Trump's first day was heavy hitting with market volatility expected to remain

Notes/observations

- European equity markets opened flat to mixed, reflecting traders read on US Pres Trump's inauguration and policy announcements. Broader market sentiment oscillated between initial relief from his speech, lacking immediate aggressive tariff impositions, to concern over his later comments about potential tariffs.

- US dollar initially weakened but regained some ground after Trump hinted at 25% tariffs on imports from Canada and Mexico from February 1st, amidst comments about possibly universal tariffs. This led to a brief rally in equities and currencies before reversing. Bitcoin and crypto in general pulls back as sentiment sours after Trump Admin fails to mention digital assets or coins on first day.

- Bond market saw some relief with US 10-year yields dropping 4 bps to 4.57%, while UK gilts and German bunds also experienced a slight decline.

- Oil prices trended down, while gold and industrial metals also saw declines. European natural gas prices, however, climbed to €48 per megawatt-hour, influenced by Trump's lifting of the moratorium on new US LNG export licenses, which could spur demand from both Europe and Asia.

- In the UK, labor market data painted a mixed picture: unemployment edged up to 4.4%, and payroll numbers fell by 47K, the largest drop since November 2020. Despite this, wage growth hit a six-month high at 5.6%, suggesting persistent inflationary pressures, which might influence the Bank of England's decision on rate cuts.

- Asia closed mixed with Nifty50 underperforming -1.3%. EU indices are -0.4% to +0.3%. US futures are +0.4-0.6%. Gold +0.5%, DXY +0.6%; Commodity: Brent -1.1%, WTI -2.0%; Crypto: BTC -5.0%, ETH -2.4%.

Asia

- Japan’s Top FX diplomat Mimura warned of “disorderly” and “speculative” FX moves.

Europe

- ECB's Kazimir (Slovakia) noted that a Jan rate cut was 'a done deal', Three to four cuts in a row was feasible.

Americas

- Dawn of a new era as Trump issued a blizzard of Executive Orders and Actions. US could slap 25% tariffs on Mexican and Canadian imports from February 1s, and to straighten out deficit with the EU with tariffs or by them buying our oil and gas. No mention of China on trade but called for China trade investigation instead of immediate tariffs; Announced the withdrawal the US from the Paris climate agreement. Signed orders overhaul border and energy policies and end diversity programs.

Energy

- White House stated that Trump rescinded Pres Biden’s order barring oil drilling in the Artic; US likely stop buying oil from Venezuela and Energy Dept was resuming reviews on export permits for LNG.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.06% at 524.16, FTSE +0.14% at 8,532.87, DAX -0.23% at 20,956.54, CAC-40 +0.04% at 7,736.54, IBEX-35 -0.63% at 11,868.69, FTSE MIB -0.43% at 35,987.00, SMI +0.04% at 12,030.30, S&P 500 Futures +0.38%].

Market focal points/key themes: European indices open mixed with a bias to the downside and failed to gain momentum through the early part of the session; uncertainty seen keeping risk appetite in check; among sectors managing gains are consumer discretionary and telecom; unperforming sectors include industrial and utilities; Bureau Veritas to acquire Contec; earnings expected in the upcoming US session include KeyCorp, Alstom, Porsche and Netflix.

Equities

- Consumer discretionary: Premier Foods [PFD.UK] +4.5% (trading update).

- Energy: Orsted [ORSTED.DK] -17.0% (prelim FY24 Adj EBITDA in guided range and notes DKK12.1B in impairments; Trump's executive orders regarding clean energy policy), Vestas Wind Systems [VWS.DK] -3.5% (Trump's executive orders regarding clean energy policy), Ilika [IKA.UK] +4.0% (H1 results) - Financials: Raiffeisen [RBI.AT] -6.5% (expects to book €2.04B provision in Q4 after Russia court ruling), Generali [G.IT] -1.5% (sign non-binding deal with Groupe BPCE's Natixis for Asset Management JV), W.A.G Payment Solutions [WPS.UK] -9.0% (trading update).

- Healthcare: DocMorris [DOCM.CH] -6.5% (Q4 results), Sanofi [SAN.FR] -0.5% (FDA lifted hold on Opella's AUT for switching Cialis from prescription to over-the-counter) - Industrials: Volkswagen [VOW3.DE] -1.0% (Pres Trump said "thinking in terms of 25% tariffs on Mexico and Canada; I think we will do it on Feb 1st."), Kier Group [KIE.UK] +5.0% (trading update) - Materials: BHP Group [BHP.UK] +1.0% (production; Trump holds off on immediate global tariffs) - Technology: Kontron [KTN.AT] +4.5% (prelim FY24 results).

-Telecom: Ascom [ASCN.CH] -19.5% (FY24 results).

Speakers

- Sweden Central Bank (Riksbank) Gov Thedeen noted that the economy was better equipped to handle rapid rise in inflation and rates. Housing crisis was not solved by making borrowing easier.

- South Africa Central Bank (SARB) Gov Kganyago stated that he expected US politics to be inflationary; Saw risk of global rate cuts being reversed.

- German ZEW Economists commented that a 2nd year of recession had caused expectations to fall. If trends continued Germany would fall behind other countries in the region.

- China Foreign Ministry Spokesman Guo noted that it was necessary for senior officials from US and China to talk; China and US had space for cooperation on economic ties.

Currencies/fixed income

- USD was softer during the Asian session as Trump’s inaugural speech didn't envisage immediate trade tariffs. Dealers noted the weakness could be short-lived by a lower likelihood of the Fed cutting its interest rates compared with other major central banks.

- Bitcoin moved off its record highs on initial disappointment that President Trump did not announce more plans to boost the crypto market at his inauguration.

Peripheral

- (IT) Italy 10-year govt yield at 3.61%.

- (ES) Spain 10-year govt yield at 3.15%.

- (PT) Portugal 10-year govt yield at 2.93%.

- (GR) Greece 10-year govt yield at 3.27%.

Core

- (DE) German 10-year yield at 2.51%.

- (FR) France 10-year govt bond: 3.29%.

Key spreads

- The 10-year Italy/German Gov't bond spread at approx. +110bps.

- The 10-year French/German Gov't bond spread at approx. +78bps.

Others

- US 10-year Treasury: 4.57%.

- UK 10-year Gilt: 4.66% (prior close; opens at 03:00 ET/08:00 GMT).

FX lLevels

EUR/USD: 1.0355.

USD/CHF: 0.9104.

GBP/USD: 1.2248.

USD/JPY: 155.92.

Economic data

- (EU) Euro Zone Dec EU27 New Car Registrations: +5.1% v -1.9% prior.

- (UK) Dec Jobless Claims Change: +0.7K v -25.1K prior; Claimant Count Rate: 4.6 v 4.6% prior; Payrolled Employees (monthly change): -47K v -8Ke.

- (UK) Nov Average Weekly Earnings 3M/Y: 5.6% v 5.7%e; Weekly Earnings (ex-bonus) 3M/Y: 5.6% v 5.5%e.

- (UK) Nov ILO Unemployment Rate: 4.4% v 4.4%e; Employment Change 3M/3M: +36K v +33Ke.

- (TW) Taiwan Dec Export Orders Y/Y: 20.8% v 18.8%e (fastest pace since early 2022).

- (CH) Swiss Dec M3 Money Supply Y/Y: 1.9% v 1.8% prior.

- (FR) France Dec Retail Sales Y/Y: -0.8% v -0.1% prior.

- (HK) Hong Kong Dec CPI Composite Y/Y: 1.4% v 1.5%e.

- (IS) Iceland Dec International Reserves (ISK): 886B v 903B prior.

- (ZA) South Africa Nov Total Mining Production M/M: -0.2% v -2.8% prior; Y/Y: -0.9% v +1.3%e; Gold Production Y/Y: -11.5% v -3.4% prior; Platinum Production Y/Y: 4.0% v 3.3% prior.

- (DE) Germany Jan ZEW Current Situation Survey: -90.4 v -93.1e; Expectations Survey: 10.3 v 15.1e.

- (EU) Euro Zone Jan ZEW Expectations Survey: 18.0 v 17.0 prior.

Fixed income issuance

- (FR) France Debt Agency (AFT) opened its book to sell EUR-denominated 15-year bonds via syndicate; guidance seen +10bps to May 2040 Oat.

- (UK) DMO opened its book to sell 4.375% Jan 2040 Gilt via syndicate; guidance seen +4.0-4.25bps to Sept 2039 Gilt.

- (LT) Lithuania opened its book to sell EUR-denominated 5-year and 15-year bonds via syndicate; guidance seen bps to mid-swaps- (ID) Indonesia sold total IDR26.0T vs. IDR26.0T indicated in bills and bonds.

Looking ahead

- (MX) Mexico CitiBanamex Survey of Economists.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (SE) Sweden Central Bank (Riksbank) Bunge.

- 05:30 (CH) Switzerland to sell 3-month Bill.

- 05:30 (DE) Germany to sell combined €2.0B in 2029 and 2033 bonds.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (IL) Israel Nov Manufacturing Production M/M: No est v 0.1% prior.

- 06:00 (PT) ECB’s Centeno (Portugal).

- 06:00 (TR) Turkey to sell bonds (2 tranches).

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 06:30 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (MX) Mexico Nov Retail Sales M/M: +0.3%e v -0.3% prior; Y/Y: -1.4%e v -1.2% prior.

- 08:00 (RU) Russia Q4 Preliminary Current Account Balance: No est v $7.8B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Jan Philadelphia Fed Non-Manufacturing Activity: No est v -6.0 prior.

- 08:30 (CA) Canada Dec CPI M/M: -0.4%e v 0.0% prior; Y/Y: 1.8%e v 1.9% prior; CPI Core-Median Y/Y: 2.4%e v 2.6% prior; CPI Core-Trim Y/Y: 2.5%e v 2.7% prior; Consumer Price Index: 161.9e v 161.8 prior.

- 10:00 (CO) Colombia Nov Trade Balance: -$1.3Be v -$1.1B prior; Total Imports: $5.8Be v $5.7B prior.

- 11:00 (CO) Colombia Nov Economic Activity Index (Monthly GDP) Y/Y: 2.0%e v 2.9% prior.

- 11:30 (US) Treasury to sell 13-Week and 26-Week Bills.

- 11:30 (US) Treasury to sell 52-Week Bills.

- 16:00 (KR) South Korea Jan Consumer Confidence: No est v 88.4 prior.

- 16:45 (NZ) New Zealand Q4 CPI Q/Q: 0.5%e v 0.6% prior; Y/Y: 2.1%e v 2.2% prior.

- 16:45 (NZ) New Zealand Q4 CPI Tradeable Q/Q: +0.1%e v -0.2% prior; CPI Non-Tradeable Q/Q: 0.8%e v 1.3% prior.

- 18:30 (AU) Australia Dec Westpac Leading Index M/M: No est v 0.1% prior.

- 20:10 (JP) BOJ Outright Bond Purchase Operation for 1~3 Years; 3~5 Years; 5~10 Years and 10~25Years maturities.

- 23:00 (MY) Malaysia Dec CPI Y/Y: 1.8%e v 1.8% prior.