US yields and crude oil fell, and the S&P500 extended gains to a fresh ATH yesterday, as US President Donald Trump said – in his virtual speech in Davos – that he would push for further interest rate cuts and ask OPEC to lower crude prices. He also brought the tariff talk on the table, saying that the EU countries must consider bringing some production to the US to avoid penalties, he said that he will ask NATO members to increase military spending to 5% of their GDP, and that he is willing to lower the corporate tax rate from 21% to 15%. Except for the aim of lowering energy prices, most of Trump’s wishes are inflation-boosters.
PS: interfering with a central bank’s independence has never been a good idea. If the monetary policy starts serving the government goals – so explicitly – you end up like Turkey – roasted.
Anyway, the US 2-year yield eased further below the 4.30% yesterday, but the 10-year yield rose to 4.66% on worries that lower tax rates would increase deficit. Activity on Fed funds futures still show hesitation regarding the next rate in May meeting, with around 50-50 chance. But stock investors are optimistic. The S&P500 went straight up to close the session at a fresh all-time high, the small caps and Nasdaq 100 gained as well.
Chip stocks couldn’t fully benefit from yesterday’s rally as the Korean chipmaker SK Hynix cautioned that the 2025 memory demand outlook was uncertain due to inventory adjustments by PC and smartphone manufacturers, along with heightened trade protections and geopolitical risks. SK Hynix is down for the second session despite a 75% revenue growth in the October-December quarter compared with the same time last year, while its operating profit surged more than 2200% to above 8.08 trillion won, that’s more than $5.5bn (!) In the US, Nvidia recovered early losses and managed to eke out a 0.10% advance, while Broadcom eased 0.27% and AMD dropped 0.57%. The Dutch ASML suffered a decent selloff of more than 4% due to the worries of broader export curbs by the US. But the Stoxx 600 didn’t need ASML’s help to advance to a fresh ATH yesterday. The French CAC 40 extended gains for the 7th straight session, the DAX index advanced to a fresh high.
Could this last? Well, why not. The stock markets being at record highs is a usual thing – really – and prospects of lower rates and strong earnings are supportive of gains.
In the FX
The US dollar’s broad-based weakness lets major peers take a breather and recover. The EURUSD trades above its 50-DMA this morning and prepares to test the next technical resistance: 1.0460 – the minor 23.6% Fibonacci retracement on September to January selloff. Breaching this minor level won’t be a gamechanger, therefore the recovery could extend toward the 1.06 level, the major 38.2% retracement, before raising questions about the overall direction of the EURUSD. Fundamentally speaking, we start hearing incoming bets of a potential 50bp cut from the European Central Bank (ECB) rates by mid-year. As such, topsellers will sure be chasing interesting topselling opportunities as the pair climbs toward the 1.05/1.06 range.
Cable extends gains on the back of a broad-based dollar weakness too and should gain field until the 1.2650 Fibonacci mark without being caught by the fundamental radar. But the fundamentals are not shiny, shiny in the UK. The consumer confidence, there, dropped to a 14-month low and Sainsbury’s just announced to cut 3000 jobs to reduce expenses to deal with the upcoming tax hikes.
In Japan, the USDJPY is testing the 155 support – which also matches the 50-DMA – to the downside this morning, after the Bank of Japan (BoJ) delivered a widely expected 25bp hike. The BoJ’s determination in policy normalization should increase confidence among the yen bulls and lead to a gradual, and hopefully a sustainable appreciation of the yen. The pair could be expected to return toward the 150/153 range (including the 200-DMA and the major 38.2% Fibonacci retracement on the September to January rebound).
In energy, crude oil sank into its own medium-term bearish consolidation zone yesterday, in a selloff triggered by Donald Trump’s push for lower oil prices. The price of US crude consolidates below the 200-DMA this morning, and testing this level to the upside. A weekly close below the $75.20/75.40pb range – including the 200-DMA and the major 38.2% Fibonacci retracement on December to January rebound respectively – should give a stronger hand to oil bears from next week and pave the way for further losses, while regaining the major support levels could maintain hope for the recent rally to stay alive, but the risks are tilted to the downside.
In nat gas, the European nat gas prices – which have risen by more than 120% since last February – continue to push higher with strong support from the news flow. Italy, which has the EU’s second biggest storage sites after Germany, is worried about the falling underground storages – that are just around 58% full right now compared to 74% last year – and is willing to replenish them as early as next month, instead of waiting until April.
