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[MARKET ANALYSIS] Sentiment higher after Trump withdrew tariff plans; Auto outperform on the back of Michelin and Volkswagen

The easing of geopolitical tensions following Trump's withdrawal of tariff plans on European countries has significantly boosted market sentiment, particularly in European equities.

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  • European equities are firmer across the board. Sentiment has tracked tailwinds from APAC and Wall St which traded higher after market sentiment was kept at ease following Trump’s Davos speech where he vowed to not use military action against NATO allies and later withdrew tariff plans on some European countries.
  • European sectors are all in the green. Autos (+2.5%) are the key outperforming sector, driven by gains in Volkswagen (+5.2%) and Michelin (+3.3%) with both Co. 's delivering stronger than expected cash flows. Also outperforming is Telecommunications (+2.1%) and Construction  (+1.9%), however there hasn't been any macro or stock specific story for both sectors to explain their uptick.
  • Movers this morning include Societe Generale (+2.2%) with the Co. gaining after reports that the Co. will reduce the number of positions by 1800. Deutsche Boerse (+3.2%) is another mover with the Co. gaining after agreeing to buy Allfunds Group (+3.9%), in a deal worth EUR 5.3bln. Gains in Deutsche Boerse has also lifted sentiment for the Financial Services (+1.7%) sector. Contrary to the wider positive sentiment seen in the market, defensive companies like Rheinmetall (-2.2%) BAE Systems (-0.6%) and Leonardo (-2.1%) have seen their shares slide as geopolitical tension eases.
  • US equity futures are firmer in the premarket with the NQ (+0.9%) the slight outperformer as market sentiment remains high as tensions with European allies ease.
  • Looking ahead in the US, highlights include US GDP/PCE Final (Q3), Jobless Claims, US supply and earnings from Intel, Procter & Gamble, Freeport McMoRan, Ge Aerospace and Abbott.  
Context

This uplift is reflected in sector performance, with autos, led by gains in Volkswagen and Michelin, emerging as notable outliers, highlighting potential recovery in consumer and business confidence. Consequently, this shift may influence trading dynamics across various asset classes, including equities and currencies, exacerbated by improving investor outlook toward risk assets.

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