Fed decision ahead with Powell's second to last meeting as Chair

EU mid-market update: Trump shrugs off USD weakness; ASML bullish ahead of Meta/Microsoft tonight, LVMH bearish; Fed decision ahead with Powell's second to last meeting as Chair.

Notes/observations

- European indices opened mixed. Strong tech performance driven by ASML contrasts sharply with broad luxury-sector weakness following LVMH’s disappointing update. The CAC 40 is hit hardest, while the FTSE 100 and DAX remain broadly flat as miners and energy names outperform.

- US dollar remained under heavy pressure after Pres Trump reiterated, he is unconcerned by its decline and accused China and Japan of currency devaluation. Markets interpret this as tacit endorsement of a weaker USD to support US exports, compounding bearish drivers including erratic trade policy, Fed-independence concerns, shutdown risk, and increasing speculation of coordinated US–Japan yen intervention. Japan Fin Min Katayama reiterated readiness to act in concert with Washington, while MUFG notes scope for USD/JPY to probe the 160 area if the ruling coalition achieves a stable Diet majority. Euro briefly broke above 1.20, its strongest since 2021.

- ASML CEO reported a "notably more positive assessment" of the market as customers embrace the "sustainability of AI-related demand," fueling a record €13.2 billion order intake that nearly doubled estimates. This "marked step-up" in capacity planning positions 2026 to be "another growth year," signaling that the semiconductor industry is moving past peak skepticism to fund a permanent AI-driven infrastructure boom.

- SK hynix also leveraged the AI gold rush to deliver a record 43 trillion won net profit in 2025, underpinned by a "staggering" 58% operating margin in the final quarter as high-bandwidth memory (HBM) sales more than doubled. To cement its lead as the first to mass-produce HBM4, the South Korean giant is signaling a "considerable increase" in 2026 capital expenditure, betting that the pivot toward AI inference will sustain a structural supply squeeze even as consumer demand for PCs and smartphones softens.

- USTR commentary offered little sign of tariff relief for India despite progress on reducing Russian-crude purchases. Trump suggested he would “work something out with South Korea” following tariff threats over delayed parliamentary ratification of last year’s investment deal; Seoul’s ruling party will push a vote next month.

- Modest recovery in German consumer sentiment (GfK at -24.1) reflects lower inflation and supportive fiscal measures. Macro calendar is otherwise light. Eurozone core rates stay range-bound ahead of the FOMC. Strong demand for Germany’s new 20-year Bund syndication (€73B orderbook for €6.5B issued) bodes well for today’s 10-year auction. UK yields are steady with gilts at 4.52%.

- Treasury yields are stable before the FOMC, where rates are expected to remain unchanged. Markets focus on Powell’s press-conference guidance, particularly given this is one of his final two meetings as Chair. Speculation continues over Powell’s successor, with Kevin Warsh and Rick Rieder viewed as market-friendly candidates.

- Precious metals surge as dollar weakness fuels a renewed “debasement trade.” Gold breaks above $5,300/oz and silver jumps, supported by falling real yields, geopolitical risk, and expectations of future Fed easing. Oil prices extend gains (Brent/WTI near $67/62) amid Middle East tensions - including US naval deployments - and winter-storm disruptions to US refining capacity.

- Politico reports that whispers regarding Trump’s "psychological state" have migrated from the diplomatic fringes to a "conversed topic at all levels" of the EU, catalyzed by reports that even Slovak ally Robert Fico left recent meetings unsettled. While the administration dismisses the accounts as "pleasant" and "normal," the leak of these anxieties across multiple governments underscores a deepening European crisis of confidence regarding the stability and predictability of American leadership.

- Asia closed mixed with KOSPI outperforming +1.7%. EU indices lower -1.1% to -0.3%. US futures +0.1-0.8%. Gold +1.8%, DXY +0.5%; Commodity: Brent -0.5%, WTI -0.3%; Crypto: BTC +1.9%, ETH +3.9%.

Asia

- BOJ Dec Minutes (2 decisions ago) noted with regard to the pace of adjusting the degree of monetary accommodation, most members expressed the recognition that it was desirable to make decisions as appropriate at each policy meeting without having a specific pace in mind.

- Australia Q4 CPI Q/Q: 0.6% v 0.6%e; Y/Y: 3.8% v 3.6%e; saw RBA 25bp rate hike probabilities for next week (Feb 3rd) spike to 73%, with a further 25bp increase expected later in 2026.

- Australia Q4 CPI Trimmed Mean Q/Q:0.9% v 0.9%e; Y/Y: 3.4% v 3.3%e.

- Australia Dec CPI M/M: 1.0% v 0.0% prior; Y/Y: 3.8% v 3.6%e.

- Japan’s bi-monthly 40-year JGB auction was again well bid.

Europe

- ECB's Cipollone (Italy): European economy has been proven resilient and we expect data that could top our forecasts.

Americas

- Pres Trump commented that the value of USD was great and not concerned with its decline; Dollar seeking its own level.

Energy

- Weekly API Crude Oil Inventories: -0.2M v +3.0M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.44% at 610.40, FTSE -0.32% at 10,175.00, DAX -0.32% at 24,829.31, CAC-40 -1.10% at 8,063.32, IBEX-35 -1.07% at 17,613.36, FTSE MIB -0.60% at 45,167.50, SMI -1.07% at 13,072.10, S&P 500 Futures +0.33%].

Market focal points/key themes: European indices opened mixed with a downward bias that became more prominent as the session wore on; CAC underperforming following LVMH earnings overnight; better performing sectors include technology and energy; among sectors inclined to the downside are consumer discretionary and media; tech sector supported following ASML earnings; oil & gas subsector supported amid US supply concerns after storm; British land makes offer for Live Science REIT; Bekaert acquires Bridgestone’s China and Thai tire reinforcement unit; focus on FOMC and BOC rate decisions later in the day; earnings in the upcoming US session include Tesla, Microsoft, Meta, and Continental.

Equities

- Consumer discretionary: Maersk [MAERSKB.DK] -0.5% (statement on cargo disruptions in Europe).

- Industrials: Volkswagen [VOW3.DE] -0.5% (EUR/USD tested above 1.20), Volvo [VOLVA.SE] +1.5% (earnings), SSAB [SSABA.SE] -2.5% (earnings).

- Technology: ASML [ASML.NL] +5.0% (earnings and bookings; SK Hynix prelim results; China approval of Nvidia H200 shipments), STMicroelectronics [STM.FR] +3.5% (Texas Instruments results).

Speakers

- ECB's Kocher (Austria) stated that would have to act if Euro currency kept appreciating. Believed the CNY currency was structurally undervalued against the Euro.

- ECB’s Villeroy (France) reiterated Council stance that had no target for exchange rate. The Euro was one element that would guide policy.

- France Fin Min Lescure stated that was up to the market to determine the value of currencies. JPY currency (Yen) move this week was small compared to the last 18 months. Saw final adoption of French budget in a week; country was on track for fiscal consolidation.

- Greenland PM stated that country was under pressure, people are afraid; We would not give in.

- Denmark PM Frederiksen: Will try to find way forward with US, we share concerns on arctic security.

- EU Foreign Policy Chief Kallas: Russia will remain major security threat long-term; Need capabilities to deter and defend.

- Iran Foreign Min Araqchi: Have not been in contact with US envoy Witkoff in recent days; did not request negotiations.

- South Korea official: Cannot rule out possibility of US mentioning tariff hike again because of future disagreement over investment; US frustration appears rooted in desire to begin investment operations quickly.

Currencies/fixed income

- USD remained on soft footing after President Trump dismissed concerns over the recent USD weakness. It is rare for such a high govt official to be blunt on a currency’s value. The greenback was testing key FX levels over the last week and Trump may have given the green light for additional broad USD losses.

- EUR/USD probing the 1.20 level which is seen as key weekly psychological resistance. Successive closes above opens the door for a potential retest of the 1.60 all-time highs in the pair at some point down the road. ECB officials have reopened the verbal intervention of a strong Euro inflationary impact on the regions.

- USD/JPY appears to have cemented the 160 level as key resistance as recent price checks in the pair safely keeping a ceiling in place for now. The upcoming Japanese elections and fiscal concerns could erode the initial strong yen move.

- Precious metal continued their march upwards. Spot gold above $5,300/oz and spot silver hovering around $115/oz.

- 10-year German Bund yield last at 2.85%, France 10-year Oat at 3.41% and 10-year Gilt yield at 4.41% 10-year Treasury yield: 4.24%; 10-year JGB: 2.23%.

Economic data

- (DE) Germany Feb GfK Consumer Confidence: -24.1 v -25.5e.

- (CH) Swiss Jan UBS Expectations Survey: -4.7 v +6.2 prior.

- (AT) Austria Jan Manufacturing PMI: 47.2 v 49.3 prior (2nd month of contraction).

- (IT) Italy Jan Consumer Confidence: 96.8 v 96.9e; Manufacturing Confidence: 89.2 v 89.0e; Economic Sentiment: 97.6 v 96.5 prior.

Fixed income issuance

- (IN) India sold total INR290B vs. INR290B indicated in 3-month, 6-month and 12-month bills.

- (IT) Italy Debt Agency (Tesoro) sold €7.5B vs. €7.5B indicated in 6-month bills; Avg Yield: 2.040% v 2.036% prior; Bid-to-cover: 1.48x v 1.43x prior.

- (SE) Sweden sold total SEK8.0B vs. SEK8.0B indicated in 2031 and 2036 Bonds.

Looking ahead

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

- 05:30 (IN) India Dec Industrial Production Y/Y: 5.9%e v 6.7% prior.

- 05:30 (DE) Germany to sell €6.0B in 2.90% Feb 2036 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) to sell combined €1.25-1.5B in 2031 and 2035 OT bonds.

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (RU) Russia to sell OFZ Bonds.

- 06:00 (IE) Ireland Dec Retail Sales Volume M/M: No est v 0.5% prior; Y/Y: No est v 2.5% prior.

- 07:00 (US) MBA Mortgage Applications w/e Jan 23rd: No est v 14.1% prior.

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

- 09:45 (CA) Bank of Canada (BOC) Interest Rate Decision: Expected to leave Interest Rates unchanged at 2.25%.

- 10:00 (US) Nov Final Building Permits: No est v M prelim.

- 10:30 (US) Weekly DOE Oil Inventories.

- 10:30 (CA) BOC Gov Macklem post rate decision press conference.

- 11:00 (RU) Russia Dec PPI M/M: No est v -0.9% prior; Y/Y: No est v -1.1% prior.

- 11:30 (US) Treasury to sell 2-Year FRN.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:30 (BR) Brazil Dec Total Federal Debt (BRL): No est v 84.8B prior.

- 13:00 (DE) ECB’s Schnabel (Germany).

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Target Range unchanged between 3.50-3.75%.

- 16:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to leave Selic Target Rate unchanged at 15.00%.

- 16:45 (NZ) New Zealand Dec Trade Balance (NZD): No est v 0.2B prior; Exports: No est v 7.0B prior; Imports: No est v 7.2B prior.

- 18:00 (HU) Hungary Jan Economic Sentiment: No est v -11.7 prior; Business Confidence: No est v -8.1 prior.

- 19:00 (SG) Singapore Central Bank (MAS) Quarterly Monetary Policy Statement.

- 19:00 (NZ) New Zealand Jan ANZ Business Confidence: No est v 73.6 prior; Activity Outlook: No est v 60.9 prior.

- 19:30 (AU) Australia Q4 Export Price Index Q/Q: No est v -0.9% prior; Import Price Index Q/Q: No est v -0.4% prior.

- 21:00 (PH) Philippines Q4 GDP Q/Q: 0.9%e v 0.4% prior; Y/Y: 3.7%e v 4.0% prior; 2025 Annual GDP Annual Y/Y: 4.6%e v 5.6% prior.

- 22:00 (NZ) New Zealand to sell bonds.

- 22:00 (TH) Thailand Central bank to sell THB15.0B in 2027 Bonds.

- 23:00 (SG) Singapore to sell 6-month Bills.

- 23:00 (TH) Thailand Dec ISIC Manufacturing Production Index Y/Y: -0.4%e v -4.2% prior; Capacity Utilization: No est v 55.49 prior.