Market Update

Good morning,
 
While the Northeast tries to figure out how to dig out and the world tries to understand the moving target of tariffs - one thing is for certain - in an epic OT victory the boys in the Red, White and Blue brought home the Gold for the first time since 1980, finishing off the hockey sweep in Milan. Friday was another choppy session after the Supreme Court struck down the IEEEPA tariffs much to the chagrin of President Trump who responded by instituting a 10% global tariff under Section 132. Friday’s modest bounce left major US indices up between 0.5% - 2% for the week.
 
During last week we highlighted the correlation of the weather outside and the thawing of the AI Winter but had warned of the impending storm (hopefully the correlation breaks today). Many areas of the market that had been impacted by the AI disruption fears had stabilized throughout the week, but software struggled to find its footing. On Friday, sub-sector cyber security, which many had argued was immune to the disruption, moved into the cross hairs after the release of Claude Code Security. The Private Credit Chill also deepened as the concerns around software/data center exposure were amplified by worries related to redemption and liquidity mismatches.
 
Over the weekend as investors and trade partners tried to figure out the implications of Friday’s decision President Trump increased the global tariff rate to 15%. USTR Greer said trade deals remain intact though reporting suggests the EU is considering freezing the ratification process as they await more details. India trade negotiators have also reportedly canceled this week’s meeting in DC.
 
AI has been the other topic of conversation with CNBC reporting that OpenAI updated some financial metrics including its 2030 revenue estimate to $280B ($13.1 in 2025) split between enterprise and consumer. On the enterprise side this morning the company announced partnerships with Boston Consulting Group, McKinsey & Company, Accenture, and Capgemini that will see the consulting firms helping to sell and implement OpenAI’s new Frontier AI agent platform. The company is targeting $600B in compute spending by the same year which is being viewed as a reduction from the $1.4T commitments previously made, but it is unclear if it is an apples-to-apples comparison.
 
US index futures and the USD were both under pressure overnight but have come off of the worst levels. S&P futures were down nearly 1% holding just above Friday’s lows overnight but have cut those losses more than in half. After closing Friday ~$97.70 the USD index pulled back to ~$97.25 before bouncing back to unchanged levels. This morning Fed Waller warned that he believes the labor market will be weaker going forward partially due to the impact of AI. he suggested that the January numbers were “noise” and if the data weakens again in February he would still argue for a cut as he believes that underlying inflation ex-the impact of tariffs is running close to 2%. The move within Treasuries has been pretty muted. After the open factory orders and Dallas Manufacturing will be released.
 

 
Government Yields

• US 2yr +1bps to 3.48%, 5yr -0bps to 3.65%, 10yr +1bps to 4.09%, 30yr +0bps to 4.73%
• USD index: -$0.18 to $97.55

 
Global markets were mixed overnight. Markets in Asia were mostly higher though Japan and mainland China were closed. The Hong Kong Hang Seng led to the upside up ~2.5%. European indices opened modestly lower but have rallied back to around unchanged. Novo Nordisk is trading down >10% overseas after drug results, this has put a bid in Eli Lilly (+3%) in the premarket.
 

 
Quite a few cross currents in commodities markets. Oil prices were lower overnight but have been rallying throughout the morning. ICE Brent is up ~0.5% to ~$72 (LOD ~$70.70). Iran remains the focal point with the next round of negotiations expected on Thursday with President Trump deadline looming. Nat gas is modestly higher but off the best levels. Gold and silver are both moving higher, but the other precious metals are down modestly. Copper is off the overnight highs back around unchanged. Crypto took a sharp leg lower last night with another round of reported liquidations but cut those losses about in half. Bitcoin is down nearly 3% from Friday trading just over 66k (LOD 64.3k). Ethereum is down a similar amount trading ~1,925 (LOD 1,846).
 

 
This week the focus will be on late cycle retail and tech earnings including Nvidia, Salesforce, Snowflake and Dell. President Trump’s State of the Union Address is tomorrow.
 
Earnings:

• Pre-Market: D, DPZ, DEA, SCL
• After-Market: ACVA, AESI, ALSN, APLE, BBBY, BCC, BSM, BWXT, CNNE, CTEV, CWEN, GNW, HIMS, HLX, IIPR, INVX, JBTM, KEYS, KWR, MAX, OKE, OPAD, OSG, OVV, PAY, PLOW, PRIM, RHP, SGHC, TNC, VVX

Economic Data:
US:

• Chicago Fed Index: 0.18 prior -0.2
• 10:00 Factory Orders
• 10:30 Dallas Fed Manufacturing Index
• 11:30 3/6mo Auction

Global:

• Germany Ifo Expectations/Current Conditions: 90.5/86.7 vs. 89.6/85.7 cons., prior 90.3/86.3