S&P 500 sets record intraday high amid Netflix rally

• Netflix blowout results and $500bn AI project boost stocks
• Dollar marginally higher as Trump threatens tariffs on China
• Gold upside breakout continues even as yields rise
• ECB’s Lagarde not overly concerned by export of inflation to Europe

FX: USD traded in a narrow range for a second straight day, near to the low set on Monday’s close. Markets are playing a waiting game regarding Trump’s trade policies. Threats of tariffs have hit Canada, Mexico and China but markets are breathing a sigh of relief that a ‘Day One’ trade bomb has not been let off. So far.

EUR made gains above the long-term October 2023 level at 1.0448 before pulling back. Trump did mention the European Union overnight but nothing really concrete soothed market nerves. The ECB’s Lagarde appeared to downplay worries about tariffs.

GBP has similar price action to the euro. Prices tried to break out of the long-term bear channel from the September peaks. That downward trendline comes in just above 1.24. Higher-than-expected December borrowing data, alongside an upward revision to the previous print is yet another headwind for the UK Chancellor and her fiscal strategy.

USD/JPY moved higher as the yen weakened ahead of the BoJ meeting on Friday. Interestingly, one-year volatility in the major has fallen to 9.5%, its lowest level since early September. Media reports suggest that Japanese PM Ishiba is to present an investment plan to US President Trump at their summit.

AUD printed a doji candle pointing to indecision, after getting to a high at 0.6295. NZD underperformed on weaker than expected non-tradable CPI. It slowed to 4.5% from 4.9%, its lowest level since late 2021. A 50bps rate cut at the next mid-February RBNZ meeting is now given around a 65% chance by money markets. USD/CAD traded higher and back into the long-held range. Eyes are on the tariff threat obviously, with next week’s BoC meeting on the radar. Another 25bps rate cut is expected amid tepid growth and benign inflation.

US stocks: The benchmark S&P 500 closed in the green, up 0.61% at 6,086, after printing a record intraday high. The tech-heavy Nasdaq settled higher, up 1.33% at 21,853. The Dow Jones underperformed, finishing up 0.3% at 44,156. Netflix closed up 9.69% on the day, but on its lows, after its blockbuster results. Strong headline metrics, record subscribers adds and plans to raise prices pushed the stock to an intraday record high at $999. Oracle surged by 6.8% on the Stargate plans to invest $500bn building new AI infrastructure for OpenAI. Elon Musk poured cold water on this project late in the US session. Johnson & Johnson results topped market expectations with better results forecast in 2025. But the healthcare giant still suffered the second biggest drop on the Dow.

Asian stocks: Futures are generally in the green. Indices were mixed after strong gains Stateside, mixed with concerns over 10% tariff threats on China. The Nikkei 225 outperformed, surging above 39,000. Softbank jumped 7.5% on Trump’s $500bn AI initiative and its potential joint venture with OpenAI and Oracle. The ASX 200 rose modestly with miners lagging tech and financials. China underperformed on Trump’s tariff warning.

Gold pushed higher again with strong bullish momentum. Support now sits around $2720, the highs from November and mid-December. The record high is $2790. The softer dollar, and possibly less ‘higher for longer’ rates since Monday are boosting gold bugs.

Day Ahead – Has Trump 2.0 gone soft on tariffs?

It’s very, very early days, but it doesn’t stop us speculating and speculating some more.  As we get a drip feed of new policies from the new President, the standout one so far and from yesterday has to be the additional 10% tariffs on China, based on drug exports. Is this a new line of attack/negotiation that opens up more than just the trade deficit?

More importantly, that % of tariffs is way below what had been touted (60%) during the election campaign. That is highly tolerable and should bring a big sigh of relief to many, with upside revisions to global growth if it comes to fruition. Of course, we are only three days into Trump’s second term as commander-in-chief, and if anything has been predictable, it is the chaos.

With inevitable retaliation on the table with all of these threats, perhaps Trump is being more influenced by some of his big hitters in the administration. We’re looking at the billionaire businessmen in charge of DOGE and Treasury for example. At the end of the day, Trump is just that, and much less of an ideologue. This all means a reversal of the moves we have seen ahead of Monday could continue. But it is very early days…

Chart of the Day – USD/NOK rolling over?

Rate cuts are coming to Norway in the coming months, but probably not at today’s Norges Bank meeting. Core inflation dropped below its forecast in December, and other data is also supportive of policy easing. But the bank typically communicates policy changes well ahead of time. That points to the policy statement from the December meeting guiding towards a March rate cut. This all also appears priced in by markets. It implies that the bank will keep its spot amongst the most hawkish central banks in the developed world for a little while longer.

The pair pushed up to levels last seen during the pandemic spike above 12 in 2020. Prices had struggled around the closer long-term top at 11.29 from May 2023. The recent upside breakout may be a false one if USD/NOK closes decisively through that level on the week. Minor support at 11.15 is the Fib (23.6%) of the range move from the mid-July low to the recent high.

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