📈 Market Report.
📉 According to Reuters, markets expect cuts of 99 bp for Europe in 2025, while in the case of the US, the cut is estimated to be only 37.5 bp. Here is the bearish EURUSD relationship that we have been announcing for months. Now this data confirms our suspicions.
📊 Benchmark 10-year Treasury yields reached an eight-month high on Tuesday due to a resilient U.S. economy and stable labor market and inflation risk re-emerging. This has pinned the euro close to its two-year low, which fell 6% last year due to weak economic conditions and political turmoil in Europe.
📈 A stronger economic data could lead to the market further scaling back expectations for potential Fed rate cuts this year.
🛢️ Oil prices rose, with Brent crude up 0.34% at $77.31 per barrel, while gold prices eased under pressure from higher bond yields and a stronger dollar.
🚗 Mercedes-Benz is set to lower its mid-term profitability targets for its passenger car business due to market weakness and the shift to electric vehicles. The German automaker’s management board, led by CEO Ola Kaellenius, will revise the targets by February 20. In the best-case scenario, Mercedes aims for profitability in a double-digit margin. The company is ramping up cuts after a weak third quarter.
🗣️ While politicians and the media attack Elon Musk and his X platform, accusing him of being an extremist lunatic, Meta announced yesterday that it is eliminating news fact-checkers that censored some personalities and will opt for “community notes” (X’s model of news verification).
🌍 Trade War On: Stéphane Séjourné, the EU’s industry chief, said the bloc has offensive and defensive tools to defend its industries, including potential tariffs on US imports and financial support to European businesses. Séjourné hopes to convince Trump that a trade war would harm US businesses by limiting access to the EU’s 450 million consumers, stating “We have everything to lose from a collective trade war.” The European Union must be ready to defend itself against protectionist trade measures by other countries, including any new steps taken by Donald Trump when he returns to the White House later this month. Séjourné said sectors of the future, such as clean tech and biotech, would need a system of financial guarantees to lower their cost of capital (subsidies?)
🇫🇷 France’s Socialist Party is open to compromise on the 2025 budget, allowing Prime Minister Francois Bayrou’s new government to avoid collapse in its efforts to repair public finances. The party, part of a left-wing coalition, voted to oust Prime Minister Michel Barnier from power following a budget dispute. If Socialist lawmakers abstain from future censure ballots, it would likely be enough for Bayrou’s government and the budget to survive.
📉 Market View:
📊 US index futures continue to move sideways, retreating over the past few hours on the back of yesterday’s good US labour market data. S&P 500 futures have retreated towards 3,960 points. Nasdaq 100 futures also retreated to 11,380 points, about 1,000 points below the highs reached in mid-December.
💵 The dollar, which had weakened at the beginning of the week, strengthens again and rises above 108.50 points on its DXY index. This triggers a further fall in the EUR/USD, which is currently below 1.0350. US bond yields reach new highs, with the 10-year bond offering a return above 4.65%, accumulating, paradoxically, an increase of almost 30% since the start of the cuts in September.
🇪🇺 In Europe, amid a whirlwind of political crises and poor macroeconomic data, the DAX 40 is close to new highs, surpassing 20,500 points yesterday. The only plausible explanation for this behaviour would be the expectation of continued financial support from the ECB in the coming months.
⛽ Crude oil seems to be breaking its long term downtrend and in the last few hours it has recorded a strong upward movement, with Brent crude rising above 77 dollars a barrel. This rise could be related to the increase in energy consumption due to the arrival of cold weather in Europe.
🥇 Gold remains stable, hovering around the $2,665 level, due to the strength of the dollar. Bitcoin has fallen back below 100,000 dollars, dropping significantly to 95,000 dollars at the moment.
🌎 Geopolitics:
🇺🇸 Trump has significantly impacted international relations, reverting the Panama Canal to the US, suggesting Canada should join the US, imposing sanctions if they don’t voluntarily do so, and threatening to apply sanctions if Denmark doesn’t negotiate over Greenland’s cession. He also announced the Gulf of Mexico would be renamed the Gulf of America.
🎙️ The media would go crazy if a quarter of these statements were made by someone like Putin, but this is the president of the US, it’s all hard democracy.
🤝 Surprisingly, Danish Prime Minister Mette Frederiksen said the US is “absolutely our closest ally” and Denmark is open to more collaboration in the North Atlantic region, welcoming more American investments in Greenland. Greenland is home to a US base used for missile detection and space monitoring, and its critical mineral resources have drawn interest from global powers.
💪 Trump stepped increased his expectations on European allies to more than double the current objective of 2% and proposed that NATO countries spend the equivalent of 5% of their economic output on defence. Even the US does not currently spend 5% of its GDP on defence, nor does any other member of the military alliance.
🇩🇪 Friedrich Merz, the conservative candidate for German chancellor, is reshaping his stance on migration, moving closer to the stance of the rising “far-right” party AfD, given the latter’s electoral success. He plans to make it harder to obtain a passport and strip citizenship from foreign-born Germans who commit serious crimes. Merz also plans to cut benefits payments by 50 billion euros and repeal a law allowing dual citizenship. Chancellor Olaf Scholz criticizes these proposals, arguing they could hinder Germany’s efforts to attract skilled workers from abroad.
