Market Wrap 2026-01-06

Market Wrap 2026-01-06

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Today's US Market Wrap — Key Points

• Stocks rose amid Ukraine peace talk optimism.
• Treasuries fell on corporate issuance, Fed Funds sale.
• Oil declined on Ukraine news; inventory data due.
• Focus shifts to US jobs data, Fed speakers.
• Dollar strengthened; Aussie outperformed on metals.

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MARKET CONDITIONS

• SNAPSHOT: Stocks increased, Treasury bonds decreased, Crude oil decreased, the Dollar increased, Gold increased.
• REAR VIEW: Positive news regarding the geopolitical situation in Ukraine emerged, as involved parties are moving closer to an agreement, although a response from Russia is pending. NVDA emphasized robust demand for H200 chips in China, but uncertainty regarding approval remains. EU S&P Global Final PMIs were disappointing. Miran maintained a dovish stance. Barkin believes the current policy rate is within a neutral range. A senior US official stated that the issue of US acquisition of Greenland is "not going away."
• COMING UP: Data releases include: Australian CPI (Nov), German Retail Sales (Nov), Italian CPI Prelim (Dec), Eurozone HICP Flash (Dec), US ADP, ISM Services PMI (Dec), JOLTS (Nov). Scheduled speakers include Fed's Bowman. Supply announcements are expected from Germany and the UK.

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MARKET WRAP

Stocks experienced gains on Tuesday, with all indices closing higher. The Russell 2000 and Equal Weight S&P 500 outperformed. Most sectors were up, with Health Care, Materials, and Industrials leading. Energy and Communication Services closed lower. NVIDIA (NVDA) closed in negative territory despite positive comments from its CEO and CFO, attributed to uncertainty surrounding H200 China order approvals. Energy stocks declined, tracking lower crude prices, reversing some of Monday's gains in a volatile start to the year for crude oil. Downward pressure appeared to stem from optimism about Russia/Ukraine peace following a positive meeting between the US, EU, and Ukraine regarding security guarantees, but Russia's response is still pending. T-Notes largely fluctuated but settled slightly lower ahead of key jobs data this week and potential opinions from the US Supreme Court on Tariffs, while a record-sized Fed Funds block trade (200k in Jan Fed Funds!) and ongoing corporate issuance also weighed. In FX, the Australian dollar outperformed due to risk appetite and ahead of Australian CPI data, while the US Dollar also gained, negatively impacting G10 currencies. The Swiss Franc lagged. Precious metals advanced further, with gold trading around USD 4,500/oz, and silver rising above USD 81/oz at its peak.

US

MIRAN: Miran anticipates data will support further rate cuts and suggests the Fed should cut rates by more than 100bps this year. Regarding inflation, Miran stated it is above the Fed's target due to statistical anomalies and that underlying inflation is near the Fed's target. On the topic of the Fed Chair, Miran said he has not discussed the position with Trump, and all candidates on the short list are credible. Miran noted that Fed policy is restrictive and hindering the economy but anticipates fiscal policy will support growth this year and is optimistic about economic growth.

BARKIN: Barkin stated that the current policy rate is within a neutral range and expects tax changes, deregulation, and the impact of rate cuts to add stimulus to the economy in 2026, with diminishing uncertainty and increasing confidence among consumers and businesses. He noted that inflation has decreased but remains above target. Unemployment remains low, but he does not want the labor market to deteriorate much further. He said upcoming rate decisions will be finely tuned given risks to both sides of the mandate.

FIXED INCOME

T-NOTE FUTURES (H6) SETTLED 3 TICKS LOWER AT 112-10+

T-Notes sold off due to increased corporate issuance and a record Fed Funds block sale. At settlement, the 2-year yield was +0.8bps at 3.469%, the 3-year yield was +0.6bps at 3.533%, the 5-year yield was +0.4bps at 3.717%, the 7-year yield was +0.5bps at 3.934%, the 10-year yield was +0.4bps at 4.175%, the 20-year yield was +0.3bps at 4.804%, and the 30-year yield was −0.3bps at 4.861%.

THE DAY: T-Notes largely fluctuated throughout the session, with some pressure likely stemming from increased corporate issuance during a typically busy week following the holidays. Bloomberg reported that 22 issuers were expected, with a four-part offering from Broadcom (AVGO) being a highlight. Geopolitics was also a focus, with the US Ambassador to NATO suggesting a peace deal for Ukraine could be imminent. Progress appears to have been made on security guarantees for Ukraine following a meeting with Ukraine, the US, and the EU, but Russia's response is still awaited. Fed speakers included Barkin and Miran. Barkin stated that the current policy rate is within a neutral range, while Miran reiterated his dovish stance, suggesting the Fed should cut rates by more than 100bps this year. The only data released was the Final December S&P Global Services PMI, which fell more than expected to 52.5, with attention now on the ISM Services PMI due Wednesday. Numerous jobs data releases are scheduled, including ADP, JOLTS, and NFP, as well as weekly claims data. Updates on the potential Fed Chair replacement are still pending. Potential opinions on US tariffs from the Supreme Court are expected on Friday.

Bloomberg highlighted a significant block trade in Fed Funds Futures, confirmed by CME as the largest ever, involving 200k contracts in the January 2026 contract, with price action indicating a sale. The weakness observed in Fed funds futures was also reflected in the Treasury market around the time of the sale.

SUPPLY

• The US sold USD 79bln of 6-week bills at a high rate of 3.560%, with a bid-to-cover ratio of 2.89x.
• The US will sell USD 69bln of 17-week bills on January 7th; and USD 80bln of 8-week bills and USD 80bln of 4-week bills on January 8th; all to settle on January 13th.

STIRS/OPERATIONS

• Market Implied Fed Rate Cut Pricing: January 3bps (previous 3bps), March 11bps (previous 12bps), April 16bps (previous 18bps), December 56bps (previous 59bps).
• NY Fed RRP operation demand was at USD 2.58bln (previous 6.5bln) across 10 counterparties (previous 17).
• EFFR was at 3.64% (previous 3.64%), with volumes at USD 88bln (previous 92bln) on January 5th.
• SOFR was at 3.70% (previous 3.75%), with volumes at USD 3.441tln (previous 3.508tln) on January 5th.
• NY Fed Reserve Management Bill Purchases: Bought USD 8.17bln of the USD 48.3bln submitted; offer to cover 5.91x.

CRUDE

WTI (G6) SETTLED USD 1.19 LOWER AT 57.13/BBL; BRENT (H6) SETTLED USD 1.06 LOWER AT 60.70/BBL

Oil prices were volatile but settled at lows amid constructive geopolitical news regarding Ukraine. Initially trading similarly to Monday, WTI and Brent edged lower during the European morning before reversing course as US players entered the market, coinciding with geopolitical updates related to Iranian protests. As the day progressed, WTI and Brent moved lower, settling at troughs, amid positive developments regarding the likelihood of resolving the Ukraine/Russia war, although Russia was not involved in the talks. The downward movement began when the US Ambassador to NATO suggested a peace deal for Ukraine could be "on the cusp," further supported by US envoy Witkoff stating significant progress had been made and that they are largely finished on security guarantees and protocols. Zelensky remarked that they had concrete discussions with the US, although the issue of territory still needs to be resolved. Private inventory data is due after-hours, with current expectations (in barrels) being: Crude +0.5mln, Distillate +2.1mln, Gasoline +3.2mln.

EQUITIES

CLOSES: SPX +0.62% at 6,945, NDX +0.94% at 25,640, DJI +0.99% at 49,462, RUT +1.37% at 2,583

SECTORS: Materials +2.04%, Health +1.96%, Industrials +1.38%, Consumer Discretionary +0.94%, Technology +0.66%, Real Estate +0.62%, Utilities +0.49%, Financials +0.45%, Consumer Staples +0.13%, Communication Services -0.49%, Energy -2.81%

EUROPEAN CLOSES: Euro Stoxx 50 +0.17% at 5,934, Dax 40 +0.11% at 24,897, FTSE 100 +1.18% at 10,123, CAC 40 +0.32% at 8,237, FTSE MIB -0.20% at 45,753, IBEX 35 +0.19% at 17,647, PSI +0.53% at 8,514, SMI +0.71% at 13,341, AEX +0.66% at 992.

STOCK SPECIFICS:

• AMD (AMD) showcased MI455 and MI440X AI chips at CES & previewed MI500 processors, which are set to launch in 2027.
• Eli Lilly (LLY) is reportedly in advanced talks to acquire Ventyx Biosciences (VTYX) for more than USD 1bln.
• Fairfax Financial disclosed a larger stake in Under Armour (UAA) and now holds ~42mln shares or 22% of the company.
• Hunterbrook stated that insurance giants are concealing billions intended to lower Americans’ drug costs; its year-long investigation details how CVS (CVS), UnitedHealth (UNH), and Cigna (CI) created shell companies to evade reform efforts and hide payments received from drugmakers.
• Intel (INTC) launched its next-generation PC chip at CES in Las Vegas.
• Lennar (LEN) was downgraded at UBS to 'Neutral' from 'Buy'.
• Microchip Tech (MCHP) raised its Q3 revenue outlook.
• Mobileye (MBLY) was upgraded at JPMorgan to 'Neutral' from 'Underweight'.
• NVIDIA (NVDA) CEO Huang said the next generation of chips is in full production, and there is strong demand from China for H200 chips. He added that the new chips are 10x more efficient than predecessors and require investment in all types of energy. He has not spoken directly to China on H200 chips, but there is strong demand from Chinese customers. The CFO said there have 'already been discussions' about 2027 data centers with customers.
• OneStream (OS) is to be acquired by HG for USD 6.4bln; shareholders to receive USD 24.00/share.
• TSMC (TSM) is reportedly planning to build 12 wafer fabs in Arizona.
• Vistra (VST) agreed to buy Cogentrix Energy’s 10 gas-fired power plants from Quantum Capital Group for approximately USD 4.7bln.

FX

The Dollar Index strengthened, recovering from initial losses, supported by higher US Treasury yields. News flow in the FX space was relatively light on Tuesday, although the US S&P Global Services PMI was revised lower than expected, in addition to Fed commentary from Miran and Barkin. Miran reiterated his dovish views, while Barkin stated that the current policy rate is within a neutral range. Focus remains on the geopolitical landscape, with constructive updates regarding Ukraine, but little new information on Venezuela. The data calendar picks up from Wednesday, with ADP, JOLTS, and ISM Services PMI, followed by the jobs report on Friday. The DXY traded between 97.873-98.378.

G10 FX was mixed, as PMIs dominated the data releases out of Europe, leading to losses for the EUR, GBP, and CHF. The Euro was pressured following a series of data releases, starting with French PMI revisions, followed by downward revisions to German Composite and Eurozone PMIs, and further weakness due to softer German state CPIs. EUR/USD traded between 1.1748-1.1763 and currently hovers around the 1.17 level ahead of further European data on Wednesday.

The AUD was the clear outperformer, seemingly buoyed by strength in metals prices, with AUD/USD hitting a peak of 0.6741, a level it currently sits around. Given the support from metal prices and firm expectations that the RBA cash rate will soon be well above the Fed’s for the first time since 2018, analysts suggest these catalysts should carry the Aussie beyond the recent high touched in December, especially if Wednesday’s inflation data beats expectations. Given the current boost to the Aussie, analysts add that even a soft print is likely to be only a mild setback.

Regarding APAC trade, there was little movement on a currency basis, but Chinese press reported that China is considering tightening rare earth exports to Japan in response to Japanese PM Takaichi's remarks regarding Taiwan. Additionally, the PBoC held a meeting on January 5-6th and will flexibly use RRR cuts and rate cuts, especially for the Yuan.