Deutsche Bank Downgrades Merck KGaA To "hold" After Estimate Cuts, Limited Upside

Russia has signaled it is prepared for a "new reality" where no nuclear arms control treaty exists with the United States, as the landmark New START agreement is set to expire this week.

Without a last-minute deal, the expiration on Thursday will remove all constraints on the long-range strategic nuclear arsenals of both nations for the first time in over half a century.

"This is a new moment, a new reality—we are ready for it," Russian Deputy Foreign Minister Sergei Ryabkov, Moscow's lead arms control negotiator, told Russian news agencies. He made the comments during a visit to Beijing for "strategic stability consultations."

The New START treaty, signed in 2010, limits each country to a maximum of 1,550 deployed strategic warheads.

US Silence Signals Treaty's Demise

Last month, U.S. President Donald Trump suggested he would let the treaty lapse. His administration has not formally replied to a Russian offer to maintain the pact's missile and warhead limits for another year, which would have provided time to negotiate a successor agreement.

"The lack of an answer is also an answer," Ryabkov was quoted as saying by the TASS news agency.

Arms control advocates in both Moscow and Washington warn that the treaty's end will do more than just remove warhead limits. It is also expected to erode confidence, undermine trust, and eliminate the ability to verify the nuclear intentions of the other side. Many experts now fear the possibility of an unrestrained nuclear arms race.

The Broader Collapse of Arms Control

The network of agreements designed to prevent nuclear war, painstakingly built since the 1962 Cuban Missile Crisis, has been steadily deteriorating. This trend is accelerating amid growing confrontation between Russia and the West over Ukraine and U.S. concerns about China's growing arsenal.

The United States has proposed that China, the world's third-largest nuclear power, should be included in future arms control negotiations. However, Beijing has shown no interest in participating. Ryabkov stated that China has a clear position on the matter and that Moscow respects it.

Warnings of a New Arms Race

Former U.S. President Barack Obama, who signed the New START treaty with then-Russian President Dmitry Medvedev in 2010, called on the U.S. Congress to take action.

"If Congress doesn't act, the last nuclear arms control treaty between the U.S. and Russia will expire," he said on X. "It would pointlessly wipe out decades of diplomacy, and could spark another arms race that makes the world less safe."

Medvedev echoed these concerns, stating that the world should be alarmed if the treaty expires without a clear path forward, suggesting it would advance the "Doomsday Clock."

In a sign of escalating military calculations, Ryabkov also noted that if the U.S. were to place missile defense systems on Greenland, an autonomous territory of Denmark, Russia would be forced to take compensatory military measures.

Traders are learning to ignore the official commentary from the National Bank of Poland (NBP). After a history of inconsistent messaging, the market is focused on economic data to predict the central bank's next move, not its governor's statements.

At the January press conference, Governor Adam Glapiński confirmed this reality, stating that monetary policy decisions are made month-by-month and are strictly dependent on incoming data. This has left economists divided ahead of the February meeting, as recent figures present a conflicting picture.

The Case for Holding Rates Steady

Recent macroeconomic data provides a strong argument for the NBP to maintain its wait-and-see approach. Several key indicators have surprised to the upside:

• Stronger Economic Activity: Both manufacturing and construction figures for December were much stronger than expected, suggesting economic growth is becoming more broad-based.

• Impressive GDP Growth: The full-year 2025 GDP growth was estimated at 3.6%, which implies an economic expansion of around 4% year-on-year in the fourth quarter.

• Robust Wage Dynamics: December wage growth also beat expectations. While driven partly by annual bonuses in sectors like mining, the reading broke a downward trend seen in previous months.

These figures make it difficult to justify a rate cut and suggest the Polish economy is carrying significant momentum.

The Argument for an Imminent Rate Cut

Despite the strong activity data, the primary argument for resuming rate cuts is the inflation outlook. According to internal estimates, year-on-year inflation in January likely fell below 2%.

It is possible that the NBP's own staff forecasts, presented to the Monetary Policy Committee (MPC), show a similar trend. This could create a compelling case for a rate cut in February, even before the official January CPI data is released or the central bank publishes its updated March inflation projection.

Our Outlook: A February Pause, Followed by Cuts

Our baseline scenario is that the NBP will keep interest rates unchanged this week. The strong economic data released recently makes a rate cut difficult to defend. Furthermore, the absence of an official January CPI reading gives policymakers a clear reason to wait for more information to confirm that disinflation is continuing alongside the economic recovery.

The MPC will likely seek more clarity on whether wage and core inflation pressures will continue to ease throughout 2026 before acting.

However, we still expect the next cut to occur in March, with further easing to follow in the subsequent months. We see the terminal NBP rate reaching 3.25% this year, and potentially even lower if the inflation outlook improves beyond our current forecasts. We project that CPI will hover near the lower bound of the NBP's target range of 2.5% (+/-1%) in 2026, and a series of low inflation reports should be enough to trigger further rate cuts from the central bank.

Turkey is set to host high-level talks between the United States and Iran on Friday, a diplomatic effort aimed at de-escalating rising tensions between the two nations.

The summit in Istanbul will reportedly be attended by senior officials from both sides. Sources familiar with the plans said the US delegation includes envoy Steve Witkoff and President Donald Trump's son-in-law, Jared Kushner. Iran is expected to be represented by Foreign Minister Abbas Araghchi.

According to the sources, who requested anonymity due to the sensitivity of the discussions, Turkish Foreign Minister Hakan Fidan anticipates that other regional powers may also participate.

A Critical Meeting Amid Heightened Tensions

This meeting would mark the first public engagement between American and Iranian officials since a recent spike in hostilities. The talks come as President Trump has threatened Tehran with military action if a new agreement to curb its nuclear program is not reached.

The geopolitical climate is tense, with the US having already dispatched naval assets to the region. This move has raised concerns about a potential conflict, echoing previous US-Israeli attacks on Iran's nuclear facilities last year.

President Trump’s recent threats followed a deadly crackdown by Iranian authorities on mass protests last month. In response, Iran's Supreme Leader Ali Khamenei issued a stark warning on Sunday, stating that any attack on his country could trigger a "regional war."

Diplomatic Preliminaries

Ahead of the Istanbul summit, US envoy Steve Witkoff is scheduled to travel to Israel on Tuesday. An official with knowledge of the trip confirmed that Witkoff will meet with Prime Minister Benjamin Netanyahu and his senior security team.

The possibility of a US-Iran meeting was also reported earlier by The New York Times, which noted that discussions would take place in Istanbul with the participation of some Middle Eastern countries.

S&P 500 futures experienced a moderate pickup in new long risk flows last week, while Nasdaq 100 and Russell 2000 positioning levels remained close to neutral, according to Citigroup strategists.

The team, including David Chew, noted in a report that the positioning gap between these indexes suggests investors have not yet fully rotated into a broad risk-on stance.

While S&P 500 futures activity dominated trading, Nasdaq and Russell 2000 positioning showed stabilization but fell short of indicating a wider risk-on consensus.

In European markets, positioning in bank futures has become extended and crowded. The strategists warned that new long additions in this sector increase the likelihood of near-term profit-taking. FTSE and DAX futures positioning has been losing momentum as investors reduce long positions.

Asian equity flows presented a mixed picture last week. South Korea's Kospi was identified as particularly vulnerable due to stretched positioning and ongoing profit-taking.

Source: Investing

Australian Dollar surged broadly in Asia session, drawing fresh strength from a hawkish RBA rate hike that reinforced expectations of further tightening later this year. The move gave the Aussie an extra tailwind on top of an already constructive regional backdrop.

Risk appetite in Asia has been firm, with the latest boost to sentiment coming from a surprise breakthrough on trade. The US and India reached an agreement to immediately lower tariffs on each other's goods. Under the deal, US tariffs on Indian goods will be cut sharply to 18% from 50%, bringing India broadly in line with Asian peers at 15–19%. In return, India agreed to halt purchases of Russian oil and reduce a range of trade barriers, according to US President Donald Trump.

Indian Prime Minister Narendra Modi also committed to significantly increase purchases of US products. Modi later confirmed the tariff reduction in a post on X, hailing the agreement as a major win for Indian exports. The announcement followed closely on the heels of India's landmark free trade agreement with the European Union, which Modi described as the "mother of all deals."

While the trade news supported risk currencies, Yen remained under pressure amid mixed messaging from Tokyo. Japan's Finance Minister Satsuki Katayama today defended Prime Minister Sanae Takaichi's recent remarks on the benefits of a weaker yen, saying they reflected standard economic theory. Katayama stressed that Takaichi was speaking in general terms, noting that while a weak Yen has downsides, it can also support corporate revenues, domestic investment, and exports. The comments added to confusion over how tolerant authorities are of further yen depreciation.

Overall this week so far, the Aussie sits firmly at the top of the FX performance table, followed by Kiwi and Dollar. Swiss Franc trails at the bottom, with Yen and Euro also lagging. Sterling and Loonie are trading in the middle of the pack.

In Asia, at the time of writing, Nikkei is up 3.85%. Hong Kong HSI is down -0.06%. China Shanghai SSE is up 0.44%. Singapore Strait Times is up 0.92%. Japan 10-year JGB yield is up 0.018 at 2.255. Overnight, DOW rose 1.05%. S&P 500 rose 0.54%. NASDAQ rose 0.56%. 10-year yield rose 0.034 to 4.275.

RBA delivers expected hike, forecast path points to another move

The RBA raised the cash rate by 25bps to 3.85% as widely expected, with the decision taken unanimously. While the accompanying statement avoided any explicit commitment to further tightening, the updated forecasts carried a more hawkish undertone.

Notably, the new projections are built on an assumption that the policy rate rises further to around 4.2% by the end of this year. That implicitly points to at least one additional hike being needed in the Bank's view to contain resurging inflationary pressures.

In its statement, the RBA acknowledged that a broad range of recent data confirms inflationary pressures "picked up materially" in the second half of 2025. While part of the acceleration is judged to be temporary, the Bank highlighted that private demand is growing faster than expected, capacity pressures are higher than previously assessed, and labour market conditions remain slightly tight. Against that backdrop, the Board concluded that inflation is "likely to remain above target for some time," justifying today's move.

The message suggests policy is shifting from fine-tuning toward a more deliberate effort to re-anchor inflation expectations. The revised forecasts reinforce that view. CPI is now projected to peak at 4.2% in June 2026, up sharply from the previous 3.7% estimate, before easing to 3.6% by December 2026 and only gradually returning to 2.7% by end-2027. Trimmed mean inflation was also revised higher across the horizon, with the peak lifted to 3.7% in mid-2026.

Growth and labour market assumptions remain resilient. Average GDP growth for 2026 was revised up to 2.1% (from 1.9%), while the unemployment rate was nudged lower to 4.3% (down from 4.4%) next year, before edging higher to 4.5% in 2027. That profile suggests the RBA sees room to keep policy restrictive without inflicting material damage on employment, keeping the door open for further tightening if inflation fails to cool as projected.

AUD/USD uptrend to resume to 0.72 after hawkish RBA hike

Aussie rallied broadly after the RBA raised the cash rate by 25bps to 3.85%, in line with expectations. While the decision itself was fully priced, the accompanying forecasts carried an implicit signal that another rate hike is likely later this year, providing fresh support to the currency.

AUD/USD quickly pushed back above the 0.7000 mark following the announcement. Technically, strong support has been established at 55 4H EMA, suggesting that the recent consolidation from the 0.7093 should remain shallow and temporary.

Decisive break above 0.7093 would confirm continuation of the broader uptrend from 0.5913 (2025 low). In this scenario, AUD/USD would be on track to 100% projection of 0.5913 to 0.6706 from 0.6420 at 0.7213 in the next leg higher.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.6947; (P) 1.7016; (R1) 1.7091;

EUR/AUD's decline resumed by breaking through 1.6892 temporary low and intraday bias is back on the downside. Sustained trading below 100% projection of 1.8554 to 1.7245 from 1.8160 at 1.6851 will pave the way to 138.2% projection at 1.6351 next. On the upside, break of 1.7145 resistance is needed to indicate short term bottoming. Otherwise, will remain bearish in case of recovery.

In the bigger picture, fall from 1.8554 medium term top is still in progress. Sustained break of 38.2% retracement of 1.4281 to 1.8554 at 1.6922 will argue that it's already reversing whole up trend from 1.4281 (2022 low). Deeper fall would be seen to 61.8% retracement at 1.5913. For now, risk will stay on the downside as long as 55 D EMA (now at 1.7418) holds even in case of strong rebound.

Source: ACTIONFOREX

Monday ended up being a better session for US and European markets than for Asian ones. By the time Europeans came to their desks, the slump in gold and silver prices was largely over. Precious metals were already licking their wounds and starting to feel better, as buyers stepped in to rebuild exposure on a dip — a dip close to the 50-DMA for both metals.

For gold, the 50-DMA stands more than 20% below last Thursday's peak, and for silver it is nearly 40% below last week's peak.

In both cases, it was the 50-DMA that revived the urge to buy. So we have an early answer to a complex question: we still don't know whether this marks the end of the metals debacle, but dip-buyers clearly re-emerge when gold and silver move below their 50-DMA levels.

The gold volatility index, meanwhile, is cooling — a sign that support near these 50-DMAs could hold. Metals are up again this morning in Asia. Gold trades above $4'800 at the time of writing, while silver consolidates near $83 per ounce, above the critical 38.2% Fibonacci retracement that separates the past years' bullish trend from a bearish consolidation zone.

We can say it: all's well that ends well — for now.

Ironically, risk appetite appears to be recovering as investors return to gold and silver. The Kospi rebounded more than 5%, the Nikkei hit a fresh record, and US and European futures are higher.

But gold's latest behaviour is a concern. Traditionally, gold acts as protection against market risk. But it is now behaving like a risky asset — worse, at times like a meme stock — and its negative correlation with risk assets has faded. Highly speculative, leveraged positioning is largely responsible for this unusual behaviour.

The problem is that most diversified portfolios have exposure to gold, meaning this volatility affects all risk profiles. That is disquieting. It will be interesting to see whether the latest slump helps temper gold's meme-like symptoms and restores its reputation as a boring, low-risk safe-haven asset. Because today, that description no longer fits.

Still, yesterday's rebound in gold and silver gave investors a sense of relief.

The FTSE 100, for example, shone in London trading, even though mining stocks — a major driver of the recent rally — opened weaker. Early losses were quickly retraced.

As a result, both the FTSE 100 and the Stoxx hit fresh record highs yesterday — who would have thought — as major US indices flirted with all-time highs.

It looks like the worst could be behind us. With leveraged speculative positions flushed out, investors may feel they are returning to a freshly cleaned playground, albeit cautiously.

The long-term outlook for gold remains bullish. The factors supporting gold prices since last year remain firmly in place: trade and geopolitical uncertainty persists; G7 debt dynamics look increasingly unsustainable and are likely to worsen — not only in the US with the "Big, Beautiful Bill", but also in Japan and in Europe amid rising defence spending.

Appetite for the US dollar, other major currencies, and sovereign bonds remains fragile, and that should continue to underpin the bullish case for hard commodities.

One factor to watch is the US 10-year yield, which could come under persistent upward pressure if expectations grow that new Fed leadership will seek to shrink the Fed's balance sheet — pushing yields higher and increasing the opportunity cost of holding non-interest-bearing gold. Whether that would be enough to halt or reverse the metals rally will depend on how quickly trust in the US erodes.

Assuming the worst of the metals stress is behind us for now, attention can turn back to earnings.

Palantir, jumped 5% in after-hours trading after reporting 70% year-on-year revenue growth in Q4, with US revenue up 93%, a sign that AI hype is now turning into hard budgets — exactly what investors have been waiting to see.

Today, AMD is due to report earnings, with the spotlight firmly on AI-related growth. Expectations are high, driven by bets that AI-driven data-centre demand will strengthen further. Last week's earnings from ASML and TSMC reinforced the view that AI-related compute demand remains strong and is still rising.

How strong? Speaking at CES in early January, AMD CEO Lisa Su pointed to a potentially astronomical increase in future AI compute demand, suggesting the world could require more than 10 yottaflops within five years. A yottaflop represents 10²⁴ calculations per second, meaning 10 yottaflops would be 10²⁵. For comparison, global AI compute today is still measured in zettaflops (10²¹). Lisa Su's estimate implies a need for thousands of times more computing power worldwide over the next five years.

That sounds dramatic, but computing has experienced leaps of this magnitude before as technologies moved from niche to mass adoption. Lisa Su's message was simple: AI will require vastly more computing power, and that means more data centres and more chips.

AMD's earnings and guidance are expected to be strong, judging by Lisa Su's tone at CES. But any hint of slowing demand — particularly from hyperscale data-centre customers — delays in AI investment returns, or rising debt burdens could quickly rattle sentiment. Last week's post-earnings slump in Microsoft served as a reminder of that risk.

Source: Swissquote Bank SA