Global Market Quick Take Europe - 20 January 2025

Global Market Quick Take: Europe – 20 January 2025

Key points

• Equities: US-China optimism, tech rebound, Trump-Xi call, S&P +1%, Nasdaq +1.6%, Dow +0.8%
• Volatility: VIX 15.97, calm pre-inauguration, earnings focus, muted futures
• Digital Assets: Bitcoin posts new (intraday) all time high, $TRUMP memecoin volatility
• Currencies: USD trades nervously ahead of Trump inauguration, with a spike in short-dated options vol pointing to significant market anticipation of tariff announcements.
• Commodities: Caution takes hold following period of aggressive fund buying
• Fixed Income: US yields close on session highs Friday after a further dip.
• Macro events: Trumps inauguration, US markets closed for Martin Luther King Day

Saxo’s Q1 2025 Quarterly Outlook is out, and can be accessed here

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Macro data and headlines

• Trump says he will sign near 100 executive orders as his 4-year presidency begins, with market initial focus chiefly on the specifics of the Trump administration’s tariff plans and whether they will be broad or targeted by geography or import category, whether they will start at low or high levels and whether there will be a “ratcheting” schedule of regular increases until the targeted country changes course. Other areas relevant for financial markets include the Trump administration’s plans for deregulation of the financial services and energy industries and the intended scale of deportation of illegal migrants.
• Japan's November core machinery orders rose 3.4% m/m to 899.6 billion yen, marking the strongest growth in nine months, surpassing forecasts of a 0.4% decline. Manufacturing orders increased by 6% to 462.9 billion yen, and non-manufacturing orders grew 1.1% to 453.7 billion yen.

Macro events (times in GMT)

US National Holiday, Germany Dec PPI (0700), Trump taking the oath of office followed by inaugural address (around 1700)

Earnings events

• Tuesday: Netflix, Charles Schwab, Interactive Brokers, 3M Company, Capital One Financial, DR Horton, United Airlines.
• Wednesday: Procter and Gamble, Johnson & Johnson, Abbott Laboratories, Progressive Corporation, GE Vernova
• Thursday: Intuitive Surgical, GE Aerospace, Texas Instruments, Union Pacific, Christian Dior, CSX
• Friday: American Express, Verizon, NextEra Energy

For all macro, earnings, and dividend events check Saxo’s calendar.

Equities

• US: US stocks rose on Friday, fueled by optimism over US-China relations after a phone call between President-elect Trump and China’s President Xi Jinping emphasized cooperation ahead of Trump’s inauguration. The S&P 500 gained 1%, the Nasdaq 100 rose 1.6%, and the Dow Jones added 0.8% (334 points), driven by tech leaders Tesla (+3.1%) and Nvidia (+3%). Consumer sentiment improved with Amazon up 2.4%, while China A50 futures surged 1.4% on Friday. For the week, the Dow gained 3.7%, the S&P 2.9%, and the Nasdaq 2.5%. However, futures eased early Monday as markets await Trump's executive orders, particularly on tariffs and deregulation, with US markets closed for Martin Luther King Jr. Day.
• Europe: European equities climbed on Friday, with the STOXX 50 hitting its highest level since 2000, up 0.8%, and the STOXX 600 gaining 0.7% to 524. Record highs for Germany’s DAX (+1.2%) were supported by strong corporate earnings and China’s economic rebound. Industrial names like Stellantis, Siemens, and Airbus gained over 2%, while luxury giants LVMH and Kering rallied on optimism from China's growth figures. For the week, the STOXX 600 logged a 2.4% gain, marking its fourth consecutive weekly advance, supported by cooling inflation, ECB dovish signals, and renewed global growth optimism. All eyes now turn to potential policy moves from the Trump administration and their impact on European markets.
• Asia: Asian equities rose Monday, supported by hopes of a softer stance on China from Donald Trump. Japan’s Nikkei 225 and TOPIX both gained 1.5%, while Hong Kong’s Hang Seng jumped 1.6%, led by Meituan (+6.8%) and Alibaba (+6.1%). China's Shanghai Composite added 0.5% after President-elect Trump and Chinese President Xi Jinping held constructive talks, reducing immediate trade war fears. Additionally, better-than-expected GDP growth of 5.4% for 2024 and industrial production figures boosted sentiment. However, investors remain cautious about potential volatility from Trump’s inauguration, particularly around executive orders on tariffs and trade.

Volatility

Volatility eased on Friday, with the VIX dropping to 15.97 (-3.63%), reflecting reduced concerns as inflation softened and markets rallied. However, VIX futures rose slightly to 17.45 (+0.94%), hinting at potential uncertainty ahead of Trump’s inauguration. Monday’s market holiday for Martin Luther King Jr. Day leaves market activity light, but major earnings this week, including Netflix and P&G, could drive fluctuations. Notable stock options activity includes Intel (66.4% IV), Palantir (77.5% IV), and MicroStrategy (112.9% IV), highlighting speculative interest in AI, crypto, and tech narratives.

Digital Assets

Bitcoin surged over the weekend, briefly crossing $108,000, and even posting a new (intraday) all-time-high this morning ($109,396.43) amid speculation on pro-crypto policies from President-elect Trump. Reports suggest Trump plans to sign executive orders prioritizing crypto regulation, potentially creating a Bitcoin reserve and establishing a crypto advisory council. Ethereum (+6.7%) and XRP (+9.5%) also rallied, while Coinbase rose 4.9% on optimism surrounding these developments. However, traders remain wary of potential profit-taking and volatility linked to memecoins launched by Trump over the weekend, including $TRUMP and $MELANIA, which saw sharp spikes followed by corrections.

Fixed Income

• US Treasury yields ended mixed on Friday with a notably flatter yield curve, driven by the stronger performance of long-term bonds. The 2s10s and 5s30s spreads closed near the session lows. Market-implied expectations for Fed rate cuts have slightly diminished, with OIS contracts now projecting 35 basis points of easing by the end of the year. In November, foreign holdings of US Treasuries increased as Treasuries rallied and the dollar strengthened, with gains seen in many regions. No global cash trading of Treasuries today due to Martin Luther King Day.

Commodities

• The commodities sector ended lower on Friday but still up on the week, after traders booked profits in ahead of Trump’s inauguration signaling a period of uncertainty and potential turmoil. Recent strong gainers also those seeing the biggest reversals, led by natural gas as the weather forecast turned milder in the week ahead, with crude and copper also losing altitude following recent strong gains.
• Hedge funds persisted with aggressive buying of commodities in the week the 14 January according to data from the CFTC and ICE Europe exchanges. The net long across 26 major futures contracts rose to near a three-year high, driven by strong demand for crude oil, natural gas, gold, copper, soybeans and corn. A development that raised the risk of profit taking as seen on Friday.
• Strong fund buying of US corn and soybean futures extended on Friday with corn reaching a fresh one-year high while soybeans added 1.5% ahead of the long weekend. Prices being supported by Argentine weather woes and cautious optimism about US-China trade relations

Currencies

• The US dollar was volatile Friday on Trump’s mention of a “very good” phone call with China’s president Xi Jinping, as the knee-jerk market reaction was to interpret this as a friendly overture to China, a possibly insinuating that Trump might take a stance of negotiation with China on trade rather than coming out strongly with large tariffs. The market reaction was quickly erased, with market clearly nervous ahead of today’s Inauguration and Trump speech.
• The JPY weakened broadly from the highs of last week in the cross, even as the market prices most of a 25 basis point rate hike at this Friday’s Bank of Japan meeting. Trump tariff announcements could impact the BoJ decision.
• Implied volatility for short-dated FX options is extremely elevated, with EURUSD 1-week volatility at 11.5% today and USDJPY 1-week at 12.5%, but more elevated relative to the recent baseline elsewhere, including in USDCAD, where 1-week volatility was in the 5-6% range for most of 2024, but has spiked to 11.7% from below 7.5% a week ago. USDMXN 1-week has risen above 19%.