Defense names take off as Trump social media posts indicate a future full of conflict

EU mid-market update: Defense names take off as Trump social media posts indicate a future full of conflict and increased defense spending.

Notes/observations

- European equity markets are mostly lower, tracking US and Asian weakness, with miners and retailers under pressure. Defense stocks outperform following renewed calls for a significant increase in US defense spending from Trump, suggesting military budget should rise to $1.5T from $1.0T. Retailers faced mixed reactions: Tesco and AB Foods fell on softer guidance and consumer pressure, while Marks & Spencer’s food business remained a bright spot. Energy stocks weakened after cautious trading updates, particularly from Shell.

- Venezuela remains a focal point, with markets largely discounting near-term oil disruption risks but watching US policy moves closely. Crude prices remain rangebound. Analysts broadly see Venezuelan supply as insufficient to materially tighten the global market, with oil expected to trade in the high $50s through much of 2026. US crude inventories posted a larger-than-expected draw, offering short-term support, while longer-term supply concerns persist.

- European natural gas prices remain supported by colder weather and falling storage levels, though positioning suggests reduced downside conviction.

- Precious metals pulled back on profit-taking and a firmer dollar.

- Sen Graham (R-SC) said Pres Trump has green lit the bipartisan Russia sanctions bill yesterday; hopes for a vote on the bill by early as next week, paving way for 500% tariff on countries supporting Russia.

- Asian tech sentiment was mixed, with Chinese chipmakers outperforming amid policy support and Nvidia-related headlines.

- SimilarWeb data disclosed that ChatGPT recorded the largest month-over-month drop in traffic in Dec 2025 since July 2023; It is the first time in two years with two consecutive months of declining traffic for OpenAI's leading product.

- Asia closed mixed with Nikkei225 underperforming -1.6%. EU indices -0.1% to -0.4%. US futures -0.3%. Gold -0.6%, DXY +0.1%; Commodity: Brent +0.9%, WTI +1.0%; Crypto: BTC -2.3%, ETH -3.5%.

Asia

- Japan Nov Labor Cash Earnings Y/Y: 0.5% v 2.3%e; Real Cash Earnings Y/Y: -2.8% v -1.2%e.

- Australia Nov Trade Balance (A$): 2.9B v 5.0Be; Exports M/M: -2.9% v +4.3% prior; Imports M/M: 0.2% v 2.% prior.

- Japan to sell 30-year JGB Bonds; Avg Yield: 3.4470% v 3.4270% prior, bid-to-cover: 3.14x v 4.04x prior.

- Bank of Japan (BOJ) Quarterly Regional Economic Report (Sakura): Maintains assessment on all 9 regions.

- RBA Dep Gov Hauser reiterated view that likely have seen the last interest rate cut in the cycle. Likelihood of near-term rate cuts 'very low'.

Global conflict/tensions

- US Sec of State Rubio to meet with his Danish counterpart next week on Greenland; considering all options. VP Vance noted Trump would make the ultimate determination on Greenland.

Europe

- ECB's Pereira (Portugal): Price stability is in place. No reason to adjust monetary policy at this stage as euro-area inflation remains close to its 2% target.

Americas

- Trump invited to give State of the Union address to Congress on Feb. 24th.

- President Trump called for record $1.5 trillion defense budget in 2027 (50% increase).

Energy

- US said to seek to control Venezuelan oil sales “indefinitely”.

- US seized two Venezuela-linked oil tankers in the Atlantic Ocean on Wednesday. Vice President Vance noted that seized oil tanker was 'fake' Russia tanker.

- US Coast Guard also intercepted a tanker carrying Venezuelan oil off the northeast coast of South America.

Speakers/fixed income/FX/commodities/erratum

Indices [TSE -0.28% at 10,019.99, DAX +0.07% at 25,115.21, CAC-40 -0.22% at 8,215.58].

Market focal points/key themes: European indices opened generally lower and remained under pressure through the early part of the session; loss of risk appetite attributed to near-term uncertainty ahead of major data later in this week; among sectors managing gains are utilities and industrials; sectors leading the way lower include materials and financials; Galp negotiating to combine downstream activities with Moeve; Computacenter acquires AgreeYa focus on US trade balance later in the day; earnings expected in the upcoming Americas session include Commercial Metals and TD SYNNEX.

Equities

- Consumer discretionary: Marks & Spencer [MKS.UK] +3.0% (trading update), AB Foods [ABF.UK] -11.5% (trading update), Greggs [GRG.UK] -6.5% (trading update), Sodexo [SW.FR] -3.0% (earnings; call comments).

- Energy: Shell [SHEL.UK] -3.0% (production update; Trump comments on Venezuela).

- Healthcare: Santhera Pharmaceuticals [SANN.CH] +7.0% (licensing agreement).

- Industrials: Rheinmetall [RHM.DE] +2.5% (Pentagon budget increase).

- Technology: ASML [ASML.NL] -0.5% (China to approve some Nvidia H200 purchases in Q1 2026).

Speakers

- Swiss National Bank (SNB) Dec Minutes noted that monetary conditions were currently appropriate. Inflation forecast to rise but stay within price stability range. Reiterated stance that was ready to intervene in FX market as necessary.

- ECB’s De Guindos (Spain) stated that currently at inflation target, but uncertainty was very high.

- Bank of England (BOE) Decision Maker Panel (DMP) Dec Survey cut the 1-year ahead CPI from 3.4% to 3.2% (3.3%e) and cut 3-year ahead CPI from 3.0% to 2.9%.

- Poland Central Bank (NBP) Member Dabrowski stated that saw 50-50 chance of rate cut in January.

Currencies/fixed income

- Another quiet session for the USD as the greenback held onto its weekly gains. Focus remains on the upcoming US jobs report on Friday.

- EUR/USD at 1.1675 by mid-session and well contained within the 1.15-1.20 trading range. ECB members continue to tout that current level of rates remained appropriate.

- USD/JPY at 156.65 by mid-session. Dealers noted that fiscal fears concerns was cited for poor demand at the 30-year JGB auction earlier during the Asian session. Weak wage data also hampered yen sentiment.
10-year German Bund yield last at 2.83%, France 10-year Oat at 3.54% and 10-year Gilt yield at 4.42% 10-year Treasury yield: 4.15%; 10-year JGB: 2.06%.

Economic data

- (NL) Netherlands Nov Consumer Spending Y/Y: 0.5% v 0.9% prior.

- (ZA) South Africa Dec Gross Reserves: $75.9B v $72.1B prior; Net Reserves: $71.1B v $70.0B prior.

- (DE) Germany Nov Factory Orders M/M: +5.6% v -1.0%e; Y/Y: 10.5% v 2.9%e.

- (UK) Dec Halifax House Price Index M/M: -0.6% v 0.0% prior; Y/Y: 0.3% v 0.7% prior.

- (SE) Sweden Dec Preliminary CPI M/M: 0.0% v 0.2%e; Y/Y: 0.3% v 0.5%e.

- (SE) Sweden Dec Preliminary CPIF M/M: 0.1 % v 0.3%e; Y/Y: 2.1% v 2.3%e.

- (SE) Sweden Dec CPIF (ex-energy) M/M: 0.3% v 0.6%e; Y/Y: 2.3% v 2.6%e.

- (NO) Norway Nov Industrial Production M/M: -2.2% v -3.1% prior; Y/Y: 2.0% v 5.1% prior.

- (NO) Norway Nov Manufacturing Production M/M: +2.4% v -1.3% prior; Y/Y: 4.4% v 2.4% prior.

- (FI) Finland Nov Preliminary Trade Balance: -€0.3B v +€0.2B prior.

- (DK) Denmark Nov Unemployment Rate: 2.6% v 2.6% prior; Gross Unemployment Rate: 2.9% v 2.9% prior.

- (MY) Malaysia end-Dec Foreign Reserves: $125.5B v $124.3B prior.

- (CH) Swiss Dec CPI M/M: 0.0% v 0.0%e; Y/Y: 0.1% v 0.1%e.

- (CH) Swiss Dec CPI EU Harmonized M/M: +0.1% v -0.6% prior; Y/Y: 0.2% v 0.0% prior; CPI Core Y/Y: 0.5% v 0.4%e.

- (FR) France Nov Trade Balance: -€4.2B v -€3.5B prior; Current Account Balance: -€0.8B v +€1.4B prior.

- (CZ) Czech Nov Industrial Output Y/Y: -0.3% v -0.1%e; Construction Output Y/Y: 6.1% v 7.1% prior.

- (EU) Euro Zone Nov ECB 1 Year CPI Expectations: 2.8% v 2.7%e; 3 Year CPI Expectations: 2.5% v 2.5%e.

- (IT) Italy Nov Unemployment Rate: 5.7% v 6.0%e.

- (ZA) South Africa Dec Manufacturing PMI: 40.5 v 45.0e.

- (EU) Euro Zone Dec Economic Confidence: 96.7 v 97.1e; Industrial Confidence: -9.0 v -9.1e; Services Confidence: 5.6 v 6.0e; Consumer Confidence (final): -13.1 v -14.6 advance.

- (EU) Euro Zone Nov PPI M/M: 0.5% v 0.4%e; Y/Y: -1.7% v -1.7%e.

- (EU) Euro Zone Nov Unemployment Rate: 6.3% v 6.4%e.

- (BE) Belgium Nov Unemployment Rate: % v 6.4% prior.

- (CY) Cyprus Dec CPI M/M: -0.1% v -0.6% prior; Y/Y: -0.5% v -0.5% prior.

Fixed income issuance

- (PT) Portugal Debt Agency (IGCP) opened its book to sell new 10-year OT bond via syndicate; guidance seen +36bps to mid-swaps.

- (IT) Italy Debt Agency (Tesoro) opened its book to sell 2033 and 2046 BTP bonds via syndicate.

- (PL) Poland opened its book to sell EUR-denominated 5-year and 10-year bonds.

- (ES) Spain Debt Agency (Tesoro) sold total €6.28B vs. €5.5-6.5B indicated range in 2030, 2033 and 2043 SPGB bonds.

- (ES) Spain Debt Agency (Tesoro) sold €726.1M vs. €250-750M indicated range in 1.15% Nov 2036 inflation-linked bonds (SPGBei); Real Yield: 1.508% v 1.469% prior; bid-to-cover: 1.90x v 2.63x prior.

- (FR) France Debt Agency (AFT) sold total €13.5B vs. €11.5-13.5B indicated range in 2035, 2040, 2042 and 2056 bonds.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 06:00 (ZA) South Africa Nov Manufacturing Production M/M: No est v 1.0% prior; Y/Y: No est v 0.2% prior.

- 06:00 (BR) Brazil Dec FGV Inflation IGP-DI M/M: No est v 0.0% prior; Y/Y: No est v -0.4% prior.

- 06:00 (CL) Chile Dec CPI M/M: -0.1%e v +0.3% prior; Y/Y: 3.5%e v 3.4% prior.

- 06:00 (IL) Israel Nov Chain Store Sales M/M: No est v -0.9% prior.

- 07:00 (BR) Brazil Nov Industrial Production M/M: 0.3%e v 0.1% prior; Y/Y: -0.5%e v -0.5% prior.

- 07:00 (MX) Mexico Dec CPI M/M: 0.4%e v 0.7% prior; Y/Y: 3.8%e v 3.8% prior.

- 07:00 (MX) Mexico Dec CPI Core M/M: 0.4%e v 0.2% prior; Y/Y: 4.3%e v 4.4% prior.

- 07:00 (MX) Mexico Nov Leading Indicators M/M: No est v 0.16 prior.

- 07:30 (US) Dec Challenger Job Cuts: No est v 71.3K prior; Y/Y: No est v 23.5% prior.

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

- 08:30 (US) Q3 Preliminary Nonfarm Productivity: 4.9%e v 3.3% prior; Unit Labor Costs: 0.0%e v 1.0% prior.

- 08:30 (US) Initial Jobless Claims: 212Ke v 199K prior; Continuing Claims: 1.90Me v 1.866M prior.

- 08:30 (US) Oct Trade Balance: -$58.5Be v -$52.8B prior; Exports M/M: No est v 3.0% prior; Imports M/M: No est v 0.6% prior.

- 08:30 (CA) Canada Oct Int'l Merchandise Trade (CAD): -1.5Be v +0.2B prior.

- 08:30 (US) Weekly USDA Net Export Sales.

- 09:30 (TR) Turkey Dec Cash Budget Balance (TRY): No estt v 56.4B prior.

- 10:00 (US) Oct Final Wholesale Inventories M/M: 0.2%e v 0.5% prelim; Wholesale Trade Sales M/M: No est v -0.2% prior.

- 10:00 (MX) Mexico Central Bank (Banxico) Dec Minutes- 10:30 (US) Weekly EIA Natural Gas Inventories.

- 11:00 (US) Dec NY Fed 1-year Inflation Expectations: No est v 3.2% prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 14:00 (AR) Argentina Nov Industrial Production Y/Y: No est v -2.9% prior; Y/Y: No est v 8.0% prior.

- 15:00 (US) Nov Consumer Credit: $10.0Be v $9.2B prior.

- 18:00 (KR) South Korea Nov Current Account Balance: No est v $6.8B prior; Balance of Goods (BOP): No est v $7.8B prior.

- 18:00 (CO) Colombia Dec CPI M/M: 0.3%e v 0.1% prior; Y/Y: 5.2%e v 5.3% prior.

- 18:00 (CO) Colombia Dec CPI Core M/M: 0.4%e v 0.3% prior; Y/Y: 5.1%e v 5.2% prior.

- 18:00 (PE) Peru Central Bank (BCRP) Interest Rate Decision: Expected to leave Reference Rate unchanged at 4.25%.

- 18:30 (JP) Japan Nov Household Spending Y/Y: -1.0%e v -3.0% prior.

- 20:30 (CN) China Dec CPI Y/Y: 0.8%e v 0.7% prior; PPI Y/Y: -2.0%e v -2.2% prior.

- 22:00 (ID) Indonesia Dec Consumer Confidence: No est v 124.0 prior.

- 22:30 (JP) Japan to sell 3-Month Bills.

- 23:00 (MY) Malaysia Nov Industrial Production Y/Y: 5.3%e v 6.0% prior; Manufacturing Sales Value Y/Y: No est v 6.3% prior.