EU Mid-Market Update: Europe buoyed by global risk on appetite after Trump tariff plan calms anxious investors; CAC40 unwinds selloff as budget agreement seems close.

Notes/observations

- CAC 40 led gains on optimism surrounding a potential budget deal in France, while the FTSE 100 lagged behind. Cautiously optimistic mood in US markets as futures are slightly higher.

- French PM Bayrou is expected to negotiate pension reforms to secure left-wing support for the budget, potentially stabilizing French debt markets which have seen increased risk premiums. ECB's Rehn emphasized continued rate cuts, though the market's outlook is clouded by potential US tariffs. Spain reportedly plans a 100% tax for non-EU residents buying property.

- US dollar weakened on news of potentially staggered tariff implementations by incoming Trump Admin, providing some relief to commodity currencies. Crude oil prices have paused their upward trajectory near five-month highs, while gold saw marginal gains. Industrial metals experienced varied responses.

- BOJ futures currently pricing ~60% chance of a rate hike next week, slightly higher than before BOJ Dep Gov Himino speech, who left the door open for raising rates this month.

- Notable Corporate News: BP shares fell after a trading statement indicating lower upstream production. JD Sports Fashion revised down its profit expectations, causing a dip in share prices. Conversely, Persimmon shares rose significantly after reporting higher completions and guiding for profit at the upper end of expectations. Ocado Group shares surged following strong retail revenue growth. Crest Nicholson delayed its FY results announcement. Temenos shares rose post preliminary Q4 figures that beat expectations. Lindt & Sprüngli reported strong organic growth, pushing shares higher. Suedzucker confirmed its FY forecast, while OMV noted a decrease in hydrocarbon production.

- Note that rumors of a TikTok sale to Elon Musk have been strongly denied by ByteDance.

- Two largest CA fires, Palisades Fire (~20K acres) and Eaton Fire (~14K acres) are now at 14% and 33% level of containment, respectively (v 13% and 27% d/d); Wind gusts are still forecast to reach up to 60mph through at least midweek (compares to 80-100mph on last Tuesday's night).

- Asia closed higher with Shanghai composite outperforming +2.5%. EU indices are +0.1-1.0%. US futures are +0.3% to +0.7%. Gold +0.2%, DXY -0.1%; Commodity: Brent -0.2%, WTI -0.1%; Crypto: BTC +4.3%, ETH +2.4%.

Asia

- BOJ Dep Gov Himino: Reiterates stance that if economic outlook will continue to be realized, will adjust easing and likely hike rates, as in Mar and July last year. Timing of policy change is difficult and important. To discuss and decide if rate hike is needed next meeting.

- Japan Econ Min Akazawa: The BOJ considering a rate hike and the government's aim to exit deflation are not 'contradictory'.

- Australia Jan Westpac Consumer Confidence: 92.1 v 92.8 prior.

- Japan Nov Current Account Balance: ¥3.353T v ¥2.653Te.

- Japan Dec Bank Lending Y/Y: 3.1% v 2.9% prior; Bank Lending (ex-trusts) Y/Y: No est v 3.3% prior.

Global Conflict/tensions

- President Biden noted that Israel and Hamas were ‘on brink of’ signing ceasefire deal.

Europe

- ECB’s Rehn (Finland): Reiterates will keep cutting rates and should end policy restriction in the coming months. However looming trade tariffs cloud the outlook.

- Bank of France (BdF) maintained its Q4 GDP growth forecast at 0% (flat) compared to 0.4% growth in Q3.

Americas

- Pres-elect Trump's team said to be studying “month by month” tariff hikes of 2-5%, with the implied gradual approach providing encouragement to the markets. However, Trump himself had yet to say anything personally on the rumor.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.47% at 511.08, FTSE +0.08% at 8,231.11, DAX +0.59% at 20,255.99, CAC-40 +0.92% at 7,476.65, IBEX-35 +0.49% at 11,742.41, FTSE MIB +0.80% at 35,077.00, SMI +0.28% at 11,755.00, S&P 500 Futures +0.51%].

Market Focal Points/Key Themes: European indices open higher and remained upbeat through the early part of the session; return of risk appetite attributed to hope of less impact form tariffs; among sectors leading the way higher are communication services and materials; lagging sectors include energy and telecom; Gamma to acquire Starface; Renault acquires “significant” stake in Free To X; focus on US PPI figures to be released later in the day no major earnings expected in the upcoming Americas session.

Equities

- Consumer discretionary: Ocado Group [OCDO.UK] +12.5% (trading update), Lindt & Sprungli [LISN.CH] +4.0% (prelim FY24 sales, initial FY25 guidance), JD Sports [JD.UK] -10.5% (trading update - cuts FY25 pretax), Suedzucker [SZU.DE] +3.5% (final 9M results).

- Energy: BP [BP.UK] -2.5% (trading update - guides Q4 upstream lower) - Financials: Crest Nicholson [CRST.UK] +2.5% (cuts FY24 pretax and delays results; UK yields lower) - Healthcare: Bayer [BAYN.DE] +1.5% (Pharma unit head interview), Zealand Pharma [ZEAL.DK] +2.0% (JPM conf comments), Advanced Medical Solutions [AMS.UK] +10.0% (trading update) - Industrials: Renault [RNO.FR] +2.0% (Trump team plans gradual tariff increases; Acquires significant stake in Free To X), Daimler Truck [DTG.DE] +1.5% (reports deliveries; order from Amazon).

- Technology: BE Semiconductor [BESI.NL] -1.5% (Stifel cuts to hold), Infineon [IFX.DE] +1.5% (to launch construction of production site in Thailand related to semiconductor backend operation for power modules).

- Real Estate: Persimmon [PSN.UK] +5.0% (trading update - home completions beats estimates).

Speakers

- ECB's Holzmann (Austria) stated that hoped to achieve 2% inflation target by end-2025.

- French Socialist leader Faure noted that could be near an agreement with the govt on the budget.

- China PBoC Dep Gov Xuan stated that would optimize policy adjustments based on economy and market. Top consideration for monetary policy was the domestic market. Would step up counter cyclical policy adjustment. Maintained basic CNY currency (Yuan) stability in 2024 which created room for policy. Yuan currency showed resilience to strong USD and would correct pro-cyclical FX market behavior and prevent overshooting risks.

- FX Regulator SAFE official Jia stated that more proactive policies to help raise market confidence. Country's foreign trade was resilient; expect reasonable surplus in 2025.

Currencies/Fixed income

- USD encountered some retracement as risk appetite found some fresh legs. Reports that - Pres-elect Trump's team was studying a gradual “month by month” tariff hikes helped to sooth fears and unwind safe-haven flows. Focus on upcoming US inflation data with PPI on the docket later today.

- EUR/USD rebounded to test above 1.0260 in the session.

- GBP/USD moved back above the 1.22 level in a quiet session with focus on upcoming CPI data on Wed.

- USD/JPY just under the 158 area as BOJ Dep Gov Himino noted that the timing of policy change was difficult and important. To discuss and decide if rate hike was needed next meeting.

Economic data

- (SE) Sweden Dec Maklarstatistik Housing Prices: 5.0% v 4.7% prior.

- (NL) Netherlands Dec CPI M/M: +0.1% v -0.6% prior; Y/Y (final): 4.1% v 4.1% prelim.

- (NL) Netherlands Dec CPI EU Harmonized (final) M/M: 0.3% v 0.3% prelim; Y/Y: 3.9% v 3.9% prelim.

- (FI) Finland Dec CPI M/M: -0.1% v -0.4% prior; Y/Y: 0.7% v 1.0% prior.

- (IN) India Dec Wholesale Prices (WPI) Y/Y: 2.4% v 2.2%e.

- (RO) Romania Dec CPI M/M: 0.3% v 0.3%e; Y/Y: 5.1% v 5.2%e.

- (CN) China Dec YTD New Yuan Loans (CNY): 18.090T v 17.846Te.

- (CN) China Dec YTD Aggregate Financing (CNY): 32.260T v 31.560Te.

- (CN) China Dec M2 Money Supply Y/Y: 7.3% v 7.3%e; M1 Money Supply Y/Y: -1.4% v -1.8%e; M0 Money Supply Y/Y: 13.0% v 12.7% prior.

- (HU) Hungary Dec CPI M/M: 0.5% v 0.3%e; Y/Y: 4.6% v 4.3%e.

- (FR) France Nov YTD Budget Balance: -€172.5B v -€157.4B prior.

- (IT) Italy Nov Industrial Production M/M: 0.3% v 0.1%e; Y/Y: -1.5% v -2.3%e; Industrial Production (unadj) Y/Y: -4.5% v -0.5% prior.

Fixed income issuance

- (GR) Greece Debt Agency (PDMA) opened its book to sell EUR-denominated 10-year GGB bond via syndicate; guidance seen at +107bps to mid-swaps.

- (EU) European Union opened its book to sell EUR-denominated 3-year and 30-year bonds via syndicate; to sell July 2028 bonds; guidance seen at +19bps to mid-swaps and sell 3.375% Oct 2054 bonds; guidance seen at +130bps to mid-swaps.

- (NL) Netherlands Debt Agency (DSTA) sold €1.915B vs. €1.5-2.0B indicated range in 2% Jan 2054 DSL bonds; Avg Yield: 2.953%.

- (ES) Spain Debt Agency (Tesoro) sold total €2.544B vs. €2.0-3.0B indicated range in 3-month and 9-month bills.

- (ZA) South Africa sold total ZAR3.75B vs. ZAR3.75B indicated in 2038, 2040 and 2053 bonds.

- (UK) DMO sold £1.0B in 1.25% Nov 2054 Inflation-linked Gilts (UKTi) Real Yield: 2.126%; bid-to-cover: 3.06x.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell €5.0B in 2.40% Apr 2030 BOBL.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (BE) Belgium Debt Agency (BDA) to sell combined €3.0B in 3-month and 12-month bills.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO) (prior €9.984B with 34 bids recd).

- 05:30 (TR) Turkey to sell Bonds (2 tranches).

- 05:30 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 06:00 (US) Dec NFIB Small Business Optimism: 101.5e v 101.7 prior.

- 06:00 (IL) Israel Dec Trade Balance: No est v -$3.6B prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 3rd: No est v $609.8B prior.

- 08:00 (BR) Brazil Dec Vehicle Production: No est v 236.1K prior; Vehicle Sales: No est v 253.5K prior; Vehicle Exports: No est v 39.3K prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:30 (US) Dec PPI Final Demand M/M: 0.4%e v 0.4% prior; Y/Y: 3.5%e v 3.0% prior.

- 08:30 (US) Dec PPI (ex-foo/energy) M/M: 0.3%e v 0.2% prior; Y/y: 3.8%e v 3.4% prior.

- 08:30 (US) Dec PPI (ex-food/energy/trade) M/M: 0.3%e v 0.1% prior; Y/Y: No est v 3.5% prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 10:00 (US) Fed's Schmid.

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills.

- 14:00 (US) Dec Monthly Budget Statement: -$80.0Be v -$366.8B prior.

- 14:00 (AR) Argentina Dec National CPI M/M: 2.7%e v 2.4% prior; Y/Y: 118.0%e v 166.0% prior.

- 15:05 (US) Fed’s Williams.

- 16:00 (KR) South Korea Dec Import Price Index M/M: No est v 1.1% prior; Y/Y: No est v 3.0% prior.

- 16:00 (KR) South Korea Dec Export Price Index M/M: No est v 1.6% prior; Y/Y: No est v 7.0% prior.

- 16:30 (US) Weekly API Oil Inventories.

- 18:00 (KR) South Korea Dec Unemployment Rate: 2.9%e v 2.7% prior.

- 18:50 (JP) Japan Dec M3 Money Supply Y/Y: No est v 0.7% prior; M2 Money Supply Y/Y: No est v 1.2% prior.

- 20:10 (KR) Bank of Korea to sell KRW2.0T in 3-year Bonds.

- 20:10 (JP) BOJ Outright Bond Purchase Operation for ~1 Year; 1~3 Years; 3~5 Years; 5~10 Years; 25Years~

- 22:00 (KR) South Korea Dec Total Bank Lending To Household (KRW): No est v 1,141.4T prior.

- 22:00 (TH) Thailand to sell THB18B in 2.98% Jun 2045 bonds.

- 22:15 (IE) ECB’s Lane, (Ireland, chief economist).

- 22:30 (HK) Hong Kong to sell HK$1.5B in 10-year Bonds.

- 23:00 (ID) Indonesia Dec Trade Balance: $3.8Be v $4.4B prior; Exports Y/Y: 7.5%e v 9.1% prior; Imports Y/Y: 4.8%e v 0.0% prior.

- 23:30 (TW) Taiwan to sell NT$7.0B in 10-year Bonds.

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