The AI and trade themes will remain omnipresent
Markets
Markets had to navigate US presidents Trumps’ reaction to the Supreme Court ruling rejecting the IEEPA (reciprocal) tariffs yesterday. For now, the IEEPA tariffs are replaced by a 10% ‘temporary’ (max 150 days) global levy as the US administration develops more in depth investigations on security and trade topics that over time might result in a new tariff architecture. The US administration indicates that it is still working on an order to raise the 10% levy to 15% as President Trump announced this weekend. The new U-turn in US trade policy is causing uncertainty among trading partners on the impact on negotiated trade deals. In this respect, the EU Parliament already suspended the approval procedure for the EU-US trade deal that included a 15% tariff ceiling for most EU goods. However, as was often the case of late, this (trade) uncertainty in the first place caused some kind of market paralysis rather than an aggressive risk-off repositioning. Initial moves in core (US & EMU) yields and European equities were very modest. A weaker USD opening was also gradually reversed throughout the European session. Early in US dealings, the market focus shifted back to the lingering market theme of the potential AI disruption to other sectors as highlighted in a much-talked about new research report (Citrini Research; The 2028 global intelligence crisis). US equities finally tumbled between 1.66% (Dow) and 1.04% (S&P 500) lower. Even as the link between these potential AI-driven disruptions and monetary policy is far from clear, core bonds (and especially US Treasuries) captured a safe have bid. US yields finally declined between 6.4 bps (5-y) and 2.2 bps (30-y), the belly of the curve outperforming. The US 10-y yield (4.04%) now again nears the 4% barrier, to be compared with levels near 4.3% early February. The picture at the short end of the curve is less outspoken (2-y 3.45%) but key support (3.40% also comes within reach). German yields declined between 1.9 bps (30-y) and 3 bps (5-y). The dollar showed no unequivocal pattern. DXY closed marginally lower at 97.35. EUR/USD finished little changed near 1.1785.
Asian equities are hardly affected by the AI sell-off in the US this morning as investors focus more on chipmakers rather than companies that might by hurt by the AI-fall-out. US yields rise marginally after yesterday’s decline. The dollar is slightly firmer, with USD/JPY an outperformer (155.5). Later today, the eco calendar mostly contains second tier US data including the weekly ADP report, housing data, and consumer confidence. While interesting, they probably won’t profoundly change market expectations on Fed policy. Several Fed governors are scheduled to speak. The AI and trade themes will remain omnipresent. With respect to the latter, US president Trump’s State of the Union (Wednesday morning 03.00 CET) evidently contains the risk of some unexpected policy announcements. On US interest rate markets, we keep an eye at yields on several maturities (5-10-y) nearing YTD lows. At the same time the dollar is holding up well, with some first resistance levels still within reach (EUR/USD 1.175 area, DXY 98.1 area).
News and views
New EU car registrations fell by 3.9% Y/Y in January. Apart from the traditional slumps in the month of August, the absolute levels of new car registrations fell below 800k for the first time in at least two years. Hybrid-electric car (HEV) registrations captured 38.6% of the market (up from 34.9%), remaining the preferred choice among consumers. Battery-electric cars (BEV) accounted for an 19.3% market share (up from 14.9% in Jan 2025). Together with plug-in EV’s, these three categories still showed Y/Y-increases. Combined market share of petrol and diesel cars fell to 30.1% (mainly petrol), from 39.5% a year ago. In Belgium petrol cars were the most popular (42.7% from 40.9%) followed by BEV’s (36.8% from 33.8%) and HEV’s (11.5%, stable). New Belgian car registrations fell 18.7% Y/Y.
Bloomberg reports that BusinessEurope, a powerful trade group that represents 42 national business federations, is drawing a report calling for reforms to the EU’s Emissions Trading System. The groupearlier warned that the risk of deindustrialization is high if the problem is not solved. He says that carbon costs are currently up to 30% of energy costs. At an industry summit in Antwerp earlier this month, German Chancellor Merz and several business CEO’s also called for ETS to be reformed. BusinessEurope calls amongst other for issuance of new allowances to be extended beyond the current implied 2039 cut-off date and more permits to be injected into the market via the Market Stability Reserve. The planned phase-out of free emissions allowances should be reconsidered, while finance raised through the ETS should be used to fund industrial decarbonization, rather than go into the EU budget.
Author
KBC Market Research Desk
KBC Bank
