A look at the day ahead in U.S. and global markets.
U.S. Treasuries got a rare lift on Tuesday, with speculation about Donald Trump’s pick for Treasury Secretary centering on a relatively familiar face of Kevin Warsh just as a geopolitical “safety bid” was stoked by nuclear sabre-rattling from Russia.
Those safety trades emerged early in Europe on Tuesday after Moscow responded with nuclear threats to Washington’s decision this week allowing Ukraine to use U.S.-supplied weapons to hit Russian territory.
Sovereign debt, gold, and Japan’s yen all popped higher while European stocks and the euro fell back after reports that Russian leader Vladimir Putin had updated Moscow’s military policy and “nuclear doctrine”. The revision said Moscow could respond with nuclear weapons if it was subject to a conventional missile attack that was supported by a nuclear power.
Given the gravity of that threat, the moves have been relatively modest so far – largely because Putin has repeatedly threatened the use of nuclear weapons ever since Russia invaded neighboring Ukraine a thousand days ago today.
Yet, for markets, the sudden retreat in Treasury yields – pumped up recently by Trump’s tax and tariff plans, sticky inflation readings, and pared-back Federal Reserve easing bets – was perhaps the biggest whiplash.
Two-year yields retreated to their lowest in 11 days while 10-year yields slipped back below 4.35%. And while that would typically knock the dollar back too, the safety bid – certainly against the euro – was enough to lift the dollar index more broadly.
But before Putin’s latest move, Treasuries had already been slipping back from recent highs – in part because Warsh, a former Fed governor, has suddenly emerged as a clear favorite in betting markets to get nominated for the top job at the Treasury.
On Tuesday, the Polymarket online betting site put Warsh at 44% – almost 20 points clear of the second favorite, hedge fund manager Scott Bessent, and the third most-backed, Apollo Global Management chief executive Marc Rowan.
Warsh, a Visiting Fellow at the Hoover Institution of Stanford University, has a track record of hawkish views on both inflation and deficits and was a White House economic policy adviser from 2002 to 2006 before being appointed to the Fed.
He left the central bank in 2011, a few months after joining his colleagues in unanimous support of expanding the Fed’s bond-buying program – and then making public his reservations about expanding the Fed balance sheet.
Given some of the other controversial appointments to the new Trump cabinet, however, many on Wall Street would see Warsh as a known quantity at least, someone across the big macro issues and likely sensitive to the Fed’s independent role in steering monetary policy.
Elsewhere on Tuesday, the generalized “risk off” tone seemed to dominate.
Already subdued by the prospect of a looming global trade war, euro stocks fell more than 1% and the index is flirting again with its lowest levels in three months.
Bank of Italy boss Fabio Panetta said the European Central Bank needs to “focus on the sluggishness of the real economy” and move official interest rates into “neutral, or even expansionary, territory”.
Earlier in Asia, similar trade worries weighed on China’s markets initially and mainland benchmarks hit two-week lows before rebounding to positive territory before the close.
China’s central bank is widely expected to leave its benchmark lending rates unchanged on Wednesday as rate cuts a month earlier squeeze banks’ profitability and the yuan comes under fresh pressure due to Trump’s tariff threats.
Back on Wall Street, stock futures were down ahead of Tuesday’s bell in sympathy with the downbeat global risk mood.
Chip giant Nvidia’s (NASDAQ: NVDA) results, due on Wednesday, dominate the week’s events, but Walmart (NYSE: WMT) will give a retail spin with its update later on Tuesday.
Meanwhile, new year outlooks from the major investment banks are also starting to stream in.
Goldman Sachs forecast the S&P 500 would rise another 10% to reach 6,500 by the end of 2025, in line with the view from its peer Morgan Stanley, on the back of continued growth in the U.S. economy and corporate earnings.
Key developments that should provide more direction to U.S. markets later on Tuesday:
* US October housing starts/permits; Canada Oct CPI inflation
* G20 leaders summit in Rio de Janeiro
* Kansas City Federal Reserve President Jeffrey Schmid speaks
* US corporate earnings: Walmart, Medtronic, Keysight Technologies, Jacobs Solutions, Lowe’s, etc.
