European Midday Briefing : Stocks Lower Ahead of U.S. Inflation Data

MARKET WRAPS

Stocks:

European markets edged down as investors awaited U.S. CPI data at 1330 GMT and concerns over Federal Reserve independence continued to weigh.

Meanwhile, oil prices climbed to their highest level since November after Trump said the U.S. would impose a 25% tariff on any country doing business with Iran.

J.P. Morgan will kick earnings off Tuesday, with the six largest banks on Wall Street to issue updates on the December quarter over the next three days.

According to BofA, the biggest tech stocks are likely to deliver the bulk of earnings growth again this reporting season, but a wider range of companies are likely to contribute to 2026's market gains as the economy holds steady and investors exit riskier artificial intelligence bets.

"Analysts expect tech earnings to outperform, but optimism in cyclicals is picking up, especially with tax refunds, stimulus talk ahead of mid-terms etc."

Stocks to Watch

A historic commodity rally will support miners' fourth-quarter earnings , RBC Capital Markets said.

Iron ore was one of the largest gainers, while rallying copper prices were driving consolidation across the sector.

While upcoming results shouldn't include any major surprises, it added costs and capital expenditure across the sector could be higher than expected in 2026, which could be partially cushioned by higher precious metals, which are tracking ahead of 2026 consensus expectations.

U.S. Markets:

Stocks looked set to fall on Tuesday, with investors reluctant to make any major moves ahead of the start of fourth-quarter earnings season and the inflation print.

Forex:

The euro traded steady versus the dollar.

"Unless the Fed independence trade returns, [the euro] might have missed its chance of a break above $1.1700 yesterday."

The dollar could recover further if data at 1330 GMT shows U.S. inflation exceeded expectations in December, it added.

The dollar rose after several Republican lawmakers pushed back against the criminal investigation into Powell.

Senator Thom Tillis vowed to block all Fed nominees in response to the investigation.

"That's significant, because the Senate Banking Committee is split 13-11 to the Republicans, so Tillis' opposition would lead to a split if the others voted along party lines," Deutsche Bank said.

USD/JPY might extend its uptrend to 160.00, based on technical charts, StoneX said, adding that USD/JPY could tag 160 as early as Thursday if yen bears get their

Fitch Ratings expects the yen to appreciate by about 6% against the dollar this year.

Bonds:

Treasury yields edged higher with the December CPI data a key input ahead of the Fed's January meeting.

"While this is the final CPI print ahead of the late-January FOMC meeting, it is unlikely to alter Fed policy," ADSS said.

" Today's CPI may, however, influence expectations for the remainder of the year , with markets currently pricing two further cuts in 2026."

The risk premium on Treasurys could rise if the investigation into the Fed Chair is prolonged or gets messier , BNY said.

The term premium on the 10-year Treasury note is among the highest seen in the past decade but "it could rise further if the central bank's independence and credibility were seen ebbing."

Government bond issuance at the long end of the curves is likely to decline in the eurozone this year, creating opportunities from shifts in issuance strategies, particularly in Germany and Italy, SocGen said, adding that the 15-20-year maturity bucket is the new 30-year.

"The weighted average maturity of new issuance has already declined over the past two years, and we expect this trend to continue as funding costs remain high, curves steep, and long-end demand weakens."

Energy:

Oil prices climbed to their highest level since November.

" The potential for reduced Iranian supply has tempered earlier bearish sentiment driven by expectations of a global glut , while concerns persist that the tariff move could strain relations with major crude buyers such as China, which accounts for most of Iran's oil exports," MUFG said.

"Markets are also balancing this with developments in Venezuela."

UOB said Brent crude oil's breakout from its falling wedge pattern signals potential for near-term continued recovery, adding that a break above $65.50/bbl could possibly trigger a swift rise to $66.80/bbl.

Gas

European natural-gas prices extended gains, on higher heating demand and concerns over growing unrest in Iran.

"First, there are potential risks to LNG flows from the Persian Gulf," ING said.

"Second, there's the potential for disruptions to Iranian gas flows to Turkey."

Meanwhile, a blast of cold weather earlier this month accelerated withdrawals from Europe's gas-storage facilities, with levels dropping below 54%, compared with a five-year seasonal average of 70%.

Metals:

Gold slipped in early trading but continued to hold above the $4,600 mark on growing concerns over the Fed's independence and rising tensions in Iran.

Gold continued to be supported by broader economic and geopolitical risks , with Trump's decision to impose a 25% tariff on any country doing business with Iran only boosting bullion's safe-haven appeal even further.

State Street Investment Management said spot gold now had a more than 30% chance of hitting $5,000 this year .

EMEA HEADLINES

Orsted Shares Jump as U.S. Judge Rules Work Can Resume at Revolution Wind Project

Orsted shares jumped Tuesday after a U.S. judge ruled that work could resume at the company's Revolution Wind project off the coast of Rhode Island.

Shares were 5.5% higher in early European trade.

Volkswagen Brand Deliveries Fall 1.4% on China Woes and U.S. Tariffs

Deliveries of Volkswagen-branded vehicles in 2025 fell 1.4% on year as the market environment in China remained challenging while U.S. tariffs hit demand in North America.

The brand delivered around 4.73 million vehicles globally last year, as growth in Europe and South America failed to offset an 8.4% drop in China deliveries and an 8.2% decline in North America.

GLOBAL NEWS

Trump Allies and Officials Fear Blowback From Powell Probe

WASHINGTON-Some Trump administration officials and allies have expressed concern that the Justice Department's criminal investigation into Federal Reserve Chair Jerome Powell could imperil the president's nominees in the Senate and rattle financial markets.

Among those alarmed about potential fallout was Treasury Secretary Scott Bessent, who called Trump Sunday night and told him that the investigation could cause several issues for the administration, according to people familiar with the matter. Bessent was worried about an impact on financial markets and hurdles during the Senate confirmation process for whomever the president selects to be the next Fed chairman once Powell's term ends in May, the people said.

Japan Stock Index Hits New Record on Hopes for General Election

Japan's benchmark stock index rose sharply to a closing high, driven by growing expectations that a potential general election next month could solidify Prime Minister Sanae Takaichi's political standing, allowing her to take bolder steps to boost the economy.

The Nikkei Stock Average closed 3.1% higher at an all-time high of 53549.16 on Tuesday.

Iran Is Hunting Down Starlink Users to Stop Protest Videos From Going Global

With the government shutting down the internet and throttling phone services, Iranians are leaning heavily on Elon Musk's Starlink service to share videos of growing protests and the regime's escalating crackdown with the world.

But Iran has intensified efforts to jam the service, which is banned in the country, and users are being hunted.

In Pivot on Affordability, Trump Unveils Barrage of Proposals to Address Costs

On Monday, President Trump surprised Democratic Sen. Elizabeth Warren with a phone call after she criticized him during a speech on affordability. Only days earlier, he had pitched a cap on credit-card rates that sounded like a proposal from the Massachusetts senator's wish list.

"I told him that Congress can pass legislation to cap credit-card rates if he will actually fight for it," Warren said in a statement.

Mexico Rejects Trump's Plea for U.S. Forces to Take On Cartels

MEXICO CITY-President Claudia Sheinbaum said Monday she rejected an offer from President Trump to use the U.S. military against the country's drug cartels, as Mexican security officials grow concerned about potential American demands in the wake of Venezuelan leader Nicolás Maduro's ouster.

It is a proposal that Trump has made before, Sheinbaum said. But Trump has raised the stakes since Maduro's capture, signaling his displeasure with the security situation in Mexico. In a television interview last week, he said the U.S. is "going to start hitting land with regard to the cartels," saying the groups run Mexico.

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This article is a text version of a Wall Street Journal newsletter published earlier today.

(END) Dow Jones Newswires

01-13-26 0522ET