Written by Risk assets feel the brunt; is a recovery underway?
It has been a difficult start to the week for risk assets, with major stock indices in the red, and most of them surrendering their early January gains. Asian stock indices, predominantly, are faring well at this juncture, while the Nasdaq 100 index is down 1% already this year. Notably, equity implied volatility has jumped from very low levels but remains well below its December peak and miles below the April 2025 multi-year highs.
The prevailing risk-off reaction has been more pronounced in the crypto market, partly due to the CLARITY Act delay, with Bitcoin dropping below $90k again and Ethereum struggling to regain the $3,000 level.
At the same time, gold has reached fresh all-time highs, keeping the door open to the $5,000 figure, capitalizing on the prevailing market uncertainty. Interestingly, despite its weak performance against the euro, the dollar index is actually up 0.3% this year, confirming that there is some leftover safe haven appeal for the greenback.
While investors are worrying that the current risk-off might mimic the reciprocal tariff-induced market rout in April 2025, starting from yesterday’s US session, there has been an attempt at stabilization, partly due to Treasury Secretary Bessent suggesting that everyone should take a breath, and urging Europeans to be patient and avoid any retaliation before they hear US President Trump’s speech.
Trump’s speech is the key risk event today
Trump is scheduled to present his view on world order and, most likely, explain the reasons why Greenland should already be considered US territory at 13:30 GMT in Davos, although there might be a small delay following the Air Force One issues. The usual carrot and stick approach will most likely be employed, although risk markets are hoping for a more conciliatory tone today. This might take place, surprising investors, if Europeans send a nudge to the US President that a solution will be found, keeping everyone happy.
Hence, European commentary is pivotal at this stage, especially as an extraordinary EU summit is scheduled for tomorrow to discuss retaliatory tariffs and other actions. France has already proposed NATO military exercises in Greenland, although this might prove a mistake if US forces show up on the island and decide to stay there permanently.
US Supreme Court to hear the Lisa Cook case
Meanwhile, the US Supreme Court has postponed its tariff ruling until after February 20, allowing Trump to remain focused on Greenland, Iran and other geopolitical cases. However, Supreme Court judges are scheduled to hear oral arguments on the “Trump vs Cook” case today. Fed Chairman Jerome Powell might attend this proceeding, most likely drawing the ire of Trump, with a case ruling expected after Easter.
Yields rise in focus; 20-year Treasury auction today
Sovereign bond yields have, once again, been in the spotlight. Japanese government bond yields have reached multi-decade highs following PM Takaichi’s ‘gamble’ with fresh general elections and her comments about ending excessive austerity. A key opposition party is proposing aggressive bond buying by the BoJ, on top of the current tapered bond purchases, as the most effective way to counter excessive volatility.
Today Japanese yields are falling, driven by the longer-end of the curve. This move is mostly attributed to Finance Minister Katayama’s call for calmness. If this is the only reason for this pullback and the BoJ did not dip its toes in the bond market, then another jump in Japanese yields remains highly probable.
At the same time, the 10-year US Treasury yield has climbed to 4.30%, the highest level since September 2025. While the level is not alarming per se, it is evident that Trump’s actions regarding Venezuela and Greenland have propped up the de-dollarization momentum. Interestingly, a 20-year US Treasury auction is scheduled for today at 18:00 GMT. Considering that this part of the curve is chronically underloved by market participants, a weak auction could throw a spanner in the current stabilization attempt.
By XM.com
