📉 Market Report.
🇬🇧 British government bond prices fell sharply for a second day, pushing 10-year yields to their highest since August 2008 and 30-year yields to a new 26-year high. Sterling tumbled more than 1.2% against the U.S. dollar, hitting its lowest level since April. The rise in yields reflects reduced expectations of Bank of England rate cuts, extra borrowing from the new government’s budget.
🏦 Bank of England Deputy Governor Sam Woods said Britain should avoid participating in a “race to the bottom” on financial regulation, amid concerns the United States might opt out of global banking reforms. The Prudential Regulation Authority is assessing a possible loosening of reporting requirements for banks and insurers. Britain has already said it will adjust some Basel proposals to the needs of its domestic banking system, including lower capital requirements for small business lending. Prime Minister Keir Starmer has asked national regulators to present pro-growth initiatives by mid-January.
💷 Meanwhile, The UK’s finance ministry has stated that its commitment to the government’s fiscal rules is non-negotiable, despite rising borrowing costs. The ministry plans to sell billions of pounds of bonds this year to fund public services and growth-boosting investments while meeting the government’s debt and spending limits. UK debt is the second lowest in the G7, and only the Office for Budget Responsibility’s forecast can accurately predict the government’s headroom.
🇫🇷 In a New Year’s speech to the French central bank, which he leads, Villeroy stated, “Common sense would have us heading towards the neutral rate without slowing the pace by summer, if the pullback in inflation is confirmed in the coming quarters as we expect.” The so-called neutral rate, according to the ECB, is about 2%. Inflation in the euro zone eased last year towards the ECB’s 2% target, but increased to 2.4% in December.
🇺🇸 In relation with US, in contrast to the 50 basis points that Fed officials suggested only last month, traders are reducing their expectations on Fed easing this year to just 41 basis points.
📅 Today is a bank holiday in the US, so wall street should be quiet ahead of Friday’s employment data.
🇧🇷 Brazil recorded its largest net outflow since 2020 in 2024, with a total net outflow of $18.01 billion. This was due to net outflows in the financial segment, including foreign investments, profit remittances, and interest payments, despite a net inflow in the commercial sector. Recently, the government decided to cut interest rates and make the BRL cheaper. The Brazilian real depreciated by over 27% last year, its biggest swing since 2020. In December, the country reported a net outflow of $26.41 billion.
📈 Market View:
📊 US futures seem to continue to stall. Mini S&P 500 futures are currently trading at 5,947 points, showing little change and weakening since the beginning of the year. The Nasdaq 100 is also at low levels, trading at 21,315 points, losing more than 1,000 points since December.
💵 The dollar is again showing upward momentum, with its DXY index above 109 points. The EUR/USD barely manages to stay above 1.03. Meanwhile, the yield on the US 10-year bond rose above 4.70% yesterday.
🌍 In the UK, there has been a real earthquake in the bond market, the reasons for which we have explained in detail. The yield on the UK 10-year bond approached 4.90%, while GBP/USD continues to weaken significantly, falling to 1.2310 as we speak.
📈 In Europe, however, a different dynamic seems to be prevailing. Equities continue to set new all-time highs, completely detached from the rest of the world. Yesterday, the DAX 40 reached a new record high of over 20,600 points.
🥇 Meanwhile, gold continues to slowly climb and gain traction, reaching $2,680 per ounce at the moment. In contrast, crude oil is retreating, with Brent crude oil, after approaching 78 dollars, now falling to 76.25 dollars. Finally, Bitcoin loses the $95,000 level, which could have acted as an interesting support.
🌐 Geopolitics:
🇫🇷 Diplomatic chaos. French Foreign Minister Múte Egede has declared that the European Union will not allow the US to invade Groenland. The European Commission has demanded EU countries’ sovereignty following Trump’s declarations of annexement. The first Groenlandian minister, Múte Egede, has called for a meeting with the Danish king.
🇬🇧 In UK, British MPs have voted against launching a national enquiry into the problem of child grooming gangs, sparking outrage from campaigners and victim advocates who argue that such an enquiry is essential for justice and accountability.
🇺🇦 Keith Kellogg, Trump’s special representative for Ukraine, has set a goal of ending the conflict within 100 days of the new president’s election. Both Kellogg and Trump believe they have limited time to find a solution to the conflict. Criticizing Biden’s negative dialogue with Putin post-2022, Kellogg emphasizes Trump’s determination to establish a dialogue with the Russian leader. He believes Trump can propose an acceptable solution for Putin and Zelensky “as soon as possible.”
🇸🇾 Flexible morality. Following the occupation of Syrian territory by Islamist rebels former members of ISIS and Al Nusra, listed as international terrorists, France’s foreign minister, Jean-Noel Barrot, has suggested that the European Union could lift sanctions in Syria that hinder humanitarian aid delivery and the country’s recovery. The US issued a sanctions exemption for transactions with governing institutions in Syria for six months after the end of Bashar al-Assad’s rule to ease the flow of humanitarian assistance.
