European Midday Briefing: Stocks Rise Despite Trump's Metal Tariffs Plan
MARKET WRAPS
Stocks:
Stocks in Europe mostly traded higher on Monday despite President Trump announcing plans to impose 25% tariffs on all steel and aluminum imports.
Jefferies suggested that risky assets were becoming desensitized to Trump's tariffs announcements, with more expected this week in the form of so-called reciprocal tariffs .
"Our view on tariffs remains that they will cause volatility, are a negotiating tool and will eventually be not as bad as feared."
Also in focus this week is U.S. inflation data on Wednesday, testimony from Jerome Powell on Tuesday and Wednesday, and German inflation and U.K. economic growth data on Thursday.
Shares on the Move
European steel and aluminum stocks mostly edged lower in early trading on expectations of the U.S. tariffs.
Among the biggest fallers were Austria's Voestalpine, with shares down 1.5%, and steelmaker ArcelorMittal, which traded 2.6% lower.
In Germany, shares in steel company Salzgitter and Thyssenkrupp fell.
Luxembourg-based stainless steelmaker Aperam traded 1.8% lower and shares in Finland-based Outokumpu fell slightly, too.
Among Europe's aluminum producers, Norsk Hydro shares were 1.1% lower.
BP was up more than 7% in morning trade after it was reported that Elliott Management had built a stake in the energy giant.
The activist hedge fund could force BP to reorganize its business and make changes to its board, Jefferies said.
Economic Insight
Trump tariffs are likely to be a long-term theme, Saxo Markets said.
They are being used not just to tax imports but as tools for national security, economic leverage, and revenue generation, indicating a shift towards long-term economic policy rather than short-term trade disputes.
"For investors, that means positioning for a world where protectionism is the norm, not the exception."
U.S. Markets:
Stock futures were up, with contracts tied to the tech-heavy Nasdaq-100 seeing the biggest gains.
McDonald's is due to report quarterly results before the bell, but earnings action is not expected to heat up until later in the week.
Forex:
The euro faces a hit from the prospect of U.S. tariffs and possibly elevated U.S. inflation data this week, ING said.
Trump recently said he would impose tariffs on the EU soon, which could send the euro back towards $1.0225.
Wednesday's U.S. inflation report is "another negative event risk" for the exchange rate.
U.S.-eurozone interest rate differentials widened after Friday's strong U.S. jobs data and should continue to move against the euro.
If the euro survives the tariff risk and U.S. inflation data, however, it could rise as the Munich security conference from Friday might unveil more details on the U.S.-proposed Ukraine ceasefire deal.
Sterling could rise against the euro if Trump follows through on his threat for EU tariffs, ING said.
The market expects the EU has more to lose than the U.K. on tariffs, it added.
"We cannot rule out another drop in EUR/GBP to the 0.8250 area should tariffs hit Europe in the early part of this week."
Against the dollar, however, sterling could fall towards the lower end of a 1.2250-1.2500 trading range.
The dollar rose after Trump said he would impose tariffs on all steel and aluminum imports.
Pepperstone said the measures could be more prolonged than the tariffs recently imposed - then postponed - on Canada and Mexico, meaning an increased risk of higher inflation and weaker economic growth.
The dollar benefits from safe-haven demand and the Fed's cautious stance on interest rate cuts. Furthermore, the U.S. economy should prove more resilient than peers.
"That said, anything close to, or above, 110.00 in the DXY dollar index seems a bit far-fetched for now."
Bonds:
Trump's plans for new tariffs, this time for metals, could introduce some volatility into bond markets , ING said.
Moves in bonds shouldn't be too large, however, as the news is unlikely to cause "a structural move higher or lower for rates."
As well as imposing 25% tariffs on imports of steel and aluminum from Monday, Trump said he expects to make an announcement about reciprocal tariffs on Tuesday or Wednesday.
Commerzbank said fresh headlines about U.S. tariffs should keep Bunds better supported.
"Markets fear that Trump's 'reciprocal tariffs' could further weigh on the already gloomy growth outlook for the euro area."
With risk sentiment set to remain shaky, Bunds should remain better supported at the start of the week with 10-year yields below 2.40%, Commerzbank added.
Long-end Treasurys offer value with 10-year yields at 4.50%, notwithstanding the risks of a rise if inflation expectations pick up, Pepperstone said.
Besides a continued readiness to buy gold, Pepperstone likes long-end Treasurys at current yield levels. That said, it sees the risk of long-term inflation expectations picking up and sparking a sustained round of Treasury selling as significant.
Energy:
Oil edged higher in early trade as the market digested Trump's latest tariff threats.
Meanwhile, China's counter tariffs on a range of American products are due to take effect on Monday.
"Markets are weighing whether these moves are bargaining tactics or a structural shift in trade policy," Saxo said.
Oil futures closed lower last week amid concerns that trade tariffs could hurt global economic growth and damp demand for crude.
Metals:
Gold futures rose to a new record as concerns about U.S. tariffs - which risk higher inflation and slower economic growth - spur safe-haven demand.
The precious metal is already up more than 10% year-to-date, hitting consecutive records along the way, ING said.
China's central bank, meanwhile, expanded its gold reserves for a third month in January, with reserves rising 73.5 million troy ounces, from 73.3 million in December.
Gold's 2024 rally was driven by central-bank buying. Banks will probably continue to add to their holdings as geopolitical tensions and the economic climate push them toward safe-haven assets, ING added.
Comex gold futures were likely on track to rise beyond resistance at $2,900/oz, based on the daily chart, RHB Retail Research said.
Last Friday's price movements indicate bullish momentum is picking up pace again.
Base metal prices were mixed, with aluminum up after Trump announced the tariff on steel and aluminum imports.
The U.S. imports around 70% of its aluminum supply, with 60% of this tariff-free from Canada, MUFG said.
Stripping out transportation and other factors, a 25% tariff would increase the U.S. Midwest premium on aluminum to around 40-45 cents a pound, from around 30 cents a pound.
EMEA HEADLINES
Nokia Names Intel's Data Center and AI Head Justin Hotard as New Chief Executive
Nokia appointed Justin Hotard, a tech industry expert in data centers and AI business, as its next chief executive, in a move that reinforces the company's ambition to expand into new growth areas.
The Finnish telecommunication company recently signaled its aim to diversify and search for new growth outside of its traditional telecom operator market, having recently signed a deal worth $2.3 billion to buy networking-solutions provider Infinera as it bets on new business for data centers.
Elliott Takes Stake in Struggling Oil Giant BP
Activist hedge fund Elliott Management has built a stake in British oil major BP and will push for transformational changes to improve the company's performance, according to people familiar with the investment.
The U.S. hedge fund, which manages around $70 billion in assets, is one of Wall Street's most influential investors, known for pressuring companies to fire management, break apart and spin off businesses, all with the goal of increasing shareholder returns.
Europe's Unloved Stocks Are Suddenly on Top of the World
Europe's economy is stuck in the doldrums and President Trump's threat to hit the trade-dependent region next with tariffs risks making things worse. Yet European stocks are on a hot streak.
The German DAX has climbed more than 9% this year in dollar terms, and France's CAC 40 is up about 8%. That is well above the 2.45% gain in the S&P 500. European indexes haven't outpaced U.S. counterparts by such a wide mark at the start of a year since 2015, according to Dow Jones Market Data.
France Taps Nuclear Power for New AI Training Cluster
France is making a bid to catch up in the artificial intelligence race by leaning on one of its strengths: plentiful nuclear power.
The French government plans Monday to pledge a gigawatt of nuclear power for a new artificial-intelligence computing project expected to cost tens of billions of dollars, according to its private-sector backers and the French government.
GLOBAL NEWS
China's Strategy in Trade War: Threaten U.S. Tech Companies
SINGAPORE-Chinese officials are building a list of U.S. technology companies that can be targeted with antitrust probes and other tools, hoping to influence the tech executives who are heavily represented in President Trump's orbit.
People familiar with Beijing's strategy said the goal was to collect as many cards as possible to play in expected negotiations with the Trump administration over U.S.-China issues, including the tariffs that Trump has imposed on Chinese goods.
For CEOs and Bankers, the Trump Euphoria Is Fading Fast
It took less than a month for the second Trump administration to cool the enthusiasm of chief executives and dealmakers.
Consumer sentiment is down and inflation expectations are rising, driven in part by worries about the impact of a threatened trade war. The deals market just ended its quietest January in a decade. A Justice Department that was expected to wave through acquisitions instead sued to block a big technology merger.
Vance, Musk Criticize Federal Judge for Blocking DOGE From Treasury System WASHINGTON-Vice President JD Vance and Elon Musk led a conservative chorus criticizing a federal judge who for now has restricted the ability of Musk allies to access the Treasury Department payment system, an early sign of tensions ahead between the White House and the courts.
A Saturday court order by U.S. District Paul Engelmayer in New York temporarily precluded officials without proper background checks and security clearances from accessing the payment system through at least next Friday, including political appointees and special government appointees affiliated with Musk's Department of Governmental Efficiency set up by President Trump.
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This article is a text version of a Wall Street Journal newsletter published earlier today.