Global Market Quick Take: Europe – 16 January 2025

Global Market Quick Take: Europe – 16 January 2025

Key points

• Equities: Broad rally, S&P 500 +1.83%, Nasdaq 100 +2.4%, Dow +1.65%. Bank earnings (JPM, WFC, GS) beat expectations
• Volatility: VIX drops 13.8% to 16.12, sharp decline in short-term measures (VIX1D -39%). CPI relief drives risk-on sentiment
• Digital Assets: Bitcoin $99,794 (-0.7%), Ethereum $3,380 (-2.1%), XRP $3.1171 (-0.82%). Altcoins pull back after recent rally
• Currencies: USD fights back after post-US CPI USD plunge. JPY strong across the board.
• Commodities:  Sector at two-year high led by strong gains across energy and metals
• Fixed Income: US treasuries send global yields sharply lower after soft core CPI release yesterday.
• Macro events: US Dec Retail Sales and Weekly Initial Jobless, US Treasury Secretary Nomination Hearing for Scott Bessent

Saxo’s Q1 2025 Quarterly Outlook is out, and can be accessed here

The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.

Macro data and headlines

• Chip-maker Taiwan Semiconductor was out this morning reporting better than expected earnings and forecast stronger than expected sales growth and better gross and operating margins. It forecast growth for 2025 to achieve mid-20% levels in USD terms.
• US December headline CPI was in line with expectations at 2.9% year-on-year while the core slowed to 3.2% versus 3.3% expected. Several Fed officials on Wednesday expressed confidence that price pressures would continue to ebb, but some warned that the battle against inflation isn’t finished yet, while traders are now pricing in another rate cut by July and a total of 40 basis points this year.
• Australia's employment rose by 56,326 in December (est. +15k), jobless rate up to 4% (est. 4%) from 3.9% in November. Full-time employment fell by 23,711, part-time employment surged by 80,037. Participation rate increased to 67.1% (est. 67%) from 67.0%.
• Canada has drafted a list targeting $105 billion worth of US products in response to potential tariffs imposed by the Trump administration on Canadian goods.

Macro events (times in GMT)

Final Dec CPI from Germany (0700), and Italy (0900), US Dec Retail Sales and Weekly Initial Jobless Claims (1330), EIA’s Natural Gas Storage Change (1530), US Treasury Secretary Nomination Hearing for Scott Bessent (1530)

Earnings events

• Today: Infosys, Bank of America, UnitedHealth, Morgan Stanley
• Friday: Schlumberger

   

  For all macro, earnings, and dividend events check Saxo’s calendar.

Equities

• US: US equities surged on Wednesday, posting their largest daily gains in over two months, driven by lower-than-expected core CPI data and robust bank earnings. The S&P 500 gained 1.8%, while the Nasdaq 100 rose 2.4%, and the Dow climbed 703 points (+1.65%). Banks led the rally, with JPMorgan (+2%) and Wells Fargo (+6.6%) delivering stronger-than-expected Q4 results, while Goldman Sachs (+6%) and Citigroup (+6.5%) followed suit. Treasury yields also declined, with the 10-year yield retreating to 4.65%, supporting the risk-on sentiment. Markets now anticipate further rate cuts this year, with inflation showing signs of cooling.
• Europe: European stocks rallied on Wednesday, buoyed by a soft US CPI report and easing UK inflation, which raised hopes for rate cuts by central banks. The STOXX 50 rose 1.2%, driven by gains in Bayer (+5.9%), Deutsche Post (+4.8%), and BASF (+3.5%). UK CPI dropped to 2.5% YoY, adding optimism to the inflation outlook. The broader STOXX 600 climbed 1.2%, with bond yields retreating across the region. Luxury names like Richemont saw gains despite headwinds in demand, while financial stocks continued to outperform.
• Asia: Asian stocks extended gains on Thursday, tracking Wall Street’s strong rally after lower-than-expected US inflation data. Hong Kong’s Hang Seng Index jumped 1.7%, while Japan’s Nikkei 225 rose 0.4%, supported by gains in export-focused sectors despite the yen strengthening on rate hike speculations. South Korea’s Kospi gained as the central bank maintained rates. Optimism around China’s stimulus efforts supported gains, with Semiconductor Manufacturing Corp (+7%) leading the charge. However, investors remain cautious ahead of key economic data, including China’s Q4 GDP and retail sales figures due Friday.

Volatility

Volatility collapsed sharply on Wednesday as markets cheered soft US CPI data. The VIX fell 13.8% to 16.12, while shorter-term volatility indicators VIX1D (-39%) and VIX9D (-23%) signaled reduced immediate uncertainty. The rally in equities was fueled by declining bond yields and upbeat earnings. Today’s volatility could hinge on US retail sales data and additional Q4 earnings, including results from Bank of America and Morgan Stanley. Options activity remains elevated in the SPY ETF, reflecting lingering investor focus on market moves.

Digital Assets

Bitcoin rallied for the third consecutive day, rising 2.5% to $99,478, buoyed by soft US inflation data and renewed optimism over potential crypto-friendly policies from the incoming Trump administration. Altcoins outperformed, with Ethereum climbing 4.4% to $3,338 and XRP surging 7.2% to $3.0616. The market capitalization of cryptocurrencies grew by 4.9%, while trading volumes increased 10%. Analysts remain optimistic about further upside for Bitcoin, which briefly tested the $100,000 level on Wednesday.

Fixed Income

• Treasury yields slumped across the curve following the lower-than-expected rise in December's core CPI. The 2-10 year spread bull flattened to 37 bps as long-end yields fell faster than short-end with Fed Funds futures now projecting a 25-basis point rate cut by July. The US 10-year treasury benchmark plunged 13 basis points, trading near 4.65% this morning versus highs yesterday just above 4.80%.
• Bond yields in Europe and Japan dropped on the move in US treasuries yesterday, with the German 10-year Bund retreating 9 basis points to 2.56% and the 10-year JGB benchmark yield 5 basis points lower overnight at 1.20%.

Commodities

• The Bloomberg Commodity index trades at a two-year high, up 5.4% this month, thereby eclipsing last year’s gain. All sectors, except softs show gains led by energy (11.3%), precious metals (4.5%), and industrial metals (3.5%). On an individual basis, natural gas, crude oil, diesel and copper lead the table.
• Crude futures rose strongly on Wednesday, reaching a five-month high, supported by continued technical and momentum driven buying amid concerns about the impact of US sanctions on Russian supply, which the IEA warned could significantly disrupt flows in the short term. In addition, US stockpiles continue to fall while the temporary closure of the largest US gasoline pipeline has underpinned prices on the New York futures exchange.
• Silver gained 4.5% in Wednesday’s session while gold held a two-day advance after softer US core inflation sent yields and the dollar lower, while reviving expectations for a FOMC rate cuts this year.

Currencies

• The US dollar weakened sharply on the back of the lower-than-expected core CPI data release yesterday, with EURUSD managing to rally above 1.0350 and USDJPY pushing lower to post a 155.21 low in the Asian session overnight. But the entire US CPI reaction was unwound in EURUSD and most other USD crosses, save for USDJPY, where broad JPY strength lingered.
• Sterling rallied after testing above the important 0.8450 area yesterday, helped in part by a retreat in global yields after the soft core US CPI data yesterday, as the currency has suffered from fears of stagflation, dependent on external funding of its deficit spending that will require austerity from the government if yields continue higher. 10-year Gilt yields dropped some 15 basis points.