Trump adds Middle East tensions to macro picture as trade war keeps volatility high

EU mid-market update: Trump adds Middle East tensions to macro picture as trade war keeps volatility high; Novo Nordisk rises on hopes about Wegovy successor; French PM no-confidence vote could be in few hours.

Notes/observations

- Geopolitical tension takes spotlight overnight as Trump suggests US would ‘take control’ of Gaza. Trump also threatened to enforce aggressive sanctions on Iran, and warned that if they assassinated him, he has already instructed a response. Amid the increased tensions, safe haven flows remain the key theme, with gold hitting another record high.

- Tariff uncertainty continues to circulate as temporary reprieve from US tariffs on Mexico and Canada has offered some optimism, but China's measured retaliatory actions keep the markets on edge. Latest developments showing a China probe in Apple app store fees and policies. Trump has indicated he will discuss with Xi Jinping "at the appropriate time," keeping hopes alive for a de-escalation.

- Canadian dollar has strengthened to a two-week high following the tariff pause, while the Polish zloty holds steady ahead of a National Bank of Poland policy decision.

- Notable EU Corporate Earnings: In pharmaceuticals, Novo Nordisk and GSK Plc saw positive share movements after posting Q4/FY24 results. In banking, Banco Santander, Credit Agricole, DNB Bank, and Svenska Handelsbanken have also updated the market. Notably, TotalEnergies announced a 7% dividend hike and a $2B quarterly buyback plan, providing some support to energy stocks.

- Asia closed mixed with KOSPI outperforming +1.1%. EU indices -0.1% to +0.9%. US futures -0.3% to -1.0%. Gold +1.0%, DXY -0.4%; Commodity: Brent -0.9%, WTI -0.9%; Crypto: BTC -0.9%, ETH +2.5%.

Asia

- China Jan Caixin PMI Services: 51.0 v 52.4e (24th month of expansion).

- Japan Jan Final PMI Services: 53.0 v 52.7 prelim (confirms 3rd month of expansion).

- Australia Jan Final PMI Services: 51.2 v 50.4 prelim (confirms 12th month of expansion).

- South Korea Jan CPI saw its annual pace move back above target for the 1st time in 7 months (M/M: 0.7% v 0.5%e; Y/Y: 2.2% v 2.1%e; CPI (ex-food/energy) Y/Y: 1.9% v 1.8%e).

- Japan Dec Labor Cash Earnings registered its largest rise since 1997 (Y/Y: 4.8% v 3.6%e); Real Cash Earnings Y/Y: +0.6% v -0.1%e (**Note: Data supports BOJ Hike Path).

- Former BOJ official Hayakawa said BOJ rate likely to go higher than consensus; notes the chance for 2 more rate moves in 2025.

Global conflict/tensions

- US Pres Trump and Israel PM Netanyahu press conference noted that Gaza should not go through process of rebuilding and occupation by the same people; Trump stated that US would take over the Gaza strip. US to own it and develop it.

Europe

- UK Times shadow MPC said to favored a cut to the BOE's Bank Rate by 25bps to 4.50% in a 5-4 vote.

Americas

- President Trump cancelled a scheduled phone call with China President Xi on Tuesday after China announced retaliatory tariffs on the US.

- President Trump when asked about China tariffs says "that's fine"; Will talk with Xi the right time, not in any rush.

- US Postal Service to temporarily suspend international package acceptance of inbound parcels from China and Hong Kong until further notice; effective Feb 4th (**Note: move came after President Trump revoked a “de minimis” rule for China, which previously allowed small packages under $800 to enter the US duty-free).

- Fed's Jefferson (voter) reiterated view of no hurry for further rate cuts; Saw gradual reduction.

Energy

- Weekly API Crude Oil Inventories: +5.0M v +2.9M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.06% at 535.70, FTSE -0.04% at 8,567.63, DAX -0.43% at 21,418.61, CAC-40 -0.36% at 7,877.65, IBEX-35 +0.80% at 12,486.96, FTSE MIB -0.70% at 36,461.00, SMI +0.03% at 12,466.80, S&P 500 Futures -0.65%].

Market focal points/key themes: European indices open generally lower and trended into the red through the early part of the session; lack of risk appetite attributed to tariff concerns; among sectors managing gains are health care and financials; sectors leading the way lower include industrials and technology; reportedly Nissan withdrawing from its business integration deal with Honda; focus on release of US ADP employment figures later in the day; earnings expected in the upcoming Americas session include ARM Holding, Metro AG, Disney, Uber, Qualcomm and Ford.

Equities

- Technology: Nordic Semiconductor [NOD.NO] +14.5% (earnings).

- Energy: TotalEnergies [TTE.FR] +2.0% (Q4 results), Equinor [EQNR.NO] -0.5% (Q4 results; buyback).

- Financials: Santander [SAN.ES] +7.0% (Q4 results; buyback).

- Healthcare: Novo Nordisk [NOVOB.DK] +4.0% (Q4 results above estimates; Cagrisema plans update), GSK [GSK.UK] +5.5% (Q4 results above estimates; raises long-term outlook).

- Industrials: Renault [RNO.FR] -3.0% (Honda and Nissan are in the stage of advancing various discussions), Rheinmetall [RHM.DE] +0.5% (Zelenskiy: We are ready for a diplomatic track to end the war and prepared to talk directly to Putin if necessary), Alfa Laval [ALFA.SE] -5.0% (earnings).

- Materials: Bayer [BAYN.DE] -1.5%, K+S [SDF.DE] -1.5% (readacross from FMC).

Speakers

- ECB’s De Guindos (Spain) stated that saw inflation approaching ECB's 2% target; Not sure where ECB rates would end up. Neutral rate was not very useful in policy setting.

- Iceland Central Bank Policy Statement noted that the vote to cut by 50bps was unanimous. Inflation had continued to fall but pressures remained. Outlook was for continued disinflation in coming months. Continued tight monetary stance and caution regarding decisions going forward.

- Russia govt spokesperson noted that Russia-US contacts on Ukraine were more active now.

- China Foreign Ministry stated that did not need unilateral new tariffs, but dialogue with US. Urged US to correct its wrongdoing act. Reducing demand for drugs at home and enhancing law enforcement were the fundamental way to solve the fentanyl crisis.

- Iran Foreign Ministry noted that US maximum pressure policy was a 'failed experience'.

- Senior Iran official stated that govt wanted to give Trump diplomacy second chance, but wary of Israeli obstruction; Iran disagreed with any displacement of Gazans, but Iran-US talks were a separate matter.

Currencies/fixed income

- USD price action was subdued in the session and saw little impact from final PMI Services readings. Trade news likely to dominate FX and bond yield price action.

- EUR/USD probed around the 1.04 handle in a tight range. Softer ECB Q4 2025 Euro-Area Negotiated Wage Index kept the door open for more ECB rate cuts.

- GBP/USD moved above the 1.25 level with focus on Thurs BOE rate decision. The BOE is expected to resume its easing and deliver a 25bps cut. Markets to be eyeing the language and quarterly staff projections to determine the odds of another cut at the March meeting.

- USD/JPY was lower after higher wage data released during the Asian session. Pair testing the 153.00 area after Labor Cash Earnings registered its largest rise since 1997. Data supported the BOJ Hike Path. Yen strength was also fueled by comments from a former BOJ official who noted BOJ rate would likely to go higher than consensus; notes the chance for 2 more rate moves in 2025.

- EU bond yields were lower by approx. 4bps in both the core and periphery areas. OAT-bund spread steady at 72bps with focus on French PM Bayrou and his ability to ride out anther no-confidence vote on Wednesday.

Economic data

- (RU) Russia Jan Services PMI: 54.6 v 50.5e (7th month of expansion); Composite PMI: 54,7 v 50.5e.

- (ZA) South Africa Jan PMI (whole economy): 47.4 v 49.9 prior (2nd month of contraction).

- (SE) Sweden Jan PMI Services: 50.1 v 51.2 prior (4th month of expansion); PMI Composite: 50.9 v 51.5 prior.

- (FR) France Dec Industrial Production M/M: -0.4% v -0.2%e; Y/Y: -1.7% v -1.2%e.

- (FR) France Dec Manufacturing Production M/M: -0.7% v +0.2%e; Y/Y: -2.6% v -1.5% prior.

- (CZ) Czech Dec Retail Sales (ex-auto) Y/Y: 6.2% v 4.1%e.

- (TW) Taiwan Dec Monitoring Leading Indicator: 38 v 34 prior.

- (ES) Spain Jan Services PMI: 54.9 v 56.8e (17th month of expansion); Composite PMI: 54.0 v 55.9e v 56.8 prior.

- (TW) Taiwan Jan Foreign Reserves: $577.5B v $576.7B prior.

- (IS) Iceland Central Bank (Sedibanki) cut 7-Day Term Deposit Rate by 50bps to 8.00% for its 3rd straight cut under the current easing cycle.

- (IT) Italy Jan Services PMI: 50.4 v 50.4e (2nd month of expansion); Composite PMI: 49.7 v 49.7e.

- (FR) France Jan Final Services PMI: 48.2 v 48.9 prelim (confirmed 6th month of contraction); Composite PMI: 47.6 v 48.3 prelim.

- (DE) Germany Jan Final Services PMI: 52.5 v 52.5 prelim (confirmed 2nd month of expansion); Composite PMI: 50.5 v 50.1 prelim.

- (EU) Euro Zone Jan Final Services PMI: 51.3 v 51.4 prelim (confirmed 2nd month of expansion); Composite PMI: 50.2 v 50.2 prelim.

- (IT) Italy Dec Retail Sales M/M: +0.6% v -0.4% prior; Y/Y: 0.6% v 1.1% prior.

- (UK) Jan New Car Registrations Y/Y: -2.5% v -0.2% prior.

- (EU) ECB Q4 Euro-Area Negotiated Wage Index: 1.5% v 5.3% prior.

- (UK) Jan Final Services PMI: 50.8 v 51.2 prelim (confirmed 15th month of expansion); Composite PMI: 50.6 v 50.9 prelim.

- (UK) Jan Official Reserves Changes: +$2.1B v -$1.3B prior.

- (EU) Euro Zone Dec PPI M/M: 0.4% v 0.5%e; Y/Y: 0.0% v -0.1%.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 3-month, 6-month and 12-month bills.

- (PL) Poland opened its book to sell USD-denominated 5-year and 10-year bonds via syndicate.

- (DK) Denmark sold DKK5.155B in new 2.25% Nov 2035 DGB bonds; Avg Yield: 2.19%; bid-to-cover: 1.45x.

- (UK) DMO sold £2.0B in 1.5% July 2053 Green Gilts; Avg Yield: % v 4.831% prior; bid-to-cover: x v 3.15x prior; Tail: bps v 0.5bps prior.

- (SE) Sweden sold total SEK17.5B vs. SEK17.5B indicated in 3-month and 6-month bills.

Looking ahead

- (PL) Poland Central Bank (NBP) Interest Rate Decision: Expected to leave Base Rate unchanged at 5.75% (no set time).

- (MX) Mexico CitiBanamex Survey of Economists.

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

- 06:00 (PT) Portugal Q4 Unemployment Rate: No est v 6.1% prior.

- 06:00 (EU) EU Commission to sell combined €4.5B in 3-month, 6-month and 12-month Bills.

- Sells €B vs. €1.5B indicated in 3-month bills; Avg Yield: % v 2.615% prior; Bid-to-cover: x v 1.45x prior (Jan 22nd 2025).

- Sells €B vs. €1.5B indicated in 6-month bills; Avg Yield: % v 2.505% prior; Bid-to-cover: x v 1.73x prior (Jan 22nd2025).

- Sells €M vs. €1.5B indicated in 12-month bills; Avg Yield: % v 2.345% prior; Bid-to-cover: x v 2.94x prior (Jan 22nd 2025).

- 06:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Jan 31st: No est v -2.0% prior.

- 07:00 (BR) Brazil Dec Industrial Production M/M: -1.1%e v -0.6% prior; Y/Y: -0.1%e v 1.7% prior.

- 07:00 (MX) Mexico Nov Gross Fixed Investment M/M: -0.2%e v +0.1% prior; Y/Y: -1.2%e v -2.6% prior; Private Consumption Y/Y: 0.9%e v 1.4% prior.

- 07:00 (MX) Mexico Dec Leading Indicators M/M: No est v -0.13 prior.

- 07:00 (MX) Mexico Jan Vehicle Domestic Sales: No est v 146.4K prior.

- 08:00 (BR) Brazil Jan Services PMI: No est v 51.6 prior; Composite PMI: No est v 51.5 prior.

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

- 08:15 (US) Jan ADP Employment Change: +150Ke v +122K prior.

- 08:30 (US) Dec Trade Balance: -$96.8Be v -$78.2B prior.

- 08:30 (CA) Canada Dec Int’l Merchandise Trade (CAD): +0.8Be v -0.3B prior.

- 08:30 (US) Treasury Quarterly Refunding announcement.

- 09:00 (US) Fed’s Barkin.

- 09:00 (IE) ECB’s Lane (Ireland, chief economist).

- (PL) Poland Central Bank (NBP) Interest Rate Decision.

- 09:30 (CA) Canada Jan Services PMI: No est v 48.2 prior; Composite PMI: No est v 49.0 prior.

- 09:45 (US) Jan Final S&P Services PMI: 52.8e v 52.8 prelim; Composite PMI: No est v 52.4 prelim.

- 10:00 (US) Jan ISM Services Index: 54.1e v 54.1 prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:00 (RU) Russia Dec Industrial Production Y/Y: 4.2%e v 3.7% prior.

- 11:00 (RU) Russia Dec Real Retail Sales Y/Y: 6.5%e v 6.0% prior.

- 11:00 (RU) Russia Dec Unemployment Rate: 2.4%e v 2.3% prior.

- 11:00 (RU) Russia Nov Real Wages Y/Y: 6.9%e v 7.2% prior.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (CA) Canada to sell 2 Year Bonds.

- 13:00 (US) Fed’s Goolsbee.

- 15:00 (US) Fed’s Bowman.

- (MX) Mexico CitiBanamex Survey of Economists.

- 17:00 (CO) Colombia Central Bank Jan Minutes.

- 18:00 (KR) South Korea Dec Current Account Balance: No est v $9.3B prior; Balance of Goods (BOP): No est v $9.8B prior.

- 19:30 (AU) Australia Dec Trade Balance (A$): 6.5Be v 7.1B prior; Exports M/M: No est v 4.8% prior; Imports M/M: No est v 1.7% prior.

- 19:30 (US) Fed’s Jefferson.

- 20:00 (PH) Philippines Dec Unemployment Rate: No est v 3.2% prior.

- 20:01 (IE) Ireland Jan PMI Services: No est v 57.1 prior; Composite PMI: No est v 52.1 prior.

- 20:30 (JP) BOJ’s Tamura.

- 22:30 (JP) Japan to sell 6-Month Bills; Avg Yield: % v 0.3535% prior, bid-to-cover: x v 3.15x prior (Jan 8th 2025).

- 22:35 (JP) Japan to sell 30-year JGB Bonds.