Risk-on sentiment percolates as US's $500B stargate AI investment project confirmed

EU Mid-Market Update: Risk-on sentiment percolates as US's $500B Stargate AI investment project confirmed; Trump again speaks on tariffs; Netflix's record subscriber gain.

Notes/observations

-European indices gain on optimism surrounding Trump’s apparent measured approach on imposing tariffs and US’s $500B AI infrastructure investment, as well as positive Adidas and Netflix results yesterday; Elon Musk on $500B Stargate AI investment project said that SoftBank has well under $10B secured and he has that on good authority.

-After market closed yesterday, US Pres Trump was talking about a 10% tariff on China; He reiterated Mexico and Canada tariffs are being considered at 25% and that tariffs have a date set for Feb 1st; He also noted EU will also be included in tariffs.

-ECB speakers, including chief Lagarde, Stournaras, Knot, Villeroy and Escriva in recent hours reiterated market expectations that gradual rate cuts are coming, likely starting from next week’s decision.

-House Speaker Johnson reiterated he expects to pass reconciliation bill addressing a range of Pres-elect Trump’s priorities by Memorial Day on May 26th.

-Shares of Munich Re trading higher following CEO estimated CA wildfire damage in the $20-30B insured claims range.

-Fox News set to air first Pres Trump's interview since he has returned to White House on Wed, Jan 22nd at 21:00ET; Meanwhile, WSJ reports that Trump handed special envoy to Ukraine and retired Lt. General Keith Kellogg the job of ending the Ukraine war in a hundred days.

- Asia closed mostly higher with Hang Seng underperforming -1.6%. EU indices are -0.2% to +1.0%. US futures are +0.3-0.8%. Gold +0.5%, DXY -0.1%; Commodity: Brent +0.3%, WTI +0.3%; Crypto: BTC -1.1%, ETH -1.0%.

Asia

- South Korea Jan Consumer Confidence: 91.2 v 88.4 prior [first rise since Oct].

- New Zealand Q4 CPI Q/Q: 0.5% v 0.5%e; Y/Y: 2.2% v 2.1%e.

- Australia Dec Westpac Leading Index M/M: -0.02% v +0.06% prior.

- Japan's largest union (Rengo) Chief Yoshino stated that he shared BOJ view there was wage hike momentum in regions of Japan (**Note: **Note: Largest business lobby Keidanren and largest union Rengo begin annual labor negotiations on Jan 22nd with another round of significant wages increases being expected).

Americas

- Trump announced up to $500B for Stargate AI project; added it would create more than 100,000 jobs “almost immediately” to issue order on water flows in California and open to Elon Musk buying TikTok.

- Trump on trade: Talking about a 10% tariff on China; Mexico and Canada tariffs being considered at 25%; Tariffs have a date set for Feb 1st.

- Trump on Ukraine stated that If Russian Pres Putin did not come to the table on Ukraine then likely place sanctions on Russia; Would meet with Putin anytime he wanted.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.64% at 529.36, FTSE +0.35% at 8,578.30, DAX +1.04% at 21,259.33, CAC-40 +0.74% at 7,828.46, IBEX-35 +0.01% at 11,933.00, FTSE MIB +0.31% at 36,170.00, SMI +0.92% at 12,217.90, S&P 500 Futures +0.8%].

Market Focal Points/Key Themes: European indices open higher and advanced through the early part of the session; among sectors leading the way higher are industrials and health care; lagging sectors include materials and telecoms; reportedly multiple European airlines interested in taking a stake in Brazil’s Gol Airlines; earnings expected in the upcoming US session include Halliburton, Johnson & Johnson, Alcoa.

Equities

- Consumer discretionary: Adidas [ADS.DE] +6.5% (prelim results), Easyjet [EZJ.UK] -2.5% (trading update), J.D. Wetherspoon [JDW.UK] -0.5% (trading update), Electrolux [ELUXB.SE] +0.5% (final LG results).

- Financials: Munich Re [MIV2.DE] +3.5% (CEO interview on CA wildfires impact) - Healthcare: Evotec [EBT.DE] +1.0% (grant award), Roche [ROG.CH] +2.0% (FDA clearance) - Industrials: Alstom [ALO.FR] -4.0% (Q3 sales), Schaeffler [SHA.DE] -6.0% (prelim results), DFDS [DFDS.DK] -19.5% (prelim results) - Technology: ASML [ASML.NL] +1.0% (US Pres Trump confirmed to immediately begin building “Stargate” AI infrastructure).

Speakers

- ECB chief Lagarde reiterated confidence that inflation would be at target during the course of 2025. Exchange rate would be of interest and might have consequences stated that region. Reiterated gradual moves on rates are reasonable at this time. Needed to be prepared for any US tariffs. Reiterated view of downside risks to growth outlook.

- ECB's Knot (Netherlands) stated that saw little obstacle to another rate cut next week; New growth downside risk from trade policy, on inflation not so clear.

- ECB’s Villeroy (France) reiterated that the disinflation remained on track ; too early to tell whether could expect inflationary effects from new US administration.

- ECB's Escriva (Spain) ECB was data-dependent and would not pre-commit to a decision.

- ECB's Stournaras (Greece) noted that rates should be close to 2% by end-2025.

- SNB Chairman Schlegel refuted speculation that it discussed a Swiss franc cap at the moment. Inflation remained well inside target range for horizon period. Did not like negative rates but would go there if necessary.

- UK Chancellor of the Exchequer (Fin Min) Reeves noted that the country’s public finances were now in order.

- Malaysia Central Bank Policy Statement noted that the current rate level remained supportive of economy and assessment of inflation. CPI was expected to remain manageable in 2025 while strength in economy to be maintained in 2025.

Currencies/fixed income

- USD continued its soft tone against the major pairs for the week aided by some risk-on appetite.

- EUR/USD staying above the 1.04 level as numerous ECB speakers continued to emphasis gradual rate cuts for the foreseeable future. Pair at 1.0438 by mid-session.

- USD/JPY at 155.70 with focus on the upcoming BOJ rate decisions. BOJ futures currently pricing over a 90% chance for 25bps rate hike this week. Largest business lobby Keidanren and largest union Rengo begin annual labor negotiations on Jan 22nd with another round of significant wages increases being expected.

- UK Gilt yields showed little reaction to UK public sector finances data which indicated government borrowing surpassed the forecast by the Office for Budget Responsibility. The 10-year Gilt at 4.58% by mid-session.

Economic data

- (NL) Netherlands Dec House Price Index M/M: -0.7% v +0.9% prior; Y/Y: 10.9% v 11.9% prior.

- (UK) Dec Public Finances (PSNCR): £B v £13.1B prior; PSNB (ex-banking groups): £17.8B v £11.8B prior; Net Borrowing: £17.8B £14.2Be; Central Govt NCR: £19.4B v £16.3B prior.

- (MY) Malaysia Central Bank (BNM) left Overnight Policy Rate unchanged at 3.00% (as expected).

- (MY) Malaysia mid-Jan Foreign Reserves: $115.5B v $116.2B prior.

- (ZA) South Africa Dec CPI M/M: 0.1% v 0.3%e; Y/Y: 3.0% v 3.2%e.

- (ZA) South Africa Dec CPI Core M/M: 0.0% v 0.2%e; Y/Y: 3.6% v 3.8%e.

- (TW) Taiwan Dec Unemployment Rate: 3.4% v 3.4%e.

- (PL) Poland Dec Sold Industrial Output M/M: -8.0% v -6.0%e; Y/Y: 0.2% v 2.5%e.

- (PL) Poland Dec Employment M/M: -0.1% v 0.0%e; Y/Y: -0.6% v -0.5%e.

- (PL) Poland Dec Average Gross Wages M/M: 4.0% v 5.5%e; Y/Y: 9.8% v 10.8%e.

- (PL) Poland Dec PPI M/M: -0.2% v -0.2%e; Y/Y: -2.6% v -2.5%e.- 0 (IS) Iceland Dec Wage Index M/M: 0.4% v 0.3% prior; Y/Y: 6.4% v 6.1% prior.

Fixed income issuance

- (IN) India sold total INR280B vs. INR280B indicated in 3-month, 6-month and 12-month bills.

- (FI) Finland opened book to sell EUR-denominated 20-year RFGB bonds via syndication; guidance seen +77bps to mid-swaps.

- (ES) Spain Debt Agency (Tesoro ) opened its book to sell EUR-denominated 10-year SPGB bond via syndicate; guidance seen +8bps to SPGB.

- (DK) Denmark sold total DKK 2.515B in 2030 and 2033 DGB bonds.

- (SE) Sweden sold total SEK17.5B vs. SEK17.5B indicated in 3-month and 6-month Bills.

Looking ahead

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

- 05:30 (NL) ECB’s Knot (Netherlands).

- 05:30 (DE) Germany to sell combined €2.0B in 2041 and 2044 Bunds.

- 05:30 (PT) Portugal Debt Agency (IGCP) buyback operation.

- 06:00 (IE) Ireland Dec PPI M/M: No est v 1.9% prior; Y/Y: No est v 2.1% prior.

- 06:00 (IE) Ireland Nov Property Prices M/M: No est v 0.8% prior; Y/Y: No est v 9.7% prior.

- 06:00 (ZA) South Africa Nov Retail Sales M/M: No est v 1.6% prior; Y/Y: 5.8%e v 6.3% prior.

- 06:00 (EU) EU Commission sell combined €4.0B in 3-month, 6-month and 12-month Bills.

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

- 07:00 (US) MBA Mortgage Applications w/e Jan 17th: No est v 33.3% prior.

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

- 08:30 (CA) Canada Dec Industrial Product Price M/M: 0.6%e v 0.6% prior; Raw Materials Price Index M/M: +0.5%e v -0.5% prior.

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

- 10:00 (US) Dec Leading Index: -0.1%e v +0.3% prior.

- 10:00 (EU) ECB chief Lagarde.

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

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 16:00 (NZ) New Zealand Govt 5-Month Financial Statements.

- 16:00 (KR) South Korea Jan Business Manufacturing Survey: No est v 61 prior; Non-Manufacturing Survey: No est v 62 prior.

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

- 16:45 (NZ) New Zealand Nov Net Migration: No est v 2.8K prior.

- 18:00 (KR) South Korea Q4 Advance GDP (1st of 3 readings) Q/Q: 0.2%e v 0.1% prior; Y/Y: 1.4%e v 1.5% prior; Overall 2024 GDP Y/Y: 2.1%e v 1.4% prior.

- 18:00 (HU) Hungary Jan Business Confidence: No est v -12.6 prior; Consumer Confidence: No est v -28.8 prior; Economic Sentiment: No est v -16.8 prior.

- 18:50 (JP) Japan Dec Trade Balance: -¥68.5Be v -¥110.3B prior (revised from -¥117.6B); Adj Trade Balance: -¥526.0Be v -¥384.2B prior; Exports Y/Y: 2.4%e v +3.8% prior; Imports Y/Y: +3.2%e v -3.8% prior.

- 20:00 (CN) China Dec Swift Global Payments (CNY-denominated): No est v 3.9% prior.

- 21:00 (KR) South Korea to sell KRW700B in 20-Year Bonds.

- 22:00 (TH) Thailand Central Bank to sell THB20B in 2026 Bonds.

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

- 23:00 (TH) Thailand Dec Customs Trade Balance: +$0.3Be v -$0.2B prior; Exports Y/Y: 5.5%e v 8.2% prior; Imports Y/Y: 13.7%e v 0.9% prior.