More volatility for Yen

EU mid-market update: Massive trade deal signed between EU and India concludes two decades of negotiations and opens both markets up to lower tariffs; More volatility for yen; US premarket earnings noteworthy.

Notes/observations

- Indices are mixed as details trickle out from blockbuster ‘mother of all trade deals’ between EU-India in a Free Trade Agreement which covers 2 billion people and 25% of global GDP. Ultimately designed to slash tariffs to marginal levels or zero across multitude of sectors. EU expected to double shipments to India. Tariffs on cars, machinery, steel/iron, wine, olive oil, agricultural products, chemicals, pharma, leather, jewelry, textiles and apparel are all cut significantly. Sensitive sectors excluded: dairy, sugar, some meats, beef, chicken, rice, ethanol.

- As weather impacts continue in US and migrate to Europe slightly, European energy markets face renewed strain. TTF gas advances as US winter-storm disruptions curb LNG flows, while European and Asian heating demand remains elevated. EU storage sits well below seasonal norms, reinforcing tight-balance risks. In the US, front-month gas eases after a three-year high as storm-driven outages - peaking near 14 bcfd - are expected to normalize later this week.

- FX dynamics remain dominated by yen volatility. USD/JPY’s sharp slide toward 153.3 followed reports of US and Japanese rate checks and weaker expectations for Japan’s fiscal expansion ahead of the Feb 8th election. The pair had partially retraced toward 155 as intervention signals fade, but markets remain alert to further official action. Broader dollar sentiment is mixed: resilient US data and the upcoming FOMC offer support, while EM inflows and auction risks lean negative.

- Precious metals eased briefly overnight but bounced back as heavy bullish momentum overturns sharp correction. Analysts note silver market is more susceptible to manipulation given its smaller market cap than gold.

- Trade tensions re-emerged, Pres Trump’s tariff threats toward South Korea - echoing earlier rhetoric toward Europe, Canada and others - haven’t materially moved markets, with Korean assets steady as local lawmakers move to ratify the bilateral deal by end-February. Broader concerns persist over the credibility of tariff signaling and potential spillovers to other Asian trade arrangements.

- Trump administration said to be still weighing precision strikes against Iranian officials as U.S. carrier groups move into strike range, signaling a potential military escalation despite internal warnings of "chaotic" retaliation risks. While the USS Abraham Lincoln is positioned for immediate action, President Trump has simultaneously expressed interest in a new deal with Tehran, leaving U.S. strategy in a state of high-stakes flux.

- Microsoft’s newly unveiled Maia 200 chip marks a strategic "declaration of independence" from Nvidia, utilizing a power-efficient 750W architecture and massive on-chip SRAM to slash AI inference costs. By bypassing the "CUDA moat" through the Triton compiler, Microsoft likely aims to reclaim billions in margin and undercut hyperscale rivals on a price-per-token basis as soon as by mid-2026.

- OpenAI said it plans to dramatically slow headcount growth as CEO Sam Altman bets on smaller, high-output teams and the shift toward highly personalized, AI-generated software. Altman confirmed that recent model updates intentionally sacrificed creative "flair" to prioritize raw reasoning and cost reduction, signaling a strategic focus on general-purpose intelligence over speed or niche technical capabilities.

- Roche’s injectable CT-388 delivered a "clinically meaningful" 22.5% weight loss in Phase II trials, positioning the dual-agonist as a direct threat to the market dominance of Eli Lilly’s Zepbound and its experimental "triple-G" successor. With Phase III trials launching this quarter and 73% of pre-diabetic patients achieving normal glucose levels, Roche is fast-tracking the asset to break the existing obesity-drug duopoly.

- Asia closed higher with KOSPI outperforming +2.7%. EU indices -0.2% to +0.4%. US futures -0.1% to +0.5%. Gold +1.8%, DXY 0.0%; Commodity: Brent -0.1%, WTI 0.0%; Crypto: BTC +0.1%, ETH +0.5%.

Asia

- South Korea Jan Business Manufacturing Survey: 97.5 v 94.7 prior; Non-Manufacturing Survey: 91.7 v 93.8 prior.

- Japan Dec PPI Services Y/Y: 2.6% v 2.7% prior.

- Australia Dec NAB Business Confidence: 3 v 2 prior.

- China Dec Industrial Profits Y/Y: +5.3% v -13.1% prior; YTD Y/Y: No est v 0.1% prior.

Europe

- UK Jan BRC Shop Price Index Y/Y: 1.5% v 0.7% prior (highest since Feb 2024).

- BOE's Gov Bailey Op-ed noted that saw challenge in managing risks beyond banking scope.

- NATO Sec Gen Rutte stressed that would always be a very strong, conventional US military presence in Europe.

Americas

- Pres Trump said to be mulling cap on state fuel tax in California; According to Trump, gasoline in the state could be $2.50/gallon.

- Rick Rieder remained the current favorite for nomination as the next Fed Chair.

Trade

- Pres Trump posted that was increasing South Korean TARIFFS on Autos, Lumber, Pharma, and all other Reciprocal TARIFFS, from 15% to 25% citing Korean Legislature had yet to enact the agreement.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.22% at 610.92, FTSE +0.34% at 10,183.04, DAX -0.17% at 24,907.13, CAC-40 +0.04% at 8,134.12, IBEX-35 +0.09% at 17,696.58, FTSE MIB +0.26% at 45,065.50, SMI +0.37% at 13,194.70, S&P 500 Futures +0.24%].

Market focal points/key themes: European indices open higher across the board and remained upbeat through the early part of the session; stocks supported on trade news; among sectors leading the way higher are technology and financials; lagging sectors include consumer discretionary and materials; apparel subsector supported after Anta takes stake in Puma; OpMobility signs MoU with Hyundai Mobis; earnings expected in the upcoming US session include LVMH, Boeing, General Motors and UnitedHealth.

Equities

- Consumer discretionary: Puma [PUM.DE] +8.5% (Anta Sports purchase stake), Burberry [BRBY.UK] +1.0% (analyst upgrade).

- Healthcare: Roche [ROG.CH] +1.0% (obesity drug trial data), Evoke [EVOK.UK] -7.0% (trading update).

- Industrials: Renault [RNO.FR] -2.0% (EU-India trade deal), Alstom [ALO.FR] -2.5% (analyst downgrade), Sandvik [SAND.SE] +0.5% (earnings).

Speakers

- ECB's Kocher (Austria): A lot has happened since last ECB meeting in Dec; Important to keep full optionality. Need to be able to act quickly and decisively.

- Germany Econ Min Reiche noted that he expected some economic growth in 2026 but mostly debt-funded and not sustainable.

- Japan business lobby Keidanren chief Tsutsui: If there is rapid FX modes, FX intervention can be justified.

- China Commerce Ministry (MOFCOM): China expected to sign trade and investment deals with UK (**Note: UK PM Starmer to visit China Jan 28-31st).

- South Korea Pres Office: Received letter from US asking not to discriminate against US companies on digital matters.

- North Korea reportedly fired suspected ballistic missile. Missile likely fell outside Japan's exclusive economic zone (EEZ).

Currencies/fixed income

- USD trying to claw its way back following some initial weakness as the trading week began. Focus turning to key rate decisions with Fed expected to keep policy steady on Wed.

- USD/JPY pair was initially higher with volatility narrowing in the absence of fresh news on the intervention threat. After testing 153.31 on Monday, the pair was back around the 155 area as the session began. Just before mid-session the pair retested the 153.30 lows on fresh vague reports of ‘central bank rate checks’.

- EUR/USD at 1.1885 by mid-session with the 1.20 key resistance point intact for the time being. Markets still expect ECB t be on hold for the foreseeable future.

- 10-year German Bund yield last at 2.88%, France 10-year Oat at 3.44% and 10-year Gilt yield at 4.51% 10-year Treasury yield: 4.22%; 10-year JGB: 2.27%.

Economic data

- (EU) Euro Zone Dec EU27 New Car Registrations: 5.8 v 2.1% prior.

- (JP) Japan Dec Final Machine Tool Orders Y/Y: 10.9 v 10.6% prelim.

- (FI) Finland Jan Consumer Confidence: -8.7 v -7.3 prior; Business Confidence: -1 v 0 prior.

- (FI) Finland Dec Unemployment Rate: 9.8% v 9.7% prior.

- (SE) Sweden Dec PPI M/M: -1.1% v +1.2% prior; Y/Y: -2.7% v -1.4% prior.

- (SE) Sweden Dec Trade Balance (SEK): 7.4B v 9.6B prior.

- (DK) Denmark Dec Retail Sales M/M: -1.2% v +1.7% prior; Y/Y: 3.3% v 4.9% prior.

- (ZA) South Africa Nov Leading Indicator: 118.4 v 116.8 prior.

- (FR) France Jan Consumer Confidence: 90 v 90e.

- (TW) Taiwan Dec Monitoring Leading Indicator: 38 v 37 prior.

- (ES) Spain Q4 Unemployment Rate: 9.9% v 10.3%e.

- (HK) Hong Kong Dec Trade Balance (HKD): -63.3B v -49.8Be; Exports Y/Y: 26.1% v 16.8%e; Imports Y/Y: 30.6% v 19.9%e.

- (PL) Poland Dec Unemployment Rate: 5.7%% v 5.7%e.

Fixed income issuance

- (DE) Germany opened its book to sell EUR-denominated 20-year Bund via syndicate; guidance seen +3bps to DBR.

- (ZA) South Africa sold total ZAR3.0B vs. ZAR3.0B indicated in 2038, 2042 and 2053 bonds.

- ID) Indonesia sold total IDR12.0T vs. IDR12.0T target in Islamic bills and bonds (sukuk).

- (UK) DMO sold £3.25B in 4.125% Mar 2033 Gilts; Avg Yield: 4.296% v 4.191% prior; bid-to-cover: 3.81x v 2.04x prior; Tail: 0.2bps v 0.3bps prior.

- (AT) Austria Debt Agency (AFFA) sold total €1.88BB vs. €2.0B indicated in 3-month and 6-month bills.

- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B indicated range in new 2.20% Feb 2028 BTP bonds; Avg Yield: 2.26% v 2.18% prior; bid-to-cover: 1.64x v 1.64x prior.

- (IT) Italy Debt Agency (Tesoro) sold total €2.0B vs. €1.5-2.0B indicated range in I/L 2031 and 2056 Bonds (BTPei).

Looking ahead

- (RO) Romania Dec M3 Money Supply Y/Y: No est v 6.6% prior.

- (CO) Colombia Dec Retail Confidence: No est v 22.3 prior; Industrial Confidence: No est v -4.3 prior.

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (DE) Germany to sell €6.0B in new Mar 2028 Schatz.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (BR) Brazil Jan FGV Construction Costs M/M: 0.6%e v 0.2% prior.

- 07:00 (BR) Brazil mid- Jan IBGE Inflation IPCA-15 M/M: 0.2%e v 0.3% prior; Y/Y: 4.5%e v 4.4% prior.

- 07:00 (MX) Mexico Dec Trade Balance: $2.6Be v $0.7B prior.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:00 (HU) Hungary Central Bank (MNB) Interest Rate Decision: Expected to leave Base Rate unchanged at 6.50%.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending Jan 9th: No est v +8.0K prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:00 (US) Nov FHFA House Price Index M/M: 0.3%e v 0.4% prior.

- 09:00 (US) Nov S&P Cotality House Price Index (20-City) M/M: 0.20%e v 0.32% prior; Y/Y: 1.20%e v 1.31% prior; House Price Index (overall) Y/Y: No est v 1.36% prior.

- 09:00 (HU) Hungary Central Bank (MNB) post rate statement expected at 09:00 ET (14:00 GMT).

- 10:00 (US) Jan Consumer Confidence: 90.6e v 89.1 prior.

- 10:00 (US) Jan Richmond Fed Manufacturing Index: -5e v -7 prior; Business Conditions: No est v -11 prior.

- 10:30 (US) Jan Dallas Fed Services Activity: No est v -3.3 prior.

- 10:30 (CA) Canada to sell 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 12:00 (EU) ECB chief Lagarde.

- 12:00 (DE) ECB’s Nagel (Germany) on digital euro.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 16:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 4.50%.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 16:45 (NZ) New Zealand Dec Filled Jobs M/M: No est v 0.3% prior.

- 18:50 (JP) BOJ Dec Minutes (2 decisions ago).

- 19:30 (AU) Australia Q4 CPI Q/Q: 0.6%e v 1.3% prior; Y/Y: 3.6%e v 3.2% prior.

- 19:30 (AU) Australia Q4 CPI Trimmed Mean Q/Q: 0.9%e v 1.0% prior; Y/Y: 3.3%e v 3.0% prior.

- 19:30 (AU) Australia Q4 CPI Weighted Median Q/Q: 0.8%e v 1.0% prior; Y/Y: 3.2%e v 2.8% prior.

- 19:30 (AU) Australia Dec CPI M/M: No est v 0.0% prior; Y/Y: 3.6%e v 3.4% prior.

- 19:30 (AU) Australia Dec CPI Trimmed Mean M/M: No est v 0.3% prior; Y/Y: 3.3%e v 3.2% prior.

- 21:00 (SL) Sri Lanka Central Bank (CBSL) Interest Rate Decision: Expected to leave Overnight Policy Rate (OPR) unchanged at 7.75%.

- 22:00 (TH) Thailand to sell combined THB45B in 2029 and 2040 bonds.

- 22:35 (JP) Japan to sell 40-year JGB Bonds.

- 23:00 (SG) Singapore to sell 2.5% 2030 Bonds.