In focus today
Markets remain closely focused on President Trump’s actions during this first week of his presidency. He is anticipated to issue several executive orders building on his current momentum, leading to US news continuing to dominate the headlines as markets and world leaders alike are left navigating the implications.
Economic and market news
What happened overnight
In the US, President Trump halted more than USD 300bn in US green infrastructure funding, while paving the way for a USD 500bn private-sector investment in AI infrastructure. He also disclosed that his administration was currently discussing a 10% tariff on China, as well as saying the EU will get tariffs due to the EU’s “troubling” trade surplus with the US.
What happened yesterday
In the US, President Trump continued his signing off on executive orders, freezing federal hiring for all except the military and immigration services. Overnight, he announced that he would impose 25% tariffs on imports from both Canada and Mexico over border problems on 1 February. He also threatened the EU over the US trade deficit with Europe, suggesting that either tariffs or increased EU oil purchases from the US could be a solution.
Political leaders from, among others, the EU, Germany, Canada, China and Mexico argued against tariffs and urged Trump to be cautious, with specifying how they might react if tariffs or other sanctions come into place.
In Germany, the ZEW index for January showed a mixed picture: The assessment of the current situation rose to -90.4 (cons: -93.1) from -93.1, marking the highest point in three months and suggesting some stabilization after a six-month decline. However, expectations declined to 10.3 (cons:15.1) from 15.7, indicating reduced optimism for future growth. We do not anticipate that these mixed signals, nor the upcoming PMIs on Friday will significantly affect the ECB’s rate decisions for January and March.
In the UK, the labour market report for November/December came out in line with expectations. The unemployment rate increased as expected to 4.4% in November (from 4.3%) and vacancies continue to trend lower signalling a cooling trend in the jobs market. Wage growth remains elevated with wage growth ex-bonus coming in slightly hotter than expected at 5.6% 3M/YoY (cons: 5.5%, prior: 5.2%) with a tick up in private sector wage growth as well. We continue to expect the BoE to opt for a gradual easing cycle with the next 25bp cut in February.
Equities: Global equities rose following the inauguration of Trump. In all fairness, the limited macro data and earnings reports on the agenda yesterday were generally strong too and probably helped the positive sentiment in equities. However, we argue that investors perceived the sum of Trump’s speeches and approximately 50 executive orders as less negative than feared. Consequently, a relief rally took place, which may continue if Trump refrains from making further threats, especially regarding tariffs directed at China and Europe. The 10% tariff against China he mentioned yesterday is still significantly lower than what consensus had anticipated. Additionally, having moved past this event and the associated event risk, we should increasingly see focus shifting back to macro and micro factors this week. We are currently receiving considerable support for equities and risky assets. Next week, we have the major central banks to help divert attention away from politics.
In the US yesterday, the Dow rose by 1.2%, the S&P 500 by 0.9%, the Nasdaq by 0.6%, and the Russell 2000 by 1.9%. By examining the differences between indices, one can observe that the breadth was positive again yesterday as the equal-weight S&P continued to build on last week’s approximately 100 basis points outperformance versus the cap-weighted S&P. Asian markets are mostly higher this morning, buoyed by Japan. However, Chinese markets are reacting negatively to Trump’s tariff comments. US and European futures are higher this morning, led by some of the companies reporting after the US cash close yesterday.
FI: European rates ended in a slight bull flattening move, with the short end about 1bp lower and the 30y point about 3bp lower. 10y Bunds stands at 2.51%. However, this only came following the mid-day reversal of the morning sell-off. The reversal may be attributable to markets taking comfort with Trump not announcing an elaborate tariff plan upon inauguration.
FX: USD remained on a weak footing yesterday amid the lack of immediate action from US President Trump on key policies, including import tariffs. SEK had another strong day together with GBP and EUR. EUR/USD ended the day above 1.04 and EUR/SEK fell firmly below 11.50.
