Futures Jump On Trump AI Push, Netflix Earnings; China Slumps On Tariff Threat

US equity futures are higher to start the third day of Trump’s presidency – and not too far from a new all time high – led by tech following blowout Netflix earnings and a fresh extension of the AI frenzy, coupled with signs that US tariffs on trade partners could be less harsh than feared. As of 8am ET, S&P futures are up 0.5%, rising for the third day in a row, and lifted by strong corporate results; Nasdaq 100 futures surge 0.9%, spurred by a 15% premarket jump in Netflix to a new all time high above $1,000 after the streamer reported a blowout quarter with record subscriber gains, and Oracle which jumped 9% after the company teamed up with SoftBank and OpenAI to form a $100 billion joint venture that will fund AI infrastructure. The Russell is lagging as Trump expands his tariff threats to include China and EU (10% as of Feb 1) as well as Canada/Mexico (25% as of Feb 1). Elsewhere, European shares ground higher with the Stoxx Europe 600 hitting a record on higher volumes; Asian stocks are also higher led by Japan, although China slumped after Trump repeated his threat to impose 10% tariffs on the nation’s goods because fentanyl was being sent from China to the US via Mexico and Canada. The dollar touched its lowest level in a month with 10Y TSY yields lower amid relief that Trump has so far held back from slapping harsher penalties on trade partners and which JPM said “the market may being viewing the tariffs threats as more negotiating tool than longer-term policy/strategy.” The commodity complex is mixed with Energy leading, Precious over Base, and Ags mostly lower. Today’s macro data focus is the Leading Index and 20Y auction, as earnings ramp.

In premarket trading, Netflix shares surged 15% after the streaming company reported fourth-quarter results that beat expectations, boosted by its biggest quarterly subscriber gain in history.  If Netflix’s premarket gains carry through the day, the stock will hit an all-time high and will be poised for its biggest rise since October 2023. Here are some other premarket movers:

• Oracle shares jump 9% as the company teams up with SoftBank Group and OpenAI to form a $100 billion joint venture that will fund artificial intelligence infrastructure. The AI euphoria also lifted the broader Mag7 (Apple +0.1%, Nvidia +2.7%, Microsoft +1.4%, Alphabet -0.1%, Amazon +0.7%, Meta Platforms +0.6% and Tesla -0.6%).
• Seagate shares rise 5.6% after the computer hardware and storage company reported second-quarter earnings and revenue that beat the average analyst estimate. Analysts highlighted the company’s strong gross margins during the quarter.

Fears that Trump’s protectionist policies would derail global growth and spark US inflation had pushed the dollar to a 13-month high earlier in the month and driven up bond yields. Instead, Trump’s first two days in office have largely been supportive of sentiment, as investors zero in on his pro-business policies.

“There was just relief that as of day one, we didn’t get the tariffs that were expected,” said Corinne Lord, a senior investment specialist at St James Place Management. “The question is to what extent we will get them compared to what he’s promised. There is still a lot of nervousness about what might lie ahead.”

On Tuesday, the US president said he was still considering a 10% tariff on all goods from China, following a threat to enact tariffs of as much as 25% on Mexico and Canada by Feb. 1. Yet the only actual action he’s taken so far is the call for a review of trade practices that’s due by April 1, potentially giving China and others almost 10 weeks to avert new levies or address his demands.  As a result, a catch-up trade is building for stock market laggards on bets that Trump will take a softer approach on tariffs, according to Bank of America Corp.’s monthly survey of fund managers. That’s also reflected in steady Treasury yields.

“The bond market is not buying into inflation angst from tariffs,” said Kenneth Broux, strategist at Societe Generale in London. He described Trump’s threat of a 10% levy on China as “not draconian.” Even so, few investors are straying from tech stalwarts notching new highs for the S&P 500, with bullish bets on Magnificent 7 stocks ranked as the most crowded trade in BofA’s survey. That was followed by the US dollar and cryptocurrencies.

European shares continue to grind higher with the Stoxx Europe 600 rising 0.7% and hitting a record on higher volumes as AI and electrification names lead gains, notably ENR, up 9% and SU, up 3%, on US President Trump’s announcement of large-scale investments in AI infrastructure. The Stoxx 600 industrial goods and services index, up 1.3%, and the Stoxx Europe technology index, up 1.2%, are the top performers. The UBS European desk is 60/40 better to buy with both hedge funds and long only 60/40 net buyers. The desk is active in insurance and better buyers, led by MUV2, up 4%, and is a better buyer of healthcare, led by ROG and NOVOB. It is a net seller of industrials and a two-way better seller of staples. It has also been buying luxury, energy, telcos and utilities. Here are the biggest movers Wednesday:

• BMW shares rise as much as 1.9% after an upgrade to buy at Berenberg, which sees stronger near-term product momentum and cash support for the German automaker than for its peer Mercedes
• PolyPeptide shares jump as much as 11%, the most since Nov. 1, after the stock was initiated with an overweight recommendation at Barclays, which cites “significant value” for the Swiss firm
• Telecom Italia shares rose as much as 3.6% in Milan trading after Bloomberg News reported that the Italian government must return about €1b ($1b) to the phone carrier, according to people familiar
• Pantheon Resources rises as much as 30%, hitting levels not seen since March 2023, after US President Donald Trump signed an executive order to prioritize the development of Alaska’s LNG potential
• Intermediate Capital rises as much as 6.4%, the most in a year, after the private equity firm reported assets under management of $107 billion. Analysts say the update is strong
• DFDS falls as much as 22%, the most since 2001, after the Danish marine logistics group updated its 2025 guidance and withdrew targets for 2026-2027. RBC says the update is a clear negative
• EasyJet shares slide as much as 5.4%, the biggest drop since July. The budget airline’s headline winter loss and unit revenue guidance for the upcoming second quarter are weaker than the market expected
• Schaeffler shares slump as much as 19% to a record low after the German car-parts firm issued its second profit warning for 2024, while Deutsche Bank lowered its rating on the stock to hold
• Barry Callebaut drops as much as 6.3% after the Swiss chocolatier lowered its FY sales volume outlook, flagging the significant acceleration of cocoa bean prices, which analysts noted was “unprecedented”
• Hochschild Mining shares plunge as much as 18%, the most since April 2023. The mining company said the cost of producing gold and silver this year will be higher than previously guided
• Delivery Hero shares extend a decline on Wednesday after its South Korean operations reduced commission fees for restaurants, a sign of further pressure in the food delivery firm’s largest market
• Carrefour shares fall as much as 2.8% as BNP Paribas Exane cuts its recommendation to underperform from neutral as risks are “stacking up”

Asian stocks rose, with technology hardware shares gaining on optimism over President Donald Trump’s push for investment in artificial intelligence, offsetting losses in China. The MSCI Asia Pacific Index rose 0.2% after jumping as much as 0.7%, with Taiwan’s TSMC and Japan’s SoftBank the biggest contributors. Key stock gauges in Japan and Taiwan rose about 1% after Trump announced a joint venture to fund AI infrastructure that involves firms including SoftBank and OpenAI. However, the regional benchmark pared its gain as Chinese equities slumped amid renewed concern over US tariffs. Hong Kong and mainland China led declines after Trump said his threat to impose 10% tariffs on all Chinese imports was still being considered. While that’s lower than the 60% levy he touted during his election campaign, investors are bracing for further volatility as details remain far from clear.

“I think it only gets tougher from here — it’s a reminder that Trump will do something, because the first day might have given some the false impression that he might not,” said Xin-Yao Ng, an investment director at abrdn Plc. “More gradual tariffs might also delay or reduce the force of stimulus that market wants.”

In FX, the Bloomberg Dollar Spot Index falls 0.2% having reversed an earlier gain. The euro is among the better performers, rising 0.3% to a year-to-date high around 1.0450. The yen is the weakest of the G-10’s falling 0.1% against the greenback.

In rates, treasuries inch higher, with US 10-year yields falling 1 bps to 4.57%, up from a session low of 4.55%; Germany’s 10-year also little changed, showing minimal reaction to a flurry of ECB speak out of Davos, including from President Lagarde who said they are not lowering interest rates too slowly. UK’s gilts are slightly cheaper on the day. US treasury auctions this week include $13b 20-year bond reopening and Thursday’s $20b 10-year TIPS new issue; WI 20-year yield at about 4.89% is ~20bp cheaper than last month’s, which tailed by 1.5bp

In commodities, oil prices advance, with WTI climbing 0.5% to $76.20 a barrel. Spot gold rises $17 to around $2,762/oz. Bitcoin falls 2% to around $105,0000.

The US calendar is rather bare, and the only event is the December Leading index at 10am.

Market Snapshot

• S&P 500 futures up 0.5% to 6,112.50
• STOXX Europe 600 up 0.7% to 529.42
• MXAP up 0.3% to 181.79
• MXAPJ little changed at 572.01
• Nikkei up 1.6% to 39,646.25
• Topix up 0.9% to 2,737.19
• Hang Seng Index down 1.6% to 19,778.77
• Shanghai Composite down 0.9% to 3,213.62
• Sensex up 0.7% to 76,406.54
• Australia S&P/ASX 200 up 0.3% to 8,429.79
• Kospi up 1.2% to 2,547.06
• German 10Y yield little changed at 2.50%
• Euro little changed at $1.0430
• Brent Futures up 0.4% to $79.62/bbl
• Gold spot up 0.6% to $2,761.09
• US Dollar Index little changed at 107.97

Top Overnight News

• China could agree to ByteDance selling TikTok as part of a broader deal with the US which would cover issues such as trade, via FT citing sources; talks are at an early stage.
• US President Trump said they are talking about a 10% tariff on China from 1st February for them sending fentanyl to Canada and Mexico, while he added that the European Union treats the US badly and that the EU will be in for tariffs; The Hang Seng fell. BBG
• China has been relieved so far by Trump’s actions and rhetoric on trade.  While Chinese officials were prepared for Trump to deliver as extreme as immediate 60% tariffs on exports, his opening moves have been less severe than feared, rekindling hope in Beijing that negotiations might be possible to avoid a second trade war. FT
• US President Trump is using tariffs threat to push for an early renegotiation of US trade deal with Mexico and Canada, according to WSJ.
• Trump announced an AI project with OpenAI, SoftBank and Oracle to form a JV called Stargate which will invest at least USD 500bln in AI infrastructure in the US and will create 100k jobs. Trump said he is going to help through emergency declarations and will make it possible to get the electricity production needed. Furthermore, Stargate will begin immediately to build infrastructure, while Oracle’s Chairman Ellison said data centres are under construction in Texas with expansion to other locations too and SoftBank CEO Son said they will immediately deploy USD 100bln in AI investment.
• Indian PM Modi is reportedly considering lower tariffs and more imports to counter threats from US President Trump; India could purchase additional whisky, steel and oil from the US: BBG
• The BOJ is on track to raise rates to the highest since 2008 on Friday, according to a survey of economists. Overnight-indexed swaps priced in an over 94% chance of a hike. BBG
• The ECB isn’t lowering rates too slowly and will maintain its measured approach to easing, Christine Lagarde told CNBC. Klaas Knot said investor bets for rate cuts in January and March are reasonable. BBG
• Debt interest costs pushed up UK government borrowing more than predicted last month, putting Chancellor Rachel Reeves on course to overshoot official forecasts. Reeves declined to say whether she wanted to increase her fiscal headroom and said public finances are in order. The government will push ahead with controversial infrastructure projects to spur growth, she said. BBG
• A flood of Canadian oil is heading to the US to beat Trump’s potential tariffs, prompting Enbridge’s largest export pipeline to ration space for each shipper. The influx may help refill inventories in the Midwest, Rystad said. BBG
• Google is backing artificial intelligence developer Anthropic with a further $1 billion, building its stake in one of the most promising rivals to OpenAI. The new funding comes in addition to more than $2 billion that Google has already invested in Anthropic. BBG
• Republican leaders in Congress apparently agree to begin work on a single reconciliation bill, resolving what had been a key source of tension between the House and Senate. The Hill
• President Trump is using the threat of imposing stiff tariffs on goods from Canada and Mexico as soon as next week to pressure the two nations to start renegotiating the US-Mexico-Canada trade agreement (USMCA). WSJ
• Gold advanced to its highest in 11 weeks as investors weigh Trump’s tariff and tax policies. Bullion, up about 3.5% this year, may get a further boost from haven demand amid concerns about immigration policy and fraught foreign relations. BBG

A more detailed look at markets courtesy of Newsquawk

APAC stocks traded mixed as most major indices took impetus from the gains on Wall St after President Trump’s first full day back in office although Chinese markets lagged after Trump suggested 10% tariffs on China for sending fentanyl to Mexico and Canada which ends up in the US. ASX 200 notched mild gains amid strength in tech, industrials and financials but with gains capped by losses in miners. Nikkei 225 outperformed and surged above the 39,000 level with SoftBank among the biggest gainers after President Trump announced an AI project with OpenAI, SoftBank and Oracle to form a JV which will invest at least USD 500bln in AI infrastructure. Hang Seng and Shanghai Comp were pressured after US President Trump warned of 10% tariffs on China from February 1st for sending fentanyl which overshadowed the PBoC’s substantial CNY 1.16tln reverse repo operation.

Top Asian News

• China is to allow foreign financial institutions to offer new types of financial services in some free trade zones, similar to those provided by Chinese financial institutions, according to Reuters. To support cross-border purchases of certain types of financial services at some free trade zones.
• Chow Tai Fook Jewellery (1929 HK) – Q4 retail sales growth -14.2%, Q4 same store sales growth in China -16.1%
• Japanese PM Ishiba to present investment plan to US President Trump at the summit, according to Kyodo.
• China releases plan for promoting the entry of medium and long term funds into the market. To increase the ratio of insurance money in stock market. Guide big state owned insurers to raise a share invest. Expand the scale of swap facilities for securities firms. Promote the use of refinancing tools to support share buybacks and increases in holdings.
• China is to cap pay at central gov’t owned financial firms ay CNY 1mln/year, via Reuters citing sources
• US President Trump said he has met with TikTok owners and he is open to Elon Musk buying TikTok, while he is thinking of telling someone to buy TikTok and give half of it to the US.
• SK Hynix (000660 KS) is scheduled to hold its Q4 conference on Thursday, during which it is expected to remark that operating profit hit a record KRW 8tln peak with AI memory chip s accounting for 42% of sales, via journalist Nystedt.

European bourses (Stoxx 600 +0.7%) began the session on a modestly firmer footing, but sentiment continued to improve as the session progressed – with a more pronounced bid following commentary via ECB’s Lagarde. As it stands, indices generally reside at session highs; the Stoxx 600 hit a fresh record high, currently at 529.60. European sectors hold a strong positive bias, with only a handful of sectors residing in the red. Industrial Goods tops the pile, joined closely by Insurance and Healthcare to form the top 3 performers. Insurance is lifted by Munich Re and Hannover Re, which both received broker upgrades at HSBC. Telecoms is found at the foot of the pile.

Top European News

• ECB’s Lagarde says no immediate US tariffs were her expectation, it is a smart approach, via CNBC; does not mean to say that tariffs won’t happen, will be more selective. Reasonably optimistic about the future. Confident EZ inflation target over course of 2025. There are downside risks to EZ growth in 2025. Not overly concerned about the export of inflation in Europe. Exchange rate will be of interest, and may have consequences. “We will see if early-2025 delivers a reduction in services inflation”. Does not believe the ECB is behind the curve. Gradual moves in rates “come to mind currently”. Attentive to energy, haven’t anticipated a declined in energy prices.
• ECB’s Nagel says confident that EZ inflation will return to the 2% target by mid-year, according to Spiegel.
• ECB’s Escriva says the ECB will not pre-commit to a decision, markets expect a 25bps rate cut – is the most likely scenario. Incoming information points towards converging to the 2% inflation goal. There are downside risks to growth. Unclear whether there will be inflation spillovers from US policy. To retain full optionality is more important than ever.
• ECB’s Stournaras says rates should be lowered at the order of 25bps each time to get close to the 2% target by the end of the year Possible US tariffs would speed up rate cuts in the Eurozone.
• ECB’s Villeroy says it is too early to tell but inflationary effects from the new US administration could be expected. Disinflation in Europe is still on track.There could be a decoupling between ECB and Fed on rates, but it is not an issue. There is a risk that the benefits of disinflation and monetary easing are lost by policy fragmentation and too lax fiscal policy.
• ECB’s Knot says he sees little obstacles to another cut in January, via Bloomberg TV; data is encouraging and confirms they will return to target. New downside risks from trade policies (regarding growth), inflation outlook is not as clear. Comfortable with market expectations for the next two meetings. Meeting-by-meeting approach to policy decisions has worked well.
• UK Chancellor Reeves, when asked about UK bank ring-fencing, says we “always keep an open mind”. says “our public finances are now in order”. Will meet fiscal rules.
• SNB Chair Schlegel says its not discussing a new CHF cap at the moment; cannot exclude negative rates. Does not like negative rates but can use them. Not uncomfortable with inflation currently. Intervention has worked in the past and would be willing to do it again. SNB is prepared to intervene in the FX market if required. Inflation is well inside SNB target range and over SNB forecast cycle. Cannot exclude negative interest rates. Not uncomfortable with inflation at present. Reiterates ready to intervene in FX market as necessary. When questioned on the prospect of the US labelling them as a currency manipulator again, says this is not something that would influence their intervention decisions.
• EU Defence Commissioner Kubilius says they need to spend more, better and European in defence

FX

• DXY is lower in the wake of yesterday’s heavy selling pressure which was triggered by relief over a lack of tariff actions by Trump on day one of his Presidency. That being said, overnight, Trump has threatened both the EU and China with tariffs and is reportedly pushing for an early renegotiation of the US trade deal with Mexico and Canada. DXY sits towards the bottom end of yesterday’s 107.92-108.79 band.
• EUR is marginally firmer vs. the USD after a particularly strong showing at the start of the week on account of Trump refraining from any explicit tariff actions on day one of his Presidency. Trump remarked overnight that the “European Union treats us badly and the EU will be in for tariffs”. In an interview at Davos, ECB President Lagarde appeared to downplay concerns surrounding tariffs. EUR/USD has just broken above the top end of yesterday’s 1.0341-1.0435 range.
• JPY is softer vs. the USD despite some fleeting support after reports that Japanese PM Ishiba is to present an investment plan to US President Trump at the summit, according to Kyodo. USD/JPY currently sits within yesterday’s 154.76-156.23 range.
• GBP a touch softer vs. the USD and EUR in the wake of higher-than-expected December borrowing data alongside an upward revision to the prior presents another headwind for the Chancellor and her fiscal space. Cable comfortably on a 1.23 handle and in close proximity to yesterday’s best at 1.2359 (as context, the low from yesterday sits at 1.2228).
• Mildly diverging fortunes for the antipodeans. NZD/USD has had to digest CPI metrics with the headline Y/Y printing at 2.2% vs. Exp. 2.1%. However, ING notes that the closely monitored non-tradable index slowed slightly faster than expected from 4.9% to 4.5%; lowest level since Q4 2021. ING suggests this paves the way for a 50bps RBNZ cut next month (priced at 65%).

Fixed Income

• USTs are awaiting fresh tariff updates from US President Trump. Overnight, Trump spoke about potential measures on China and the EU. As it stands these remain hypothetical with the President yet to initiate measures though the February 1st date he continues to reference is moving ever closer. USTs are firmer by a handful of ticks and have been moving directionally with EGBs (see Bunds) in the European morning. Holding at the upper-end of 108-19 to 108-28 bounds, with yields lower across the curve which itself is flattening very modestly.
• Bunds saw some modest pressure early doors on the UK PSNB data (see below), thereafter the main move of the morning came via ECB’s Lagarde at Davos. An interview from which the main takeaway was Lagarde seemingly not being too concerned about US tariffs at this point in time, a reading-between-the-lines assessment which drove EGB upside. As a reminder, Trump overnight said “…the EU will be in for tariffs.”. Specifically, Bunds were driven to a 132.22 peak as Lagarde spoke, posting upside of 28 ticks on the session at the time and setting a new WTD high, resistance now not seen until 132.57 from earlier in the month.
• Gilts began the session on the back foot, gapping lower by 11 ticks after a much larger than expected December PSNB figure and an upward revision to the prior. Metrics which further illustrate the challenges the Chancellor is facing on the UK’s public finances. For reference, in an interview this morning Reeves stuck to her usual lines on the subject.
• Books for the Spanish 10yr syndication in excess of EUR 150bln.
• Germany sells EUR 1.129bln vs exp. EUR 1.5bln 2.60% 2041 and EUR 0.392bln vs exp. EUR 0.5bln 2.50% 2044 Bund Auctions

Commodities

• Slight upward bias across the crude complex as the dollar pulls back from overnight highs and sentiment across Europe is now firmer. That being said, upside is capped by tariff threats from US President Trump who flagged a 10% levy on China in retaliation to fentanyl flows from the country, whilst noting Europe could be hit by tariffs too. Brent Mar resides in a USD 78.81-79.70/bbl parameter.
• Precious metals are firmer across the board the back of the softer dollar, with the schedule today relatively light aside from equity earnings. Spot gold extends on gains to trade in a USD 2,741.96-2,762.41/oz range.
• Base metals are mixed despite the softer dollar and constructive risk mood, but likely amid China’s underperformance amid the US tariffs threats, whereby US President Trump said they are talking about a 10% tariff on China for sending fentanyl. Copper futures mildly pulled back after the prior day’s intraday rebound with prices not helped by the underperformance in China. 3M LME copper resides in a narrow USD 9,206.50-9,279.50/t range.
• Accident reported at 18k/T of oil reservoirs located in Ray City, Iran, according to Tasnim. [NOTE: subsequent reports indicated the fire is at a LNG site rather than an oil site]
• Citi Brent outlook revisions (USD): Q1-2025 75/bbl; Q2-2025 68/bbl; Q3-2205 63/bbl; Q4-2025 60/bbl. 2025 average of 67/bbl. WTI: 2025 view revised up to 63/bbl.
• Indonesia’s Energy Minister says price cap of USD 6/MMBTU may be raised due to global gas prices

Geopolitics: Middle East

• Lebanese media report an Israeli drone attack in the Hasbaya area in southern Lebanon, north of Mount Hermon, via Kan 11’s Kais.
• “Israel is trying to extend the 60-day deadline for the withdrawal of forces from Lebanon by three days”, according to Lebanese press cited by Israeli journalist Kai.

Geopolitics: Ukraine

• Russian Deputy Foreign Minister Ryabkov says as of today, there is a “small window of opportunity” for agreements with new US administration, via Interfax.
• US President Trump said if Russian President Putin does not come to the table on Ukraine, it is likely that he would put sanctions on Russia, while he added that they are looking at the issue of sending weapons to Ukraine, as well as noted the European Union should be paying more on Ukraine and should equalise spending on Ukraine. Furthermore, Trump said he is looking to speak with Russian President Putin soon and told Chinese President Xi to help settle the Ukraine issue.
• US Secretary of State Rubio and Japanese Foreign Minister Iwata discussed concerns over North Korea’s political and security alignment with Russia and China’s support for Russia’s defence industrial base.

Geopolitics: Other

• Australia, India, Japan and the US said they reaffirmed a shared commitment to a free and open Indo-Pacific after the first Quad ministerial meeting of the new Trump presidency. Furthermore, the Quad countries strongly oppose any unilateral actions that seek to change the status quo by force or coercion, while they will meet on a regular basis in the coming months to prepare for the next leaders’ summit hosted by India.

US Event Calendar

• 07:00: Jan. MBA Mortgage Applications, prior 33.3%
• 10:00: Dec. Leading Index, est. -0.1%, prior 0.3%

DB’s Jim Reid concludes the overnight wrap

The planets were aligned last night both in stargazing terms and in financial markets. For those without clouds you could have seen Venus, Mars, Jupiter, Saturn, Uranus and Neptune in the sky together in a rare event. However, an even rarer event will take place on February 28th when Mercury joins in the fun and all other seven planets will be visible. Don’t blink and miss it as you’ll have to wait until 2492 for the next occurrence. So, if markets can’t go up on February 28th when all the planets are aligned, we could be in trouble.

Six being aligned was enough for a strong performance over the last 24 hours, especially in the US, with investors reassured by the lack of day 1 tariffs from the new administration. Clearly there’s a lot of nervousness about what might still be ahead, but for markets, the decision added to the sense that tariffs still might be a leverage play where the worst outcomes don’t materialise, and it also meant some near-term inflation risk was taken off the table. Whether that optimism materialises is another matter, but in the meantime, it helped the S&P 500 (+0.88%) to close above the 6,000 mark for the first time this year, while the 10yr Treasury yield (-5.1bps) came down to 4.58%.

But even though US assets did fairly well, there was some negative reaction for the targets of Trump’s tariff threats. For instance, with Trump re-floating the idea of 25% tariffs on Canada and Mexico as soon as February 1, it meant the Mexican Peso weakened by -0.60%, although the Canadian dollar was little changed (-0.09%) by the close after trading around -1% lower early in yesterday’s session. We also got some fresh signs of how others might retaliate as well, with Canadian PM Trudeau saying that “I support the principle of dollar-for-dollar matching tariffs.” The extent of any retaliation could be a big curveball factor over the next couple of years, as so far the focus has mostly been on how the US will adjust tariffs, rather than what happens in response.

Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10% tariff on China was still on the table “based on the fact that they’re sending fentanyl to Mexico and Canada” and that this could also come into effect as soon as February 1. So Trump’s comments leave plenty of near-term uncertainty even though the trade investigations from his day 1 executive orders will take some time to play out. Against that background, Chinese equities are losing ground with the Hang Seng (-1.73%) trading sharply lower while the CSI (-1.26%) is breaking a four-day winning streak with the Shanghai Composite (-1.12%) also underperforming. The Chinese yuan (-0.23%) is also weakening after three consecutive sessions of gains, trading at 7.28 versus the dollar.

Whilst there’s definitely a fair amount of volatility in markets at the moment, that backdrop failed to stop a fresh advance for US equities yesterday, with the S&P 500 (+0.88%) up to a fresh YTD high as it reopened after the public holiday. Small-caps put in a very strong performance, with both the Russell 2000 (+1.85%) and the equal-weighted S&P 500 (+1.17%) posting a 6th consecutive advance. For all you stats collectors the S&P 500 saw more than 68% of its constituents climb for the sixth consecutive day (82.5% yesterday), an outright record since data begins in 1928. So maybe that’s the impact of the planetary alignment.

The Magnificent 7 saw a smaller gain (+0.30%), primarily due to a large decline from Apple (-3.19%). That saw Apple again overtaken as the world’s most valuable company by Nvidia (+2.27%). The chip giant gained amid a strong day for AI-related stocks that came in anticipation of a new AI investment announcements from Trump. Confirmed after the US close, this saw SoftBank, OpenAI and Oracle form a $100bn joint venture to fund AI infrastructure. SoftBank Group shares are up +10.73% in Tokyo this morning following the news. In other company news, Netflix shares spiked by over +14% in after-hours trading last night after reporting its strongest ever quarterly subscriber gain. It had advanced by +1.35% in yesterday’s session. This is helping the S&P 500 and NASDAQ 100 futures trade +0.31% and +0.72% higher respectively this morning in Asia.

Treasuries also put in a robust performance yesterday, with investors becoming more relaxed about inflationary pressures following the tariff news. That got further support by the decline in oil prices, with WTI down -2.56% yesterday to $75.89/bbl, down from a recent peak above $80/bbl last week. So that helped inflation swaps to come down, with the 2yr swap falling -5.7bps on the day to 2.65%. And in turn, Treasury yields declined across the curve, with the 2yr yield (-1.0bps) down to 4.27%, whilst the 10yr yield (-5.1bps) fell to 4.58% where it’s broadly stayed in the Asia session.

Over in Europe, it was a much less eventful day, but the general direction of travel was much the same, with bonds and equities moving higher across the continent. That included a 5th consecutive advance for the STOXX 600 (+0.40%), which moved up to a 3-month high, whilst the DAX (+0.25%) hit another all-time high. And in FX, the euro (+0.35%) closed above 1.04 against the dollar for the first time this year. Nevertheless, there was some weakness among the trade-sensitive sectors in light of Trump’s tariff threats on Canada and Mexico, with the STOXX 600 automobiles and parts index down -0.71%. Moreover, automakers led the declines in the DAX, with BMW (-1.79%) as the worst performer in the index yesterday reversing much of Monday’s gains. In case Europe felt lower down the tariff pecking order in Trump’s trade crusade last night he said “We have a $350 billion deficit with the European Union. They treat us very very badly, so they’re going to be in for tariffs.” This leaves the direction of travel quite clear for the continent.

For sovereign bonds, there was also a strong performance, with yields on 10yr bunds (-1.7bps), OATs (-2.8bps) and BTPs (-2.9bps) all moving lower. The biggest outperformance actually came from UK gilts however, where the 10yr yield was down -6.9bps following the latest labour market data. It showed that the number of payrolled employees was down by -47k in December (vs. -8k expected), and the unemployment rate in the three months to November also ticked up a tenth to 4.4%. So that helped to cement the idea that the Bank of England are on course to cut rates at their next meeting in early February, with overnight index swaps dialling up the likelihood to 93% by the close.

In the meantime, yesterday brought yet another report that the Bank of Japan are moving closer to a rate hike at Friday’s meeting, with the latest coming from Kyodo. Both market pricing and the consensus of economists now expect a 25bp hike at this meeting, so we’re now at the point where the bigger market reaction would likely come if one didn’t happen.
For today the Nikkei (+1.43%) is actually outperforming even with the hike this week being increasingly likely with Trump’s AI investment plan supporting the likes of SoftBank which is currently up over 10%.

Looking at yesterday’s other data, Canada’s CPI surprised slightly on the downside at +1.8% in December (vs. +1.9% expected). In turn, that added to expectations that the Bank of Canada would deliver another cut at their meeting next week, with a cut priced as an 85% probability at the close even if it has slightly dropped to 81% this morning. Separately, the German ZEW survey’s expectations component was weaker than expected in January, coming in at just 10.3 (vs. 15.1 expected). However, the current assessment reading did pick up from its post-Covid low in the previous month, rising to -90.4 (vs. -93.1 expected).

To the day ahead now, and data releases include the UK public finances for December, along with the Conference Board’s leading index for the US in December. Otherwise, central bank speakers include ECB President Lagarde, along with the ECB’s Villeroy, Knot and Nagel.