Rise and shine everyone.

There’s a lot going for a Tuesday morning.

Seems like that there was quite a bit of drama over the Tariff situation yesterday. The Washington Post reported that selective tariffs will be applied, and this was then refuted by President-elect Trump later in a social media post (I think it was Truth Social). The markets seesawed because of this.

The other big news is the CES, the famous tech conference, and Jensen Huang’s speech last evening. From what I can see, he put on quite a show! Needless to say, that’s made quite the positive impact, with NVDA crossing $150, up +1.95% in the pre-market. Interestingly enough, it didn’t start off that way. Nvidia’s CEO began with a focus on the new RTX 50 series chip, highlighting its ability to generate real-time graphics and support high-powered applications, which initially seemed to underwhelm investors. Nasdaq futures dipped into the red during his talk, as it followed Nvidia’s fresh record high just shy of $150 per share.

However, the tone shifted dramatically later in the presentation when Huang announced partnerships with Toyota, Aurora, Continental, and Uber for autonomous driving technology. He also unveiled a new $3,000 “AI Supercomputer” for desktop AI computing, which reignited excitement and reinforced Nvidia’s positioning as a leader in cutting-edge technology.

Japanese yields continued to climb, with the 10-year JGBs reaching as high as 1.14%. After briefly recovering to the 156 handle overnight, the JPY weakened again, sliding back to the 158 level—the lowest since July 17th. Finance Minister Kato intervened to temporarily stabilize the situation, expressing deep concern over the recent one-sided and sudden FX moves. Markets seem to be leaning towards a hike later this month. The BoJ meeting is on 23 Jan.

The Nikkei gained +2.6%, driven by a weaker yen and strong performances from Tokyo Electron (+11%), Advantest (+7%), and Toyota (+3.9%) on its Nvidia partnership. In contrast, China and Hong Kong struggled, with Tencent and CATL down over 5% after being added to the US Pentagon’s list of firms linked to China’s military. The Hang Seng fell 2%, extending losses from its October highs, as offshore Yuan HIBOR hit 8.1%, the highest since mid-2021, amid reduced CNH liquidity from Chinese banks and expected PBOC note issuance.

UK 30-year bond yields climbed to their highest level since 1998, coinciding with a drop in Halifax house prices—the first decline in nine months. Meanwhile, the latest Kantar survey showed grocery inflation ticking up from 2.6% to 3.7%. The FTSE 100 lagged, reflecting the broader pressure on UK markets.

“Eurozone inflation for December came in at 2.4%, up from 2.2% in November and in line with the consensus forecast. Core inflation remained at 2.7%. In terms of composition, it is service sector inflation that remains elevated at 4.0%, helping to fuel an uptick in survey expectations of both short- and medium-term inflation.” - BBG

Speaking of inflation, today’s focus for the US will be the ISM Services number that is set to come in stronger. Here is a snapshot of last month’s number. As you can see, prices increased while services activity decreased. None of this is what we wanted to see. So there will be a focus on the Price Paid… we will watch that number. Also employment. We have the JOLTS and the employment number within the ISM to watch.

Markets this morning:

Bear Steepening

Following on from the Tariff drama, the truth is, we are in a state of limbo. This is largely the reason that rates are going up. The uncertainty is spreading fear among bond investors who are now demanding a premium for longer term bonds. You always ask for a premium when something is more risky.

What’s happening to the yield curve is a bear steepening, i.e., longer term rates are pulling up the curve. This tells us that the bond market is worried about inflation expectations as a result of the coming fiscal policy environment and the resulting US Government Debt situation. Bond investors are demanding a term premium given the uncertainty, and perhaps because the Fed’s projection for longer-run rates is moving up.

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)