Is the market mispricing geopolitical risk?

What to look out for today

Companies reporting on Tuesday, 20^th January: Netflix, 3M, United Airlines, US Bancorp, Fastenal

Key data to move markets today

EU: German PPI and ZEW Surveys of Current Situation and Economic Sentiment, eurozone’s EcoFin Meeting, eurozone ZEW Surveys of Current Situation and Economic Sentiment, and a speech by Bundesbank President Joachim Nagel
UK: Average Earnings, Claimant Count Rate and Claimant Count Change, ILO Unemployment Rate and speeches by BoE Governor Andrew Bailey and Deputy Governor for Markets and Banking David Ramsden 
USA: ADP Employment Change 4-week average

European Stock Indices

CAC 40 -1.78%
DAX -1.34%
FTSE 100 -0.39%

Telecommunications emerged as the top-performing sector in Monday’s trading session, with service providers’ shares trading higher. In Germany, the CEO of 1&1 reported that the company has initiated legal proceedings against the Federal Network Agency regarding frequency allocation and indicated a willingness to consider acquiring Telefónica’s German operations.

Utilities also outperformed. Deutsche Bank revised its outlook for the sector, projecting a 6% CAGR earnings growth rate for 2026–2031, an increase from the previous forecast of 4%. The bank attributed this improvement to accelerating earnings growth driven by rising network CapEx and increased power demand from data centres. Enagas was downgraded to ‘sell’ due to concerns that Spain’s upcoming regulatory review may negatively impact earnings and valuation. Italgas was downgraded to ‘hold,’ as the strong rally in its shares since late 2023 is believed to already price in the attractive long-term outlook.

Autos & Parts underperformed as trade tensions intensified following the US President’s threat of tariffs on countries not supporting US efforts to control Greenland. BMW and Renault were both downgraded to ‘hold’ from ‘buy’ at Berenberg. In contrast, D’Ieteren Group defied the broader market trend, rising by 8.1% after reports that its majority-owned subsidiary, Belron, is in preliminary discussions for a potential €24 billion IPO. Dowlais Group exceeded expectations with FY EBIT guidance of at least £370 million, compared to consensus estimate of £321.3 million.

Consumer Products & Services sector also lagged, with European luxury stocks broadly under pressure due to tariff concerns. LVMH was downgraded to ‘equal weight’ by Morgan Stanley.

The Technology sector faced headwinds from ongoing trade tensions. The EU is reportedly preparing a proposal to phase out Chinese telecom equipment from critical infrastructure, while reports suggested that Chinese customs authorities blocked the export of Nvidia H200 components.

Commodities

Gold spot +1.63% to $4,669.70 an ounce
Silver spot +5.27% to $94.68 an ounce
West Texas Intermediate +0.37% to $59.52 a barrel
Brent crude +0.25% to $64.18 a barrel

Gold and silver reached all-time highs on Monday, as investors sought safe-haven assets following the US President's announcement of additional tariffs targeting select EU countries amid ongoing tensions over Greenland.

Spot gold ended the trading day +1.63% to $4,669.70 per ounce after briefly touching a record high of $4,689.39.

Spot silver surged +5.27% to $94.68 per ounce, also setting a new record. Silver has appreciated +32.87% since the beginning of the year.

Oil prices remained stable on Monday as the easing of civil unrest in Iran diminished concerns over a potential US military intervention that might disrupt supplies from this key producer.

Brent crude rose by 16 cents, or +0.25%, to $64.18 per barrel, while US WTI increased by 22 cents, or +0.37%, to $59.52 per barrel.

Trading activity was subdued due to the US federal holiday.

Note: As of 4 pm EST 19 January 2026

Currencies

EUR +0.41% to $1.1644
GBP +0.32% to $1.3424
Bitcoin -2.67% to $92,922.34
Ethereum -2.46% to $3,211.33

The US dollar declined to its lowest level in a week on Monday following statements from the White House directed at the EU regarding the future of Greenland.

The dollar index fell -0.34% to 99.04, its lowest value since 14^th January, as investors became increasingly concerned about their exposure to US markets.

The euro was +0.41% to $1.1644 against the dollar. Sterling advanced on Monday as market participants await UK November employment data, December inflation and retail sales figures later this week. The British pound rose +0.32% to $1.3424.

The dollar strengthened slightly against the yen, rising +0.03% to ¥158.13, after Japanese Prime Minister Sanae Takaichi announced snap elections scheduled for 8th February. Her commitment to suspend the 8% sales tax on food for two years has brought renewed attention to the country's public finances.

Fixed Income

US markets closed due to the Martin Luther King, Jr holiday
German 10-year bund +0.3 basis points to 2.842%
UK 10-year gilt +2.4 basis points to 4.421%

The German yield curve exhibited a steepening pattern on Monday. The yields on short-term government bonds declined, the 10-year Bund yield remained relatively stable after an earlier decrease, and longer-term Bund yields advanced.

The yield on two-year German government bonds decreased -3.0 bps to 2.092%, having reached a new one-and-a-half-month low of 2.072% during the session.

Market sentiment regarding ECB policy shifted toward a more dovish outlook. Traders now assign a 20% probability to a 25 bps rate increase by April 2027, a reduction from 40% late last Friday. Conversely, the likelihood of a rate cut by July this year has risen to 15%, up from nearly zero at the end of last week.

Germany’s 10-year Bund yield edged +0.3 bps higher to 2.842%. At the longer end of the curve, the 30-year yield increased +2.9 bps to 3.454%.

The Italian 10-year government bond yield also rose marginally, up +0.4 bps to 3.466%, resulting in a spread of 62.4 bps over the German benchmark.

French long-term OATs outperformed with the 10-year yield declining -1.7 bps to 3.504%. It was supported by progress toward a 2026 budget agreement in France.

Note: As of 5 pm EST 19 January 2026

Global Macro Updates

France close to budget deal as PM weighs risky constitutional option amid censure threats. According to Le Parisien, France may secure a budget agreement following Prime Minister Lecornu’s presentation of last-minute concessions on Friday. However, the government now confronts a critical decision: whether to invoke Article 49.3 to pass the budget without a parliamentary vote or to utilise executive orders contingent on assurances of non-censure. As noted by Politico, Budget Minister de Montchalin cautioned that resorting to Article 49.3 is fraught with risk, as failure would result in the absence of both a budget and a functioning government. Although Lecornu had previously committed to avoiding this contentious mechanism, he is now awaiting explicit guarantees from political parties before deciding at an extraordinary cabinet meeting.

The concessions, amounting to €8 billion, consist of extending the corporate surtax on the 400 largest companies. This is expected to raise €3.5 billion more than initially planned. LeMonde reported that the additional measures include unfreezing income tax brackets, generating €1.9 billion, boosting activity bonuses for low-income workers by €1.5 billion, maintaining payroll tax reductions worth €1.5 billion, preserving pension tax rebates, and providing funding for €1 student meals as well as social housing. 

According to Socialist lawmaker Vallaud, Friday’s package improves the likelihood of avoiding a censure motion, with his party’s 61 deputies pledging their support. Nevertheless, Marine Le Pen’s far-right National Rally continues to threaten a no-confidence motion. Meanwhile, Centrist coalition partners are expressing strong dissatisfaction over the perceived shift away from President Macron’s pro-business policies.

Analysts’ forecasts indicate the budget will deliver a 5% deficit in 2026 — worse than the 4.6% target promised to Brussels — with public debt potentially rising to 120% of GDP by 2027. The increase in corporate taxes is expected to dampen investment and hiring, thereby impeding economic growth. Notably, no structural reforms have been introduced to address the fundamental fiscal challenges.

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