TL/DR: Stock markets at record highs, oil rallies to 2-month high on Iran supply fear, Alphabet joins $4tn club, US CPI inflation could snap back, JPM kicks off earnings on Wall St.
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Stock market records keep tumbling as investors continue to ignore the headline noise from the geopolitics and President Trump’s energetic approach to policy. Stocks in Taiwan, South Korea and Japan hit fresh record highs overnight after Wall Street shrugged off the criminal investigation of Fed chair Jay Powell to see the S&P 500 and Dow Jones post record finishes.
European stock markets hovered near record highs this morning, with the FTSE 100 coming up just a little shy of taking out its ATH early doors, with Games Workshop a notable decliner despite posting record half-year revenues and bumping up its dividend. Whitbread rallied 4% after selling nine more hotels to LondonMetric whilst it also sees a lower tax impact than feared from the Budget as its UK business picks up. Persimmon rose as it said profit would be at the upper end of market expectations. BP and Shell drove some upside as oil prices climbed to a two-month high on Trump imposing 25% tariffs on countries that trade with Iran, suggesting immediate potential disruption to supplies.
Japanese equities surged 3% higher after coming back from holiday as the yen cratered to its lowest in a year and a half against the US dollar and made new all-time lows against the euro and Swiss franc. The yen slumped to 158.90 per dollar, its weakest since July 2024, as losses accelerated against a broadly softer USD on speculation PM Sanae Takaichi may call a snap election. The Finance Ministry last intervened on 12 July 2024, when USDJPY touched 159.45. So far, we have heard some of the usual jawboning about one-sided yen trades. The short yen trade provided some cover for the dollar after coming under pressure from the news that Jay Powell was under investigation and his determined response. Cable held its 200-day moving average – looking at that potentially being an important test for the bulls survived. Bank of England governor Andrew Bailey speaks this morning.
The S&P 500 and Dow Jones both hit new intraday and closing all-time highs, while the Nasdaq also rose but is a little ways off its all-time high as some heavyweight tech stocks remain short of their peaks from last year.
Investors today are looking ahead to the US inflation data and the start of earnings season on Wall Street. The last CPI report was quite messy and included lots of guesswork, it seems. So, we wonder if the slower-than-expected pace of inflation can be repeated this time. I’d expect some reacceleration in prices following the distortions of the government shutdown. JPMorgan kicks off earnings season today – I would anticipated decent loan growth, manageable credit quality, improving net interest margins and booming investment banking revenues. We’ll also pay close attention to what they say about AI and costs.
Precious metals remain in vogue, and it’s hard to see any major shift, albeit we should be prepared for periods of consolidation following these sharp rallies. Gold hit a record high at $4,630 yesterday but has pulled back a touch this morning to traded just under $4,590. Silver also rallied to fresh records and the Global X Silver Miners ETF (SIL) rose to a new all-time high on Monday.
Oil: Brent crude (continuous) looked to take out $64.50 on Tuesday after rallying on bets that the Iran situation could lead to supply disruption in crude markets. The US has threatened 25% on countries that do business with Iran – question mark over whether China would really bother to stop importing crude from the country over a threat that has been deployed so many times before. The move on Brent comes after Friday’s session saw price action carve through the 50-day moving average around $62.50 but this level held and has allowed a kick-on. Bulls aiming for $65 and then the 200-day line comes in around $65.75 to offer clear near-term resistance.
Stocks
Alphabet became the fourth member of the $4 trillion club as the stock rose to fresh record highs, with Wells Fargo raising its price target to $350 from $268, citing strong momentum in its search business and Google Cloud Platform. It's emerging as a strong AI leader and seems placed to be first mover in showing meaningful monetization of AI investment, through improved search/ad revenues.
Meanwhile, Apple said Monday that Google’s Gemini will be the foundation for its artificial intelligence models and power its next generation of Siri. Talking about sky-high market caps and Google –Walmart shares popped after it was announced it will be added to the Nasdaq 100 (NDX) on Jan. 20, replacing AstraZeneca. Walmart is also going to use Google's Gemini AI to help shoppers find items, having already struck a similar deal with OpenAI's ChatGPT in October.
Shares of credit card providers fell after Trump called for a 10% cap on credit card interest rates for one year. Shares of banks and payment processes fell but trimmed losses largely as investors realised it won’t really work. American Express ended down 4%, Capital One was down 6%, while Mastercard (-1.6%) and Visa (-1.87%) saw smaller losses. JPM, Bank of America and Wells Fargo each fell over 1%. Barclays trades firmer this morning after posting losses yesterday and US banks could follow suit but JPM earnings are the major risk event to consider. Banks won’t offer credit at a loss so it’s likely it won’t wash and the hit to consumer spending would be seismic. So, the banks and providers will need to sort it out with White House. But it shows how much Trump is trying to win over consumers on the cost of living before the mid-term elections.
