Today

Futures are mixed this morning, following a strong day for markets with the S&P 500 briefly hitting a new all-time high.  The market is getting a boost from excitement about potential tax cuts and deregulation under Trump, as well as signs of resilient economic growth. There was a strong rally in tech stocks yesterday, bolstered by optimism over AI and solid earnings from major corporations. Netflix gained nearly 10% after reporting record subscriber growth, while Oracle soared 6.5% on a $100 billion AI joint venture with SoftBank and OpenAI, unveiled with President Trump. While tariffs remain a concern, markets have taken comfort in the fact he hasn’t made anything official yet.   

The market has appeared to brush off the latest U.S. administration tariff threats for now, prompting speculation that these serve only as negotiating tools. However, some economists are a little more concerned, highlighting Trump’s “America First Trade Policy” which outlines plans for sweeping trade policy changes, including investigations into unfair practices and economic impacts, potentially paving the way for significant tariff implementations. While markets and some critics have been reassured by the lack of immediate levies, analysts caution that the executive order grants Trump substantial leverage to advance his trade agenda. Key targets include addressing fentanyl trafficking, defense spending, and TikTok. Economists expect the trajectory of tariff hikes to remain uncertain but impactful, as Trump positions tariffs as both a revenue source and a negotiation tool. 

There are growing concerns about sustained inflation and its implications for the economy and markets in 2025. Some economists believe inflationary pressures may persist globally due to demographic changes, de-globalization, and potential pro-inflationary policies from Donald Trump, including tax cuts, tariffs, and deportation measures. While markets remain optimistic with rising stock prices, some warn that inflation exceeding 3% could push U.S. government bond yields above 4.5%, with sustained levels above 5% posing risks for equities and long-duration assets. It’s also worth noting that central banks face limited options, as lowering rates may not counter inflation effectively, while higher rates risk triggering a recession.  

Despite very low unemployment rates, financial stress among consumers is intensifying as more credit card holders rely on minimum payments, with the share reaching a 12-year high of 10.75% in Q3 2024, alongside rising delinquencies now at 3.52%. According to a Philadelphia Fed Reserve report, average credit card rates have surged to 21.5%, with balances swelling to $645 billion in the U.S., a 52.5% increase since 2021, as many turn to credit cards for essentials. Mortgage originations have also hit a 12-year low amid 7%+ rates, and debt-to-income ratios for home loans are rising. While consumer spending remains resilient, growing reliance on credit and higher interest costs threaten long-term financial stability, highlighting mounting vulnerabilities in household finances. 

A major reversal. It was reported that Chrystia Freeland would drop the proposed increase in the capital gains inclusion rate if she became prime minister, according to sources close to her. Initially introduced by Freeland in April, the hike was designed to increase government revenue by taxing higher capital gains. However, considering Donald Trump's nationalist policies, including tariffs and tax cuts, Freeland now believes the policy could drive investment away from Canada (the same thing critics said when it was proposed). Her campaign focuses on countering Trump's trade policies, with a promise to retaliate dollar-for-dollar if the U.S. imposes tariffs on Canadian goods. 

Pardon me? Donald Trump issued a full pardon for Ross Ulbricht, the operator of the Silk Road dark web marketplace, which facilitated over $200 million in anonymous illegal drug sales using Bitcoin before its 2013 shutdown. Convicted in 2015 of drug trafficking, money laundering, and computer hacking, Ulbricht received two life sentences plus 40 years. Trump, aligning with libertarian advocates who viewed the conviction as government overreach, announced the pardon in a Truth Social post, criticizing prosecutors and calling the sentence ridiculous. Ross isn’t the only one getting a get-out-of-jail free card though, with Trump also issuing sweeping pardons for approximately 1500 January 6 riot defendants.  


Diversion: Confidence is the key  

Commodities

Oil prices are slightly higher despite an industry report pointed to the first gain in US crude inventories since mid-November, while the market watched for further promises on global trade from President Donald Trump. The American Petroleum Institute reported US crude inventories rose by 1 million barrels last week and fuel stockpiles surged. Oil prices remain higher this year after a strong start, following sinking temperatures in the Northern Hemisphere and a scramble to buy replacement cargoes in the wake of sweeping US sanctions on Russia’s crude flows. Indian refiners are reaching for all available options in the dash to make up for Russian supplies hit by sanctions. The sudden rush has led to a rare shift in prices, with Middle Eastern Dubai oil trading at its biggest premium to the global Brent benchmark in years. 

European natural gas futures are extended gains on signs of a tightening global market and concerns about regional storage levels. The market is assessing the need for large volumes of gas to replenish stockpiles in spring and summer after Germany signaled it will subsidize refills even if prices make them uneconomical, and Italy said it plans to make an early start. This increases demand earlier in the year before more supply starts arriving in the market. Indonesia, a major supplier of liquefied natural gas, also asked its overseas buyers to accept delays to some scheduled shipments as domestic energy demand rises. The move signals a potential reduction of supplies from the world’s sixth-largest LNG exporter.   

Fixed income and economics

The European Central Bank is expected to stick to its plans of gradual interest rate cuts, with another quarter-point reduction expected on January 30, as eurozone inflation is projected to reach 2% this year. Despite Donald Trump's return to the White House and his critical stance on EU trade, ECB officials remain focused on supporting the eurozone's faltering economy and anticipate limited inflationary fallout from potential tariffs. ECB President Christine Lagarde and other policymakers emphasize vigilance but downplay immediate concerns about Trump's policies, signaling confidence in their ability to manage economic risks while targeting a neutral interest rate range of 1.75%-2.25%. 

Chart of the day
 

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Quote of the day
 

And the trouble is, if you don't risk anything, you risk even more. Erica Jong