Financial Markets Daily Report

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A relative sense of caution prevailed in the US stock market, ahead of corporate earnings and January’s jobs data, while stocks edged up in the eurozone.

Financial markets traded on a mixed tone during yesterday's session. In the euro area, sovereign bond yields edged lower as Eurozone PPI came close to expectations (0.0% yoy, 0.4% mom) and French industrial production contracted by 1.7% yoy, more than expected (-1.2% yoy). ECB office members expressed potentially stronger policy easing ahead.

Sentiment recovered during yesterday’s session, as investors digested the announcement that US tariffs on Mexico and Canada will be delayed for at least one month. Trade war uncertainty, however, concentrated in Asia, as China announced retaliatory tariffs on targeted products coming from the US, to take effect next Monday.

Risk-off mode in financial markets during yesterday's session as investors digested the US Administration's announcement on Saturday of 25% tariffs on Canada and Mexico, and 10% on China. Tariffs on Mexico were paused later in the day, adding more uncertainty around US tariffs policy, its duration, and its magnitude.

Financial markets were mixed on Friday's session, as inflation data releases were digested by investors. In the US, PCE edged higher to 2.6% yoy in December, from 2.4% in the previous month, but core PCE came at 2.8% as expected. In this context, US sovereign bonds were mostly unchanged as inflation continues to show some persistence in its path to 2%.

Yesterday's market sentiment was driven by the ECB's rate cut announcement, the fifth cut since last June, leaving depo rate 25bps lower at 2.75%. Officials kept the door open to further policy easing, given euro area GDP data was stagnant and could be hit by a trade war from the new US Administration. By end of session, markets expected 3 more cuts in 2025.

Financial markets had a mixed performance on Wednesday. US Treasury yields were flat as the Fed kept rates unchanged and Powell said the Fed was in no rush to cut rates and will wait to see the impact of Trump's policies on the economy.

Investor sentiment recovered on Tuesday after Monday's rout in chipmakers and AI-related companies. Most equity indices around the world rose, with the US Nasdaq 100 up 2.0%. European equity indices were also higher, with the Ibex 35 leading the way, while Japanese equities were lower earlier in the day, still weighed down by Monday's tech pessimism.

Investors started the week shunning risk, with most equity indices around the world posting some losses, which were more pronounced in the US. Chipmakers and other AI companies, particularly Nvidia, suffered a rout as a newly released Chinese AI model proved more efficient and investors questioned how much value US AI companies would add in the future.

Investor sentiment was mixed across the globe on Friday. In the eurozone, government bond yields rose as preliminary PMI data for January came in above expectations thanks to a slight improvement in the manufacturing sector to 46.1. US Treasury yields fell as both the services PMI and the U. of Michigan consumer sentiment index surprised to the downside.

In yesterday's session, global stocks rose for a ninth day, boosted by comments from US President D. Trump, in a virtual participation at Davos, hinting at a potentially softer approach to tariffs on China. He also urged OPEC to lower crude prices and said he will push for interest rate cuts.

Markets traded without a clear direction as investors remained cautious awaiting further announcements from the Trump administration and central bank meetings next week. ECB officials' remarks continued to support further interest rate cuts, while Fed officials are in the "blackout" period ahead of the meeting and cannot comment about monetary policy.