Key points
Equities: Mixed session; S&P 500 +0.16%, Nasdaq -0.38%; tech underperforms; earnings season kicks off with major banks reporting
Volatility: VIX at 19.19; tension rises ahead of US CPI; short-term measures (VIX1D, VIX9D) reflect moderate market caution
Digital Assets: Bitcoin $94,893 (+0.39%), Ethereum $3,181 (+1.4%); cautious trading as CPI looms; altcoins mixed with Solana +2.14%
Currencies: USD weakens on story suggesting gradual Trump tariff hikes
Commodities: Crude rally pauses, dollar softness give fresh bid to metals
Fixed Income: JGB yields jump on BoJ indication a rate hike will be discussed at BoJ meeting next week
Macro events: US Dec. NFIB Small Business Optimism, US Dec PPI, EIA’s Monthly Energy Outlook
Macro data and headlines
Bloomberg reports that, according to sources, the Trump team is considering implementing a regime of gradual tariff hikes after declaring a national economic emergency. The idea would be to start at a low level on tariffs but increase them by 2-5% per month as a negotiating tactic and to avoid inflationary shocks. This echoes ideas outlined by Secretary of Treasury nominee Scott Bessent. The article says that proposals are in early stages. The breaking of the story saw risk sentiment improve late yesterday and the US dollar weakening.
The turbulence in the UK Gilt markets continued yesterday with 10-year yields hitting a high of 4.9%, last seen in 2008. GBPUSD traded to new lows of 1.21 in the evening. UK Prime Minister Starmer confirmed that the government will remain committed to the fiscal rules. He further expressed his full confidence in Chancellor Reeves, commending her for doing a fantastic job.
Macro events (times in GMT)
UK Bank of England’s Breeden (0830), US Dec. NFIB Small Business Optimism (1100), US Dec PPI (1330), EIA’s Short-term Energy Outlook (1700)
Earnings events
Wednesday: JPMorgan Chase, Wells Fargo, Goldman Sachs, Blackrock, Citigroup
Thursday: Taiwan Semiconductor Manufacturing, Infosys, Bank of America, UnitedHealth, Morgan Stanley
Friday: Schlumberger
Equities
US: US stock futures edged higher early Tuesday as markets anticipate critical inflation data this week, starting with the December PPI report today and CPI tomorrow. Monday's session saw mixed outcomes: the Dow rose 0.86%, the S&P 500 gained 0.16%, and the Nasdaq Composite fell 0.38%, with tech stocks under pressure from rising bond yields. Nvidia and Palantir continued their declines, while energy and materials sectors outperformed. This week also marks the start of earnings season, with banks such as JPMorgan Chase, Citigroup, and Goldman Sachs set to report results.
Europe: European stocks closed 0.5% lower on Monday, pressured by climbing bond yields and expectations of persistent inflation. The STOXX 600 hit a one-week low as energy stocks gained 1.1% following fresh US sanctions on Russian oil. In contrast, tech and consumer discretionary sectors fell, with companies like ASML and Inditex dropping over 3%. Rising natural gas prices and uncertainty over US trade policies under President-elect Trump further weighed on sentiment. However, banking stocks such as BBVA and ING outperformed, each gaining around 3%.
Asia: Asian markets rebounded on Tuesday, led by a 1.92% gain in Hong Kong's Hang Seng Index, snapping a six-day losing streak. Chinese stocks also saw strong gains, with the CSI300 rising 1.74%, buoyed by a rally in chipmakers after the US announced tighter restrictions on AI chip exports to China. Notable movers included Semiconductor Manufacturing International Corp and Hua Hong Semiconductor, both gaining over 2%. Optimism was further supported by Beijing's signals to boost consumption and attract foreign investment, alongside improving trade data showing higher exports and a 27-month high in imports.
Volatility
The VIX closed at 19.19 on Monday, slightly lower than Friday's level, while shorter-term volatility measures (VIX1D and VIX9D) suggest rising anticipation ahead of inflation data. Today’s focus will be on the PPI report, which might offer insights into tomorrow's CPI release. Despite heightened expectations, the volatility curve suggests markets are not pricing in extreme uncertainty. Elevated options activity in ETFs like XLF, which tracks the financial sector, reflects investor positioning ahead of upcoming earnings from major banks.
Digital Assets
Bitcoin rose 0.39% to $94,893.7 on Tuesday, recovering from Monday's lows near $90,000 as dip buyers returned. Altcoins also saw modest gains, with Ethereum up 1.4% to $3,181.29 and Solana rising 2.14%. Traders remain cautious ahead of the US CPI release, as any upside surprise in inflation could pressure Bitcoin and other cryptocurrencies by reinforcing the Federal Reserve's hawkish outlook. Broader sentiment is supported by speculation over policy changes under the incoming Trump administration, though concerns persist about liquidity pressures stemming from higher Treasury yields.
Fixed Income
US treasury yields were non-reactive to fairly widespread risk aversion yesterday and even the improvement in sentiment later in the session on the story that Trump’s team may consider gradual tariffs. The 10-year US treasury benchmark still trades above the 2024 highs of 4.735%, trading this morning at 4.76% after a high yesterday of 4.80%.
Japan’s sovereign yields jumped to new cycle highs after the three-day weekend, with the 10-year JGB benchmark closing some 5 bps higher at 1.25% and the two-year JGB benchmark at a 0.69% after Bank of Japan Deputy Governor Himino said that the BoJ board would discuss a rate hike at next Friday’s BoJ meeting
Commodities
Crude’s recent strong rally has paused with Brent trading softer after finding resistance at the October high. Following the initial run up amid the prospect of a short-term drop in Russian supply from harsher US sanctions, traders have once again turned their attention to the potential negative impact on demand from trade tariffs. Ahead of monthly oil market reports on Wednesday from the IEA and OPEC, the EIA will today publish its short-term energy outlook.
Gold, silver, copper and other metals that enjoyed a very strong early January rally have all paused amid profit taking, only to receive a fresh bid overnight amid some dollar weakness on a report the incoming Trump administration will slowly ramp up trade tariffs. Also, investors await U.S. inflation data and economic indicators for Fed policy clues, as well as further news on tariffs
Benchmark corn futures traded in Chicago hit their highest in a year on Monday and soybean futures notched a three-month high on follow-through buying after the U.S. Department of Agriculture last week cut its estimates of the size of the U.S. 2024 crops
Currencies
The US dollar weakened on the news of the Trump team possibly implementing a regime of gradual tariff hikes. The reaction was less strong than some of the previous tariff-policy headlines, possibly as the story did not come directly from Trump himself and offered no clue on whether the tariffs would be broad based or more targeted, an important detail.
JPY reaction to the BoJ Deputy Governor Himino indicating that a rate hike would be discussed at the BoJ meeting next Friday was surprisingly muted. The market is now pricing a full 15 basis points of tightening for the meeting and a cycle high of 50 basis points of total policy tightening for the 2025 calendar year.
