MARKET WRAPS
Stocks:
European indexes were higher on Tuesday following a report suggesting Donald Trump would take a gradual approach to hiking tariffs, though concerns about rising bond yields were reining in positive sentiment.
Trump's transition team is discussing increasing levies on foreign imports by between 2% and 5% a month, Bloomberg reported.
"A lasting rise in tariffs at such a pace would be hardly trivial, so it is not obvious that this scenario would be all that sanguine," Deutsche Bank said.
"However, the market has latched onto the gradual and incremental element rather than the potential endgame."
Stocks to Watch
Equinor's fourth-quarter trading update doesn't contain any significant new disclosure, but does point to weaker marketing, midstream & processing earnings, Citi said.
In line with commodity price movements, the company is pointing to lower liquids prices and higher gas prices.
Citi trimmed its quarterly EPS forecast by 1%.
Fourth-quarter sales from BMW were much better than the third quarter, but weakness in China is a concern, Citi said.
"We continue to fear a continued intense China price competition, further decline in China volumes, and hence lower China EBIT contributions."
Shares in luxury companies were up after Brunello Cucinelli reported better-than-expected 4Q revenue against a backdrop of slowing demand for luxury goods.
LVMH, Hermes, Richemont, Kering and Ferragamo were all rising.
U.S. Markets:
Stock futures rose on Tuesday as investors brace for the first of two hotly anticipated inflation reports.
The producer price index lands today ahead of Wednesday's consumer price index.
Both will be closely studied for their impact on Federal Reserve decision-making, with stronger-than-expected figures likely to further dampen the rate-cut outlook for 2025.
Forex:
The dollar turned lower after rising to its strongest in more than two years against several major currencies.
Danske Bank Research said the greenback's gains look overdone and expects a near-term pullback.
Evidence of a strong U.S. economy, dimming prospects of U.S. interest-rate cuts and anticipation of inflationary policies and tariffs by Trump have contributed to dollar strength.
"While we recognise the persistence of the U.S. dollar rally has been stronger than anticipated, many dollar-positive factors appear overcrowded."
Jupiter Asset Management said a strong dollar tended to tighten financial conditions around the world, stimulating capital flows into the U.S.
"The outlook for the dollar is therefore crucial to the outlook for U.S. bonds. However, a strong dollar could be particularly counterproductive to Trump's goal of boosting U.S. industrial exports."
The pound edged higher after it fell on Monday to a two-year low against the dollar and its weakest in 10 weeks against the euro.
However, it remains vulnerable to rising bond yields and economic weakness, and more so than the euro, Commerzbank said.
The Bank of England's limited scope to cut interest rates means U.K. growth could struggle to recover and the pound is suffering accordingly, Commerzbank added.
ING said sterling remains vulnerable due to high gilt yields and ahead of Wednesday's U.K. inflation data.
Stronger-than-expected inflation data could exacerbate selling in gilts, pushing yields higher and weighing on sterling.
Bonds:
The selling pressure on government bond markets was subsiding but bond markets were not out of the woods yet, Commerzbank Research said.
Real yields were rising to historic highs ahead of Wednesday's U.K. and U.S. CPI data.
"German long-end real yields are now at the highest level since the 30-year linker was first launched in 2015, and the dynamics look similar in the U.S. and even more extreme in the U.K."
Yields on gilts fell as investors await a statement by U.K. Treasury Chief Rachel Reeves on Tuesday.
Investors hope for reassurance on the government's commitment to responsible public spending, XTB said.
However, investors remain cautious ahead of the U.K. inflation data.
A shock increase in U.K. inflation would likely drive bond yields higher.
Energy:
Oil eased slightly in early trade after rallying to a multi-month high as the market weighs the impact of U.S. sanctions on Russian supplies.
Both Brent crude and WTI benchmarks remain elevated amid signs of market tightness as front futures oil contracts outperform longer-dated ones.
"These sanctions have the potential to take as much as 700,000 b/d of supply off the market, which would erase the surplus that we are expecting for this year," ING said.
"However, the actual reduction in flows will likely be less, as Russia and buyers find ways around these sanctions."
Morgan Stanley raised its oil price estimates for 2025 following the sanctions on Russia.
"Historically, sanctions have had mixed impacts on the oil market, and the full effect of these measures is once again hard to estimate."
Morgan Stanley raised its Brent forecast for 1Q to $77.50 from $72, and for 2Q to $75 from $70. It sees Brent averaging $72.50 in both 3Q and 4Q, up from $70 previously.
Metals:
Gold rose in early trade as traders await this week's U.S. inflation data.
Futures were boosted by a softer dollar and concerns over the impact of potential U.S. trade tariffs on inflation after Trump takes office.
Prices fell in the previous trading session amid a stronger dollar and rising Treasury yields, but the long-term outlook for gold remains positive.
EMEA HEADLINES
BP Expects to Book Up to $2 Billion in Charges, Sees Lower Upstream Production
BP said it expects to book impairments of $1.0 billion to $2.0 billion in the fourth quarter while upstream production is expected to fall.
The British oil-and-gas giant said on Tuesday that the non-cash, post-tax charges are attributable across its business divisions.
JD Sports Cuts Guidance Despite Strong Christmas Sales
JD Sports said its revenue was boosted by strong Christmas sales, but it cut its full-year guidance citing challenging market conditions.
The British sportswear fashion retailer said Tuesday that its organic revenue growth reached 3.4% in the nine weeks to Jan. 4, but it stood flat year-to-date.
Persimmon Sales Rate Rises, Profit Seen at Upper End of Views
Persimmon said its 2024 private sales rate was ahead of last year's and that underlying pretax profit will be at the upper end of expectations.
The U.K. house builder said Tuesday that market expectations for underlying pretax profit-a metric which strips out exceptional and other one-off items-are in a 349 million pounds to 390 million pounds ($425.9 million-$475.9 million) range.
Ocado Retail Revenue Rises Driven by Improved Sales Volume, Record Christmas
Ocado Group said revenue from Ocado Retail, its joint venture co-owned with Marks & Spencer Group grew sharply, driven by improved volumes and a record Christmas performance.
The online grocer and retail-technology specialist on Tuesday said retail revenue from the joint venture for the fourth quarter ended Dec. 1 rose 17.5% to 715.8 million pounds, equivalent to $873.5 million, boosted by a 17% increase in sales volumes.
GLOBAL NEWS
Oil Prices Are on a Tear. It's a Short-Term Headache for Inflation.
Consumers may not be feeling the effects of rising crude oil prices yet when they pay at the pump, but the uptick could start appearing in the next round of inflation data.
Oil prices have been on a tear since the start of the year, with Brent crude hitting $80 a barrel on Monday. And West Texas Intermediate (WTI) crude oil, the benchmark for the U.S. market, was up 2%-over $78 a barrel.
Producer Inflation Expected to Stay Stubbornly High
The first of a pair highly anticipated inflation reports will land on Tuesday, with markets on edge and traders betting on little-to-no easing by the Federal Reserve in 2025.
With a solid economic and labor market backdrop, policymakers will need to see progress resume on slowing inflation to resume their interest-rate cuts. And that's far from a sure bet these days.
China Officials Discuss Option of TikTok Sale to Elon Musk
SINGAPORE-Chinese officials, facing a looming U.S. TikTok ban, have internally discussed options including the possibility of allowing a trusted non-Chinese party such as Elon Musk to invest in or take control of TikTok's U.S. operations, people familiar with the discussions said.
China has protested a U.S. law that would ban TikTok in the U.S. unless its Beijing-based parent, ByteDance, divests itself of the operation. The Supreme Court last week seemed inclined to let the law stand. It goes into effect on Sunday unless the court issues a stay.
Germany Puzzles at Elon Musk's Embrace of Its AfD Populists
BERLIN-During Elon Musk's freewheeling conversation with the leader of a far-right German party last week, spanning Hitler, multiplanetary civilizations and the existence of god, the billionaire tech entrepreneur insisted that the Alternative for Germany was moderate.
"Hopefully, people can tell just from this conversation, like nothing outrageous is being proposed, just common sense," he said, during their live discussion on his X social-media platform.
Israel, Hamas on Verge of Deal for Gaza Cease-Fire
Israel and Hamas are on the brink of a cease-fire deal, President Biden said Monday, moving closer to bridging a fundamental divide: Israel wants its hostages back and then continue the war, while Hamas doesn't want to release captives without ending the war.
Arab mediators and Israeli officials say there has been progress ahead of President-elect Trump taking office next Monday. Under the first stage of the deal being discussed, Hamas would release up to 33 hostages in exchange for Israel releasing Palestinian prisoners and a pause in fighting, Israeli and Arab officials said.
Write to gareth.mcpherson@wsj.com
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01-14-25 0520ET