MARKET WRAPS

Stocks:

The DAX and FTSE 100 hit record highs amid investor hopes on tariffs and earnings updates, with the German blue-chip index boosted when Adidas reported positive preliminary 2024 results.

"Investors are batting away concerns about the impact of President Trump's policies on the global economy," Hargreaves Lansdown said.

But, while the likelihood of an all-out trade war seems to have receded for now, J.P. Morgan expects trade-related volatility as investors sort out how much of Trump's talk is a negotiating tactic.

"Overhaul of the trade system was central to Trump's inauguration address; the risk of higher tariffs should not be underestimated."

Stocks to Watch

European defense stocks face a volatile first half, Jefferies said as it lowered its valuation multiples across several defense companies, but maintained a hold rating on BAE Systems stock despite its U.S. exposure. Thales and Babcock International still look attractively cheap, it added.

This year will be another difficult one for automotive manufacturers , Berenberg said as it upgraded BMW to buy from hold and cut Mercedes-Benz and Porsche Automobil Holding to hold from buy. The volume recovery is taking longer than expected, concerns about trade tensions are growing, and investors need convincing that new models will provide margin support.

It lifted its price target on BMW and Renault and dropped its price targets on Mercedes-Benz, Porsche Automobil Holding, Porsche AG and Stellantis.

U.S. Markets:

Futures gained with Netflix up nearly 15% premarket after it increased subscribers by 44%.

Earnings are due from Johnson & Johnson and Procter & Gamble.

Meanwhile, 39% of investors who responded to Bank of America's January global fund manager survey expect the Federal Reserve to cut rates twice in 2025, 27% say one rate cut and 13% say 3 cuts.

Money markets price in only little more than one cut of 25 basis points, according to LSEG.

Forex:

UniCredit said the dollar could fall if Trump's proposed trade tariffs prove to be less tough than he was threatening during his electoral campaign.

This might prompt speculators to unwind long positions in the dollar, and such long positions are at multi-year highs, leaving the currency exposed to a position adjustment.

Bonds:

Investors seem to be comfortable as neither Trump nor the government bond issuance wave were delivering surprises--relative to what had been priced in-- according to Commerzbank.

In terms of outright rates, this is most visible in the ultra-long end of the yield curve with 30-year Treasury and German Bund yields respectively trading 20 basis points and some 10 basis points below last week's levels.

ING said the 10-year Treasury yield is likely to fall for now, but there are many forces which could ultimately lift it above 5% in the weeks and months ahead, ING said.

"We've just had a material prior move higher in yields, and typically they are followed by a test back lower again."

In addition, mutual fund data flows show a resetting of duration longs for the first couple of weeks of 2025, a reversal for the significant preference for duration shorts into the turn of the year, it said.

Morgan Stanley Wealth Management said a major reason to consider more asset diversification is that correlations between stocks and bonds have turned positive.

Higher yields--and thus lower prices--are coinciding with lower stock prices, it says.

"This was the painful dynamic in 2022 when most investors experienced losses in both the stock and bond sleeves of their portfolios."

Traditionally, stocks and bonds have been negatively correlated, with the securities' respective prices moving inversely to each other and the value of a portfolio consisting of 60% stocks and 40% bonds is now being challenged, "with correlations recently flipping when the 10-year U.S. Treasury yield surpassed 4.5%--the fair value for the long-run rate, where nominal GDP can struggle to cover capital costs."

Gilt yields declined, showing little reaction to U.K. public sector finances data indicating government borrowing surpassed the country's Office for Budget Responsibility forecast.

Energy:

Oil prices slipped as markets digested Trump's raft of energy policies.

The president threatened to impose a 25% tariff on imports from Canada and Mexico and said he was considering a 10% punitive duty on China in response to fentanyl flows from the country.

"The oil market's attention is slowly turning away from U.S. sanctions against Russia towards President Trump's potential trade policy," ING said.

"Trade and tariff risks and the potential for retaliation are growing."

Traders were also keeping an eye on supply-side news, as a rare winter storm in the U.S. south threatens to disrupt oil production and Russian oil exports dropped significantly last week following the latest batch of U.S. sanctions.

Pepperstone said policy direction by the Trump administration could play a dominant role in the oil market's trajectory in the short term.

On the supply side, Trump's national energy emergency declaration and his push for energy independence are significant drivers of bearish momentum, as the policies could likely turn the U.S. into a net energy exporter, which might have lasting implications for global oil prices.

Traders will assess the balance between economic growth, energy security and policy risks, as more details emerge over energy production and trade agreements, it added.

Metals:

Renewed tariff concerns--which have become an expected negotiation tool--have pushed gold prices to their highest levels since Trump's victory in the elections on safe-haven demand, Pepperstone said.

Gold's strong upward momentum isn't random, but rooted in forward-looking expectations of escalating trade risks tied to tariffs.

The new administration hasn't yet discussed critical issues, amplifying market sensitivity to short-term issues, it added.

Gold Chart

Comex gold futures were looking to test resistance at $2,800, RHB said, according to the chart .


EMEA HEADLINES

easyJet Posts Narrowed Loss After Passengers, Revenue Rise

EasyJet reported a narrowed pretax earnings loss after passengers and revenue rose in the first quarter of fiscal 2025.

The London-listed budget airline reported Wednesday a 61 million pound ($75.4 million) headline pretax loss for the three months to the end of December.


Schaeffler Warns of Profitability Shortfall Amid Tough Autos Environment

German car-parts supplier Schaeffler warned that its profitability fell short of its guidance and consensus expectations last year, the latest sign of challenges facing the European auto market.

European carmakers are grappling with subdued car sales and rising competition at a time they are navigating a costly transition to electric vehicles, and their issues are weighing on parts suppliers. Several auto suppliers, including Schaeffler, Bosch and Michelin, outlined plans to cut jobs and close plants last year in response to the tough market.


Barry Callebaut Posts Jump in Revenue But Lowers Sales-Volume Guidance

Barry Callebaut posted a jump in revenue on a big increase in cocoa-bean prices, but the Swiss chocolate company lowered its sales-volume guidance citing market volatility.

The group said Wednesday that sales revenue reached 3.45 billion Swiss francs ($3.81 billion) in the three months ended Nov. 30, an increase of 63.1% in local currencies.


GLOBAL NEWS

Chinese Shares Fall After Trump Repeats Tariff Threat

Markets in China and Hong Kong fell Wednesday after U.S. President Trump reiterated a threat to impose an additional 10% tariff on Chinese goods, a move that would further stoke trade tensions between the world's largest economies.

Hong Kong's Hang Seng Index ended down 1.6%, snapping a six-session winning streak. The Hang Seng Tech Index dropped 2.4% and the Hang Seng China Enterprises Index, a gauge of large-cap Chinese companies listed in Hong Kong, declined 2.0%.


Trump Pushes for Early Renegotiation of U.S. Trade Deal With Mexico, Canada

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 a continental trade deal, according to people familiar with the matter.

The U.S.-Mexico-Canada (USMCA) trade agreement, which was crafted during Trump's first term in office as a replacement for the North American Free Trade Agreement, is up for statutory review in 2026-but Trump hopes to renegotiate it sooner, the people said.


Trump's Ukraine Envoy Has a Hard Climb to Any Peace Deal

WASHINGTON-President Trump has handed retired Lt. General Keith Kellogg the job of ending the Ukraine war in a hundred days. Almost no one thinks he can do it-especially the Russians.

Rather, they say Kellogg's role as a special envoy to Ukraine, which comes amid a flurry of such appointments, is an opening gambit in peace talks that Trump is determined to control himself. But dealmaking with Russian President Vladimir Putin will be far more difficult than Trump promised on the campaign trail, when he said he would end the conflict before he took office.


A List of Trump's Key Executive Orders-So Far

President Trump signed a sweeping set of executive orders shortly after taking office. Here's a look at his some of his most significant actions:

Ending birthright citizenship: On his first day in office, Trump enacted several immigration-related executive orders, including one that would move to end recognition of automatic birthright citizenship. On Tuesday, attorneys general from more than a dozen states filed a lawsuit stating that the order violates the 14th Amendment.


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01-22-25 0519ET