Euro Zone Inflation and German DAX Surge on Energy Prices

Germany's DAX rose 1.5%, driven by a surge in the auto sector, as inflation data revealed a faster-than-expected rise due to energy costs. The euro zone's inflation rate is projected to increase to 2.4% in December, complicating expectations of ECB rate cuts. Meanwhile, US Treasury yields hovered near 5%, and Canadian politics drew attention with Prime Minister Trudeau announcing his resignation.

Equities

The FTSE 100 gained 0.3% on Monday, lifted by a broader European rally following reports suggesting the incoming Trump administration may take a measured approach to tariffs.

Heavyweight stocks Rolls-Royce and Unilever weighed on the index. Rolls-Royce slipped 2.6% after Citigroup downgraded its rating from “buy” to “neutral,” while Unilever dropped 2.5% following RBC’s downgrade to “underperform.”

The domestically focused FTSE 250 edged up 0.1%, supported by lighter trading volumes as markets fully reopened after the New Year.

Across the Atlantic, the S&P 500 and Nasdaq Composite climbed to over one-week highs, driven by strong gains in technology and semiconductor stocks. The S&P 500 rose 0.55%, while the Nasdaq advanced 1.24%. In contrast, the Dow Jones Industrial Average edged down 0.06%.

Chipmakers stood out after Microsoft announced plans to invest $80 billion in artificial-intelligence-enabled data centres, boosting semiconductor stocks. Nvidia gained 3.43%, Advanced Micro Devices added 3.33%, and Micron Technology surged 10.45%. The Philadelphia Semiconductor Index jumped 2.84% as a result.

Automakers also made gains, with General Motors rising 3.4% and Ford adding 0.4%. This followed a report suggesting potential selective tariffs under the Trump administration, though the President-elect later denied plans to scale back broader tariff proposals.

Elsewhere, Citigroup shares climbed 2.45% after Barclays issued a bullish rating, supporting an index of banking stocks, which added 0.22%. News of Federal Reserve Vice Chair for Supervision Michael Barr’s early resignation further bolstered bank stocks, as Barr had championed tighter rules for major US banks.

Trading volumes in US markets reached 17.36 billion shares, significantly above the 20-day average of 12.37 billion shares. Investors are now shifting focus to upcoming economic data, particularly December’s nonfarm payrolls report on Friday, which could provide further clues on the Federal Reserve’s interest rate path.

Forex & Commodities

The US dollar index slid 0.68% to 108.22, touching a one-week low against a basket of major currencies, with the euro advancing 0.8% to $1.039. The Canadian dollar also gained 0.78% to 1.43 per dollar following political developments in Canada.

Gold prices benefited from the weaker dollar, with spot gold rising 0.4% to $2,644.79 per ounce as of early Tuesday trading. US gold futures followed suit, climbing 0.3% to $2,655.00. However, gains were moderated by rising US Treasury yields, with the 10-year note yield increasing 1.7 basis points to 4.612% and the 30-year bond yield up 1.9 basis points to 4.8337%. Platinum, palladium, and silver also rose slightly, with silver up 0.6% at $30.12 per ounce.

Oil prices retreated for a second consecutive session after rallying last week. Brent crude fell 0.1% to $76.22 a barrel, while US West Texas Intermediate dropped 0.19% to $73.42. The decline was attributed to weaker economic data from the US and Germany, alongside expectations of robust supply from non-OPEC producers. Nevertheless, concerns about tightening supply from Russia and Iran provided some support.