Sunset Market Commentary

Markets

Geopolitical risk flared up over the weekend but the fall-out of former Venezuelan president Maduro’s capture by the US was contained, even non-existent. If it weren’t for the rise of gold prices ($4414) you’d hardly notice something has happened. Equity markets kick off the first day of 2026’s first full trading week in good spirits. Asia’s constructive risk mood spilled over into Europe. The EuroStoxx50 rises another 0.75% to a new record high, building on last Friday’s strong momentum. Global core bonds gained a little with Treasuries moderately outperforming Bunds. Yield losses are technically insignificant (between -1 and -2.4 bps) and temporarily wiped out at the first US dealings. That coincided with Fed’s Kashkari being the first this year to voice his thoughts on policy. Kashkari is now a voting member in 2026 and said rates are close to neutral. He thinks monetary policy hasn’t been putting much downward pressure on the economy. Kashkari in his comments tends to be more focused on stubborn inflation than the cooling labour market but in the end it’s the data that’ll determine the course. European rates lose up to 2.3 bps at the long end of the curve, undoing some of last week’s sharper uptick. The likes of the 10-yr tenor in Germany and in the swap market remain close to the symbolically important 3% mark. Japanese rates this morning jumped towards new multidecade highs (eg. 30-yr +6.5 bps), showcasing the steepening trend remains very much alive. This recent curve steepening wasn’t particularly linked to a specific event. Instead it may have been investors bracing for what typically is a jampacked month of sovereign (but also corporate) bond supply. Germany is tapping the market twice this week, France has a triple offering and Spain even a quadruple one on Thursday and a 10-yr & 30-yr auction by Japan is closely watched as well. And as the week progresses, we expect some new benchmark deals to be announced as well (eg. Slovenia today). The dollar in currency markets enjoys a solid bid but whether it’s safe haven is up for debate since the likes of GBP also rise. Anyway, DXY hit an intraday high at 98.86 before paring gains a bit to 98.69 currently. A two-day slide brought EUR/USD back below 1.17 (1.1678 currently), the weakest level since mid-December. GBP/USD steadies around 1.346 but EUR/GBP nosedives to mid-October levels of around 0.8677 with the risk of breaking below the Nov-Dec-Jan downward trend channel.

At the time of concluding this report, the US manufacturing ISM is printing slightly softer than expected at 47.9. US yields and the dollar are easing marginally in a first reaction.

News & Views

The Hungarian manufacturing PMI broadly stabilized in December (53.7 from 53.6), ducking the feared setback towards 52. Details showed new orders continuing to show (more rapid) expansion (+1.8 percentage point). Production volumes were slightly lower compared with November (-0.2 ppt), but still rising. A rise in purchased inventories (+2.7 ppt) also bodes well for the near term future. Manufacturing companies also indicated employment growth, contrary to job cuts in November. Among foreign trade indicators, the import index fell by 4.4 ppt, while the export index rose by 0.2 ppt. Purchase prices increased, with the index rising by 5.8 ppt compared to the previous month.

News agency Bloomberg reports that Italy is ready to back the EU-Mercosur trade deal on January 9 when EU ambassadors are set to vote. This timeline would allow the EU to sign the treaty on January 12. The EU failed to finalize the free-trade deal (with Brazil, Argentina, Uruguay and Paraguay) at the December EU Summit with Italy & France leading the campaign to delay it. They wanted stronger farmer protections and monitoring mechanisms for the Mersocur deal. These include a rapid response to price or import surges, strict phytosanitary/standards checks, quarterly/biannual market reports, automatic tariff suspensions, compensation mechanisms and a reciprocity clause. If Italy switches sides, they would nullify French/Polish resistance given the qualified majority voting system of the EU (15 countries + 65% of EU population in favour). The European parliament and possibly national parliaments might eventually still have their say as well.