMI metrics. Markets currently see around 96bps of easing by year-end.


• 
  GBP - The pound is also bid vs. the Dollar on account of the weaker Buck, although the Euro is outperforming GBP with the WSJ article driving price action. This week's docket presents jobs metrics on Tuesday and PMI figures on Friday. Expectations for the latter are for a decline in the services metric which would bring the composite to neutral territory @ 50.0. In terms of pricing for the BoE, markets see a circa 82% chance of a cut next month with a total of 61bps of easing seen by year-end. Cable surged above 1.22 from lows of 1.2161 to a peak of 1.2307 and trades just above 1.23 at pixel time. Meanwhile, EUR/GBP traded either side of 0.8450.


• 
  JPY - The Yen was bid against the Buck, seeing USD/JPY hit lows of 155.42 from peaks of 156.58, although the Yen was a relative underperformer vs other G10s ex-the buck. Aside from Trump policies this week, attention lies on the BoJ rate decision on Friday. On which, further source reporting (this time via WSJ) notes that policymakers are set to deliver a 25bps hike unless US President-elect Trump taking office on Monday "rattles" financial markets. Elsewhere, overnight data saw Japanese Machinery Orders top estimates. USD/JPY currently sits within a 155.42-156.58 range.


• 
  Antipodeans - Antipodes are the G10 outperformers, benefitting the most from the WSJ article mentioned above about Trump tariffs. Meanwhile, both were already bid in tandem with strength in CNH following the constructive dialogue from the Trump-Xi call last Friday and with Trump vowing a 90-day reprieve for TikTok regarding the US ban. AUD/USD trades between 0.6191-0.6286 and is currently residing around the peaks after printing its lowest level since April 2020 last week at 0.6130. NZD/USD trades between 0.5580-0.5679.

FIXED

• 
  USTs Cash trade is closed on account of MLK day but 10yr T-Note futures caught a bid on reports that Trump is to stop short of imposing day-one tariffs at his inauguration, instead focusing on laying the groundwork for his trade vision. T-Notes peaked at 108-24+ from earlier lows of 108-08+. Focus lies on the Trump speech at 17:00GMT/12:00EST. Elsewhere, the Fed blackout period has commenced with markets currently implying less than a 1% chance of a 30th January cut. Pricing could see some movement depending on Trump's actions and the inflationary (or not) implications of them.


• 
  Bunds are now flat despite earlier weakness supported by hawkish ECB commentary, but futures jumped off lows in response to the WSJ article suggesting Trump will avoid imposing day one-tariffs. On the ECB commentary, the session began with remarks from ECB’s Holzmann and Schnabel, while the members were their usual hawkish selves, Schnabel saying that they will probably be able to cut further but that they are getting near the point where they need to take a closer look at whether and how much further we can cut interest rates, has drawn focus and potentially weighing on EGBs and lifting yields further out on the curve. Furthermore, on January's meeting, Holzmann said a cut is not a foregone conclusion citing credibility issues with CPI increasing. As it stands, a 25bps move in January is fully priced. At a 131.50 trough, support was found and then 131.30-33 before the round figure. On the flip side, a move above the current 131.90 peak brings 131.97 into play before the figure and then 132.14.


• 
  Gilts sold off throughout the morning to find a trough of 91.10 before paring to c. 91.60 on the WSJ Trump reports. In the UK, Rightmove House Price data came in above expectations while weekend remarks saw Treasury Minister Jones state US President-elect Trump is unlikely to impose trade tariffs on the UK and that Britain should not look at the incoming US President as a risk, according to the FT. If true, then this could see UK yields continue the pullback from highs which began in the second half of last week. Of course, any UK-specific or globally inflationary measures could see the above peak brought back into focus. Trump aside, the week features UK Wage data and Flash PMIs which will help to inform views into the February BoE announcement, which currently has a c. 80% implied probability of a cut.

COMMODITIES

• 
  Crude Futures – WTI and Brent turned lower on the WSJ article, and as such currently reside at session troughs of USD 75.88/bbl and 79.42/bbl, respectively, against earlier highs of 77.86/bbl and 81.23/bbl. Before the Journal piece, which has since been confirmed by a Trump official, it was subdued trade for the energy complex to start the week, with demand hampered after the Israel-Hamas ceasefire took effect and with US President-elect Trump vowing to declare a national energy emergency as soon as he takes office. On the Israel-Hamas ceasefire, the Israeli army conducted an assessment this morning of the first phase of the agreement and confirms that it went smoothly", according to Sky News Arabia citing Channel 13. That being said, the geopolitical space remains fragile - particularly in the Middle East. Meanwhile, reports this morning also suggested an Israeli soldier was killed in a bomb explosion (reported to be an IED) in the West Bank, according to Al Arabiya. On the supply side, desks flag potential short-term risks amid the freezing weather conditions in parts of Texas and New Mexico, which are seen remaining over the next couple of days. As a reminder, US markets are away today amid Martin Luther King Jr. Day, but participants will be particularly cognizant of Trump’s inauguration


• 
  Precious metals (XAU, XAG) - Seeing marginal gains, albeit in largely uneventful trade across in the run-up to US President Trump's inauguration, with prices likely to move with the Dollar. Overnight, spot gold saw two-way price action with initial pressure following a break beneath the USD 2,700/oz level before gradually recovering.


• 
  Base Metals - Mostly flat/subdued amid a lack of macro drivers heading into US President Trump's inauguration, with US markets also shut amid Martin Luther King Jr. holiday. In APAC hours, copper extended on Friday's pullback and failed to benefit from the constructive risk sentiment. Goldman Sachs estimates that the copper market is pricing almost a 50% probability of 10% US tariffs on copper by end-Q1. Assign a 10% probability to a 10% effective tariff on gold in the next 12 months.

Commodity Headlines

• Goldman Sachs estimates that the copper market is pricing almost a 50% probability of 10% US tariffs on copper by end-Q1. Assign a 10% probability to a 10% effective tariff on gold in the next 12-months.


• Kazakhstan intends to export 1.2mln/T of oil to Germany via the Druzhba pipeline in 2025 (1.5mln/T in 2024).


• India's State Refiners have reportedly asked ADNOC to offer pricing its crude on a delivered basis as well as to manage costs, via Reuters citing sources; following US sanction disruption/price upside.


• Kuwait Oil Co. says discovery has been made of large commercial volumes of hydrocarbons in an offshore field, via state news agency; Discovered offshore field has an estimated 800mln oil barrels


• China's Zijin Mining group has restarted gold production at its Buritica project in Colombia, via Reuters citing company source.

EUROPEAN DATA

• German Producer Prices MM (Dec) -0.1% vs. Exp. 0.2% (Prev. 0.5%)


• German Producer Prices YY (Dec) 0.8% vs. Exp. 1.1% (Prev. 0.1%)


• Swiss Producer/Import Price MM (Dec) 0.0% (Prev. -0.6%)


• Swiss Producer/Import Price YY (Dec) -0.9% (Prev. -1.5%)

CENTRAL BANKS

• 
  ECB's Holzmann says a January rate cut is not a foregone conclusion, ECB risks credibility cutting rates when CPI is increasing.


• 
  ECB’s Schnabel suggests that the Bank is getting closer to the point at which it needs to look at how much further it can cut interest rates


• 
  ECB's Vujcic says risks around inflation are balanced and fine with current policy stance; data broadly in line with its forecasts. Market pricing of rate cuts is reasonable.


• 
  BoJ appears set to hike in January, unless US President-elect Trump taking office on Monday "rattles" financial markets, via WSJ citing sources.


• 
  BoE's Woods (non-MPC) says he would like to explore with the gov't whether there are wider regulator changes which could support domestic growth.


• 
  NBP Minutes (Dec): most said energy price regulations were of significant important for inflation outlook. CPI in 2025 could be similar to 2024, or even higher.

GEOPOLITICS

• Chinese Foreign Minister, on US President-elect Trump saying he wants 50% US ownership of TikTok, says let enterprise decide independently, they should comply with Chinese laws and regulations.


• An Israeli soldier killed in a bomb explosion (reported to be an IED) in the West Bank, according to Al Arabiya.


• "The Israeli army conducted an assessment this morning of the first phase of the agreement and confirms that it went smoothly", according to Sky News Arabia citing Channel 13.


• 
  Israel Finance Minister says Israel must occupy the entire Gaza strip.


• Yemeni Houthis says as of Sunday, they will limit attacks on commercial ships to Israel-linked vessels.

NOTABLE NORTH AMERICAN NEWS

• 
  US President-elect Trump is set to lay out his vision for trade but will refrain from imposing tariffs at this stage, according to WSJ citing a memo. Memo will provide a blueprint for further action that Trump could take. Federal agencies will be directed to investigate and remedy persistent trade deficits and address unfair trade and currency policies by other nations. Focus will be on China, Canada and Mexico.


• 
  US President-elect Trump's inaugural address: set to proclaim a "new era of national success", via WSJ.


• Elon Musk's "DOGE" advisory panel is to be sued minutes within President-elect Trump's inauguration, according to WaPo.

20 Jan 2025 - 15:20- MetalsData- Source: Newsquawk