- Trump’s tariff threat pushes risk assets lower and gold higher
- EU retaliation is on the cards, the dollar feels the brunt
- US bank holiday today, focus shifts to the WEF in Switzerland
- Japanese bond yields disapprove of the anticipated snap elections
Both risk assets and gold react to Trump’s commentary
Risk markets are trying to find their footing after the weekend events, after US President Trump announced that a bunch of European countries, including Germany, France and the UK, will face a 10% tariff from February 1, set to rise to 25% in June, because they do not accept the ‘hostile takeover’ of Greenland. Investors have been alert to the fact that Trump will use any means necessary to acquire Greenland, under a security pretext, but most have been hoping for an alternative solution, i.e. preferential access to this vast island.
The EU is preparing for an extraordinary EU summit, most likely on January 22, with €93bn in retaliatory tariffs ready to be imposed on US goods from February 6, declaring the official start of another tariff war. The ECB is anxiously monitoring developments, ready to offer assistance.
Should Trump prove successful in his endeavour, it would be interesting to see if the US Supreme Court is called upon to make another ruling. Notably, tomorrow, January 20, the Supreme Court is set to announce fresh opinions on open cases, potentially on tariffs.
Equity indices have gapped lower, maintaining Friday’s weak momentum and potentially pointing to further weakness ahead if Trump persists with his current ‘grab’ strategy. Similarly, cryptocurrencies have surrendered almost all of last week’s gains with Bitcoin dropping like a stone towards the $92.5k area and Ethereum trying to remain above the sub-$3,200 zone.
On the other hand, gold has jumped higher, posting a fresh all-time high of $4,690 and appears poised to maintain its recent uptrend, despite some probable profit-taking further down the line. Interestingly, bond yields have also surged, revealing market angst regarding the latest developments.
Today’s US bank holiday could amplify volatility
US markets will observe their first bank holiday of 2026, but those hoping for a quiet day might be disappointed. The annual World Economic Forum (WEF) in Davos, Switzerland commences today and is scheduled to last until January 23, which along with today’s market illiquidity, could result in amplified moves. The US President will attend the WEF, accompanied by Treasury Secretary Bessent, Commerce Secretary Lutnick, head of US trade policy Greer and other key members of his cabinet.
Pending a major surprise, Trump is expected to maintain his current aggressive stance, highlight his ‘America First’ agenda, and further unsettle the current world status quo. Interestingly, over the weekend the dollar did not react favorably to Trump’s tariff threats, confirming the market’s dislike for the greenback in these conditions, a tendency that might persist if another tariff war materializes.
These developments come just 10 days ahead of the next Fed meeting, with the usual blackout period banning Fed members from expressing their opinions on monetary policy. Interestingly, the weekend’s newsflow has quickly cancelled out any positive momentum from reports that BlackRock’s CIO Rick Rieder could be in the mix for the Fed Chair nomination.
Despite not having any Fed experience, Rieder might be the best choice for markets compared to Director of the National Economic Council Hassett and even Warsh. That said, now Rieder’s name has been leaked, the market reaction upon the likely appointment of a ‘soft’ candidate could be ever more severe, with the dollar feeling the brunt.
China data disappoint; Japanese PM to announce snap election
While Chinese GDP figures for both the last quarter of Q4 and the entire year of 2025 printed slightly above expectations, weak retail sales, softer fixed asset investment data, and a persistent drop in new homes prices confirmed that the situation on the ground is problematic. With the property sector remaining the biggest headache for the administration, further measures cannot be excluded ahead of the mid-February Lunar New Year holiday, although their efficacy is highly disputed.
Meanwhile, Japanese PM Takaichi is scheduled to announce snap elections today, an obvious attempt to restore the LDP’s majority in the Lower House. The yen has been suffering, with dollar/yen almost reaching 160 last week, before declining to the 158 zone. More importantly, Japanese bond yields have risen to multi-decade highs, a move that accelerated on reports that PM Takaichi is considering the temporary abolition of the consumption tax on food.