In a rollercoaster session of reversals, US equity futures at first slumped only to rise to session highs, while the dollar initially spiked only to slide after Donald Trump vowed to place 10% tariffs on goods from China and 25% on all imports from Mexico and Canada, a move which at first spooked the market but was subsequently viewed as "not as bad as some had expected." As of 8:00am, S&P 500 futures were higher by 0.2%, while Nasdaq 100 futs rose 0.3% adding to gains in early US session while remaining inside Monday’s range; European and Asian stocks fell, reflecting worries that Trump’s policies will hurt US exporters. Bond yields are unchanged and the USD - a beneficiary of isolationist policies - gave up early gains only to trade at session lows. The Mexican peso and Canadian dollar weakened. Commodities are higher led by base metals; oil is +0.9% higher. Bitcoin retreated from the $100,000 level after a failed run at the "nice round number" with Standard Chartered suggesting that the catalyst for the pullback yesterday was a post Bessent announcement (for Treasury) reduction in US Treasury term premium.The biggest headlines post Monday close was Trump’s tariff threat on Mexico, Canada and China. Today, the key macro focus will be New Home Sales and FOMC Minutes.
In the premarket, Eli Lilly rose after the Biden administration proposed a rule that would require the US government to cover weight-loss drugs through the Medicare and Medicaid systems. Leslie’s shares tumbled after the outdoor supplies and sporting goods company’s fourth-quarter sales that missed estimates. Zoom Video Communications shares fell on disappointing third-quarter results. Here are the notable premarket movers:
Late on Monday Trump vowed on TruthSocial to place an extra 10% tariffs on Chinese imports and 25% levies on all products from Mexico and Canada as soon as he is inaugurated. The measures are needed to clamp down on migrants and illegal drugs flowing across the US border, he said on his Truth Social Network.
"We’re just seeing the start of the volatility and the volatility is going to continue as the rhetoric continues,” said Justin Onuekwusi, CIO at St. James’s Place. “It is very difficult to assess if it is a threat, promise or negotiation tool.”
Tuesday’s market moves marked an unwind of the relief rally in the previous session on Trump’s nomination of Scott Bessent as his Treasury Secretary, a hedge fund manager with a Wall Street mindset. While Bessent has at times suggested that Trump’s maximalist approach is a negotiation tactic, he signaled strong support for tariffs in an op-ed for Fox News on Nov. 15.
While markets wait for more clarity on Trump's policies, traders also await FOMC minutes due later to gauge how inflation expectations are reading across to Fed policy. Policymakers cut the interest rate by 25 basis points at the meeting, a widely expected move that reflected perceived lower downside risks to activity and employment. The account of the Nov. 6-7 policy meeting, which took place a day after the US election, may disappoint those seeking enlightenment from policymakers on how they view rates under Trump, as it’s unlikely they discussed election results, according to Bloomberg Economics.
"One thing that will be a big hurdle to tariffs being imposed is if inflation expectations are starting to move up in the short term,” Onuekwusi said.
All sectors and major indexes in European stocks declined due to concerns about global trade after US President-elect Trump threatened tariffs. The Stoxx 600 fell 0.6%, and the Europe's Estoxx 50 down 0.4% with losses led by energy and consumer staples sectors; exporters such as carmarkers were hardest hit in early trading, with shares in Stellantis and Volkswagen declining and the autos sub-index the morning’s worst performer. Telecom stocks, seen as a defensive sector, outperform. Here are the most notable news:
Earlier in the session, Asian stocks fell as traders mulled the potential impact of additional US tariffs on China as well as Mexico and Canada. The MSCI Asia Pacific Index dropped as much as 1%, with benchmarks in Japan, Taiwan and South Korea leading declines. Tech hardware and financials were the biggest drags among industry groups on the regional gauge. Chinese shares extended a recent selloff. Tuesday’s risk-off moves in Asia followed Donald Trump’s remarks that he will impose additional 10% tariffs on Chinese goods due to the influx of illegal drugs. He also said he will enact a 25% tariff on all goods from Canada and Mexico.
“The devil is in the details; how it gets implemented, over what time frame, and whether there’s room for negotiation,” said Vey-Sern Ling, managing director at Union Bancaire Privee. “In the short term, there could be some knee-jerk reactions, especially on export-driven companies.”
In FX, the Bloomberg Dollar Spot Index initially spiked on tariff fears but has since pared all gains and is now near session lows. The Canadian dollar falls 0.8% against the US currency, the worst performer among the G-10 currencies while the Mexican peso drops 1.2%.
In rates, treasury yields also initially spiked, with 10-year yields rising 3 bps to 4.30%, but have since reversed, unwinding a small portion of Monday’s strong rally on Trump’s nomination of Scott Bessent for Treasury secretary along with a well-received 2-year auction. As Bloomberg notes, treasuries so far offer muted reaction to Trump’s latest threat of additional tariffs on Mexico, Canada and China. US yields cheaper by up to 1bp across intermediates with front-end outperforming slightly; 10-year is higher by ~1bp at 4.28%, with bunds in the sector outperforming by 1.5bp and gilts lagging by 1.5bp. The 2s10s curve reverts to positive slope of about 3bp as the 2-year auctioned Monday becomes the benchmark, with lower yield than the previous one; Monday’s 2s10s inversion was first since October. The treasury auction cycle continues with $70b 5-year at 1pm, concludes Wednesday with $44b 7-year. Demand was strong for Monday’s 2-year note sale, which stopped through by 1.8bp. WI 5-year yield at around 4.17% is ~3bp cheaper than October’s, which tailed by 1.6bp.
In commodities, oil prices rebounded from Monday’s slump, with WTI rising 1% to $69.60 a barrel. Spot gold is up $5 at $2,630/oz. Bitcoin falls below $93,000.
Looking at today's US economic data calendar we have the November Philadelphia Fed non-manufacturing activity (8:30am), September FHFA house price index, 3Q house price purchase index and September S&P CoreLogic home prices (9am), October new home sales, November consumer confidence, and Richmond Fed manufacturing index (10am) and Dallas Fed services activity (10:30am). The Fed speaker slate blank; minutes of Nov. 6-7 FOMC meeting are to be released at 2pm.
Market Snapshot
Top Overnight News
A more detailed look at global markets courtesy of Newsquawk
APAC stocks were ultimately mixed but with early jitters seen following Trump's tariff remarks against Canada, Mexico and China in which he announced to charge Mexico and Canada a 25% tariff on all products and will charge China 'an additional 10% Tariff, above any additional Tariffs'. ASX 200 declined with weakness seen in energy, gold stocks and financials after the recent drop in underlying commodity prices and yields. Nikkei 225 underperformed as firmer-than-expected Services PPI data supports the case for the BoJ to resume policy normalisation. Hang Seng and Shanghai Comp kept afloat in rangebound trade amid the latest Trump tariff threat but with the downside cushioned as increased tariffs would also likely be met with further policy support measures by China, while the PBoC recently pledged measures to promote tech including prioritising policy support for private, small and medium firms.
Top Asian News
European bourses are lower across the board, Stoxx 600 -0.6%, pressure which comes after US President-elect Trump vowed to impose new tariffs on Mexico, Canada, and China on the first day of his Presidency.
Pressure is broadbased given the above; stock specifics include Banco BPM/UniCredit/Credit Agricole updates while Roche is pressured after a Phase III trial failed to meet the primary endpoint.
European sectors in the red, Autos & Parts at the bottom of the pile given exposure to the above and Autos general sensitivity to the global trade environment. Pharma. names lifting on recent reports of Biden proposing Medicare coverage of obesity drugs, via Bloomberg; Novo Nordisk +2%.
Stateside, futures retreated overnight after Trump's announcement but have been gradually recovering and made their way back modestly into the green, ES +0.1%; updates incl. Qualcomm's (-0.1% pre-market) interest in acquiring Intel (+0.7% pre-market) cooling - later was initially pressured on this but has since recovered on the US finalising a 7bln award to Intel.
Top European News
FX
Fixed Income
Commodities
Geopolitics
US Event Calendar
DB's Jim Reid concludes the overnight wrap
Yesterday we published our World Outlook for 2025, which is called “Navigating Trump 2.025” (link here). It includes all our global economic and asset price forecasts for the year ahead. Given the US election result, our view is we can forget “business as usual”, as a wider range of outcomes have now opened up. These span from a potentially much more positive US outlook on the one hand, to a much more negative European outlook on the other. How President-elect Trump weights his potentially conflicting economic policy goals will influence growth and markets into next year and beyond.
If the primary focus of the new administration is boosting growth, there’s every chance that this can be very positive for the US, with spillovers elsewhere across the globe. But that would likely require less of a focus on campaign promises like the deportation of undocumented immigrants and on tariffs. On the other hand, if greater weight is put on aggressive trade and immigration policies, that could be more negative for growth and push up inflation. A maximalist Trump trade agenda and a Europe constrained to act because of fragmentation is a huge but realistic risk for the continent. The German election (likely in February) could become a pivotal event.
Our base case for 2025 is stronger US growth and inflation, and a higher Fed terminal rate than previously expected, with the opposite conditions for Europe. This is driven by the assumption of modest US tax cuts, a strong deregulation push, and more supportive financial conditions. On trade, we assume a 10 percentage point increase in the tariff rate on imports from China in H1 (ratcheting up a further 10pp in H2) and an equalisation of tariff rates on motor vehicles with Europe. The forecast also assumes a 5% universal baseline tariff, though that is more likely to be implemented late 2025/early 2026. See the report for the full forecast details across different regions and asset classes.
Speaking of tariffs, the main news overnight is that President-elect Trump said on his Truth Social network that one of his first executive orders on January 20 would be to charge Mexico and Canada a 25% tariff on all products, and in a separate post, he said that China would face an additional 10% tariff, above additional tariffs. That’s led to an immediate market reaction, and the Canadian dollar has weakened by -0.86% against the US Dollar this morning, pushing it down to a four-and-a-half year low, whilst the Mexican Peso is down -1.20% against the Dollar. Moreover, several markets in Asia have moved lower, including the Nikkei (-1.54%), the KOSPI (-0.63%), and the S&P/ASX 200 (-0.69%). That said, the main Chinese indices have recovered their initial losses from the open, with the CSI 300 (+0.30%) and the Shanghai Comp (+0.36%) both up this morning.
Ahead of that news overnight, the 10yr Treasury rally (-12.7bps) was the main story yesterday, carrying on from the initial rally in Asia we discussed yesterday after Scott Bessent’s nomination as the new US Treasury Secretary late on Friday. But markets were also helped by reports suggesting that Israel and Hezbollah were close to agreeing a ceasefire, with Israel’s ambassador to the US saying that a deal “could happen within days”. So that led to a noticeable pullback in Brent crude oil prices (-2.87%), which also helped to ease investors’ fears about inflationary risks.
In terms of Scott Bessent’s nomination, we mentioned yesterday how markets were already reacting constructively in Asia, but that was evident across the US session as well. That’s because Bessent is seen as market-friendly and has supported a gradualist approach on tariffs, so his nomination is seen as a less aggressive option than some of the others would have been. In addition, Bessent has consistently argued in favour of cutting the federal budget deficit, so that was viewed as positive for Treasuries as well. Lower yields meant the dollar index (-0.69%) saw its biggest daily decline since August.
The positive reaction was clearest in Treasury markets, where yields saw a clear decline across the curve. For instance, the 2yr yield was down -10.4bps to 4.27%, whilst the 10yr yield fell -12.7bps to 4.27%. There was also a particularly strong decline among real yields, with the 30yr real yield (-7.0bps) seeing its biggest daily decline since August. Nevertheless, after the US close, Minneapolis Fed President Kashkari said that, “knowing what I know today…considering a 25-basis-point cut in December — it’s a reasonable debate for us to have.” So that added to the questions about whether the Fed would cut at all next month, and the 2yr yield is up +1.7bps overnight to 4.29%. At the same time, Kashkari acknowledged “some confidence that (inflation) is gently trending down.”
Whilst that was happening, the other main story yesterday came from the Middle East, where reports suggested that Israel and Hezbollah were moving closer to a ceasefire deal. That led to a direct reaction amongst several assets, and the Israeli shekel strengthened +1.66% against the US Dollar, which is its biggest daily move up in four weeks. Moreover, oil prices saw an immediate move lower as the reports came through, with Brent crude falling -2.87% to close at $73.01/bbl. Overnight however, oil prices have stabilised, with Brent up +0.40% higher to $73.30/bbl as we go to press.
This backdrop proved favourable to equities on both sides of the Atlantic, with the S&P 500 (+0.30%) advancing for a 6th consecutive session, whilst the STOXX 600 (+0.06%) was (just) up for a 3rd day running. The US gains were pretty broad, with 77% of the index higher and the equal-weighted S&P 500 up by +0.88%, whilst the small-cap Russell 2000 surged by +1.47% to an all-time high, so a lot of companies did very well yesterday. However, energy stocks struggled given the oil price moves, whilst Nvidia (-4.18%) fell back for a second day running and is now -6.77% since its results last week.
Over in Europe, there were a few headlines out of Germany yesterday, as Chancellor Scholz won the support of top SPD officials to be their chancellor candidate in the election. Separately, we also had the Ifo’s latest business climate indicator for November, which ticked down a bit more than expected to 85.7 (vs. 86.0 expected), whilst the current assessment reading fell to its lowest since July 2020, at just 84.3. In the meantime, sovereign bonds rallied across the continent, with yields on 10yr bunds (-3.2bps), OATs (-1.9bps) and BTPs (-2.8bps) all moving lower.
Notably, there was also another uptick in the Franco-German 10yr spread, which closed at 81.4bps, which is its highest level since June, shortly before the first round of the snap legislative election. For further insight into France’s upcoming budget negotiations this week, see our European economists’ primer here. The note takes you through the upcoming stages of the budget approval process and the routes the budget could take. Their most likely path is using Article 49.3 to bypass a National Assembly vote, but this would very likely trigger a no-confidence vote in the government. See more in the report.
To the day ahead now, and data releases from the US include the Conference Board’s consumer confidence for November, new home sales for October, and the FHFA’s house price index for September. From central banks, we’ll get the FOMC minutes from the November meeting, and we’ll hear from the ECB’s Villeroy, Centeno, Rehn and Muller, along with the BoE’s Pill.
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