Fed hold in focus amid bets of ECB cut tomorrow

EU mid-market update: Fed hold in focus amid bets of ECB cut tomorrow; Luxury drags CAC40 as ASML soars; Major US earnings after the close.

Notes/observations

- Fed takes center stage: Markets brace for Fed’s rate decision (19:00 ET), widely expected to hold at 4.25%-4.5% after three 2024 cuts. Focus shifts to Powell’s presser for clarity on 2025 policy amid Trump’s demands for “immediate rate cuts” and tariff threats. Markets price in no cuts until mid-2025. ECB’s 25bps cut expected tomorrow.

- Tech rebounds post-DeepSeek turmoil: AI stocks stabilize after Monday’s sell-off despite release of Alibaba Cloud's Qwen2.5-Max AI model, as questions linger over US scrutiny of Chinese AI firms (DeepSeek’s IP risks, cost claims). Mag 7 earnings (upcoming) to test sentiment. ASML surges +10% post-earnings after strong Q4 bookings, buoying EU tech.

- European data divergence: Spain’s Q4 GDP impresses at +0.8% q/q (3.2% 2024 growth), driven by domestic demand. German GfK consumer confidence misses, while Italian consumer sentiment hits 4-month high. Swiss investor sentiment rebounds sharply to +17.7.

- Luxury stocks and potential new political turmoil drag down CAC40: LVMH (-5%) and Kering (-7%) sink despite revenue beats, as investors balk at lagging sales growth vs. peers. ASML (+10%), Schneider Electric (+5%), and Logitech (+6%) lift STOXX 600 to record highs.

- Riksbank cuts 25bps and eyes more easing if conditions change: Sweden’s Central Bank trims rates to 2.25% (6th straight cut). SEK briefly wobbles but holds steady as ECB cut bets dominate.

- Asia closed mixed with Nikkei225 outperforming +1.0%. EU indices are -0.3% to +0.6%. US futures are -0.1% to +0.4%. Gold 0.0%, DXY +0.2%; Commodity: Brent -0.9%, WTI -0.8%; Crypto: BTC -0.6%, ETH -2.2%.

Asia

- Australia Q4 CPI Q/Q: 0.2% v 0.3%e; Y/Y: 2.4% v 2.5%e.

- Australia Dec CPI Y/Y: 2.5% v 2.5%e.

- Japan Jan Consumer Confidence: 35.2 v 36.5e [matches the lowest since Sept 2023].

- Australia Treasurer Chalmers noted that worst of the inflation challenge was 'well and truly behind us'. The 'soft landing' we have been planning and preparing for is looking more and more likely.

Europe

- Press reports that French budget talks could be on the verge of collapse after Socialist party officials suspended their participation in budget negotiation in protest over remarks about immigration by French PM Bayrou.

Americas

- Chile Central Bank (BccH) left the Overnight Rate Target unchanged at 5.00% (as expected) for its 1st pause in 12 decisions under the current easing cycle.

Energy

- Weekly API Crude Oil Inventories: +2.9M v +1.0M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.59% at 534.76, FTSE +0.16% at 8,547.48, DAX +0.59% at 21,565.67, CAC-40 -0.26% at 7,876.63, IBEX-35 +0.46% at 12,224.07, FTSE MIB +0.22% at 36,225.00, SMI +0.42% at 12,523.40, S&P 500 Futures +0.06%].

Market focal points/key themes: European indices open generally higher and maintained the trend through the early part of the session; market seen cautious ahead of central bank rate decisions; among sectors leading the way higher are technology and industrials; lagging sectors include consumer discretionary and materials; American Axle to acquire Dowlais; reportedly Telefonica looking into divesting its Latam subsidiaries; focus on up coming FOMC rate decision later in the day; earnings expected in the upcoming US session include Microsoft, Meta, Tesla and Danaher.

Equities

- Consumer discretionary: LVMH [MC.FR] -6.0% (FY24 trading update, wine and spirits seen as weak - post close), Remy Cointreau [RCO.FR] -3.5% (Q3 results, organic rev beats estimates, adjusts FY25 outlook to lower end of range), SEB [SEBA.SE] -3.5% (Q4 results).

- Healthcare: Lonza [LONN.CH] -3.0% (FY24 results).

- Industrials: Volvo AB [VOLVA.SE] +2.5% (earnings; cuts China outlook, but sees North America stabilize), SSAB [SSABA.SE] +0.5% (Q4 results), Continental [CON.DE] -1.0% (cuts FY24 guidance, initial FY25 guidance - post close), Renk [R3NK.DE] +6.0% (prelim FY24 results).

- Technology: ASML [ASML.NL] +11.0%, Nvidia [NVD.DE] +6.5% (ASML Q4 results beats estimates, guides Q1 strong, raises dividend; Advantest raised outlook too), Jenoptik [JEN.DE] +3.5%, Aixtron [AIXA.DE] +4.0%, SUSS MicroTec [SMHN.DE] +5.5% (readacross from ASML earnings), Logitech [LOGN.CH] +7.0% (earnings).

- Materials: Akzo Nobel [AKZA.NL] -3.0% (Q4 results; conf call comments).

Speakers

- Sweden Central Bank (Riksbank) Policy Statement noted that it would carefully evaluate the need for future interest rate adjustments, in light of the effects of earlier cuts and other information relevant to the outlook for inflation and economic activity. Forecasts from Dec essentially held but prepared to act if outlook changed. Inflationary pressures had been deemed consistent with inflation of around 2.0% and signs that an economic rebound was on the way.

- Sweden Central Bank (Riksbank) Gov Thedeen post rate decision press conference noted that the SEK currency has performed well against the Euro. Belief that inflation was in-line with target. Rate path outlook remains uncertain; best assessment was to remain at current level for rates (**Note: Repo Rate currently at 2.25%).

- Chancellor of the Exchequer (Fin Min) Reeves stated that UK regulation had been stifling and unpredictable; Had begun to turn things around. Reiterated view that fiscal rules are non-negotiable.

- Czech Central Bank (CNB) Gov Michl stated that it had no imminent decision on Bitcoin.

- Japan PM Isihiba stated that was important that exchange rate movements were stable, Decision of end of deflation to consider prices and wages. BOJ’s monetary policy decisions were based on spread of virtuous wage/price cycle.

- Japan Fin Min Kato confirmed close cooperation on forex following video call with US Treasury Sec Bessent.

Currencies/fixed income

- USD was steady in quiet trading with focus on the upcoming Fed decision. Dealers note that today’s Fed's policy meeting was expected to hold no surprises the attention already shifting to March and effects of looming US tariffs. Thus markets to hunt for hints of policy shifts on the horizon.

- EUR/USD steady at 1.0405 with focus on Thursday’s ECB decision in which a 25bps cut is all but certain. Dealers noted that continued easing in the months ahead had seen little kickback from ECB hawks. The question remains where the Council sees the neutral rate (suggested between 1.75-2.25% range).

- GBP/USD steady at 1.2420 with focus on UK Fin Min Reeve’s speech on growth priority.

- USD/JPY holding above the 155.30 level.

- US 10-year yield lower by 2bps during the session to test 4.52%. EU yield are lower in similar moves with the 10-year German Bund yield at 2.54% and the 10-year Gilt at 4.58%.

Economic data

- (DE) Germany Feb GfK Consumer Confidence: -22.4 v -21.4 prior.

- (FI) Finland Nov Final Trade Balance: €0.1B v €0.1B prelim.

- (SE) Sweden Q4 GDP Indicator Q/Q: 0.2% v 0.3%e; Y/Y: % v 1.1%e.

- (SE) Sweden Dec GDP Indicator M/M: 0.7% v 1.3% prior; Y/Y: 2.1% v 1.5% prior.

- (SE) Sweden Dec Household Lending Y/Y: 1.6% v 1.6% prior.

- (ES) Spain Q4 Preliminary GDP Q/Q: 0.8% v 0.6%e; Y/Y: 3.5% v 3.2%e.

- (SE) Sweden Central Bank (Riksbank) cut Repo Rate by 25bps to 2.25% (as expected) for its 6th straight cut under the current phase of its easing cycle. Statement signaled a pause in policy.

- (EU) Euro Zone Dec M3 Money Supply Y/Y: 3.5% v 3.9%e.

- (IT) Italy Jan Consumer Confidence: 98.2 v 96.5e; Manufacturing Confidence: 86.8 v 85.8e; Economic Sentiment: 95.7 v 95.3 prior.

- (CH) Swiss Jan UBS Expectations Survey: +17.7 v -20.0 prior.

- (AT) Austria Jan Manufacturing PMI: 45.7 v 43.3 prior (30th month of contraction).

- (BE) Belgium Q4 Preliminary GDP Q/Q: 0.2% v 0.3% prior; Y/Y: 1.1% v 1.2% prior.

Fixed income issuance

- (UK) DMO sold £3.0B in 0.875% July 2033 Green Gilts; Avg Yield: 4.473% v 3.731% prior; bid-to-cover: 3.10x v 3.55x prior; Tail: 0.7bps v 0.9bps prior.

- (NO) Norway sold total NOK4.0B vs. NOK4,0B indicated in 2028 and 2030 Bonds.

- ((SE) Sweden sold total SEK5.0B vs. SEK5.0B indicated in 2029 and 2033 bpnds.

- (IT) Italy Debt Agency (Tesoro) sold €6.5B vs. €6.5B indicated in 6-month Bills; Avg Yield: % v 2.724% prior; Bid-to-cover: x v 1.47x prior.

- (GR) Greece Debt Agency (PDMA) sold €600M vs. €500M indicated in 3-month Bills; Avg Yield: 2.37% v 3.00% prior; Bid to cover: 2.45x v 1.44x prior.

Looking ahead

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

- 05:30 (DE) Germany to sell €4.5B in 2.5% Dec 2035 Bunds.

- 06:00 (RU) Russia to sell OFZ Bonds (2 tranches).

- 06:00 (CZ) Czech Republic to sell combined CZK11.0B in 2032, 2034 and 2040 bonds.

- 07:00 (US) MBA Mortgage Applications w/e Jan 24th: No est v 0.1% prior.

- 07:00 (MX) Mexico Dec Unemployment Rate: 2.5%e v 2.6% prior.

- 07:00 (UK) Weekly PM Question time in House.

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

- 08:30 (US) Dec Advance Goods Trade Balance: -$105.5Be v -$102.9B prior.

- 08:30 (US) Dec Preliminary Wholesale Inventories M/M: +0.2%e v -0.2% prior; Retail Inventories M/M: 0.2%e v 0.3% prior.

- 09:45 (CA) Bank of Canada (BoC) Interest Rate Decision: Expected to cut Interest Rates by 25bps to 3.00%.

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

- 11:00 (RU) Russia Dec PPI M/M: No est v 1.0% prior; Y/Y: No est v 3.9% prior.

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

- 14:00 (US) FOMC Interest Rate Decision: Expected to leave Target Range unchanged between 4.25-4.50%.

- 14:30 (US) Fed Chair Powell post rate decision press conference.

- 16:30 (BR) Brazil Central Bank (BCB) Interest Rate Decision: Expected to raise Selic Target Rate by 100bps to 13.25%.

- 16:45 (NZ) New Zealand Dec Trade Balance (NZD): No est v -0.4B prior; Exports: No est v 6.5B prior; Imports: No est v 6.9B prior.

- 19:00 (NZ) New Zealand Jan ANZ Business Confidence: No est v 62.3 prior; Activity Outlook: No est v 50.3 prior.

- 19:30 (AU) Australia Q4 Import Price Index Q/Q: No est v -1.4% prior; Export Price Index Q/Q: No est v -4.3% prior.

- 20:10 (JP) BOJ Outright Bond Purchase Operation for 5~10 Years; 25Years~ and Inflation-indexed bonds.

- 21:00 (PH) Philippines Q4 GDP Q/Q: 1.9%e v 1.7% prior; Y/Y: 5.5%e v 5.2% prior; GDP Annualized Y/Y: 5.8%e v 5.5% prior.

- 22:20 (AU) RBA's Jones-Fireside Chat.

- (JP) BOJ Deputy Governor Himino speech at Hitotsubashi Univ.