A rebound in U.S. stock futures faded this morning as investors now await Trump’s Davos speech for clues on whether he would ease tensions with Europe over Greenland, leaving S&P 500 futures slightly lower after the market’s biggest drop in three months. Precious metals remain the clear haven, with gold nearing $4,900 an ounce and silver hitting a record high, while the U.S. dollar stabilized following a three-day slide and a rebound in long-dated Japanese bonds helped steady global debt markets. Traders remain cautious, even as U.S. officials look to downplay fears of foreign selling of U.S. assets. With earnings season picking up, any solid recovery will depend less on politics and more on strong corporate guidance, evidence that heavy tech investment is being to see profits, and easing pressure from bond yields. If investors don’t begin to see that, the recent volatility we’ve been seeing may continue.
Markets hit some turbulence yesterday after a period of unusual calm, with U.S. stocks dropping more than 2%, bond yields rising, and volatility spiking following Trump’s renewed push to take control of Greenland and his threat to impose tariffs on European allies. The selloff, compounded by a sharp decline in Japanese government bonds, pushed the VIX to its highest level since November, lifted gold to a record high, and raised fears that foreign investors could reduce holdings of U.S. assets in response to escalating trade tensions. Traders responded by increasing hedges in Treasury and currency markets, with options activity pointing to expectations of further volatility. While some continue to assume Trump will walk back on some (if not most) of his comments, strategists warn that the political uncertainty is threatening to disrupt strategies that had thrived on low volatility and leaving markets vulnerable to further swings in the weeks ahead.
The stress was not confined to equities. Fixed income markets also showed signs of strain, with Japan’s government bond market experiencing a sudden selloff yesterday that underscored how quickly fiscal and political concerns can spill over into rates. Japan’s government bond market suffered a sudden selloff, with yields on 30- and 40-year bonds jumping over 25 bps in one of the most chaotic sessions in years, as simmering fiscal concerns abruptly boiled over. A weak 20-year bond auction acted as the trigger, amplifying fears that Prime Minister Sanae Takaichi’s proposed tax cuts and spending plans could worsen the finances of an already heavily indebted government. The move forced hedge funds to unwind losing positions, pushed life insurers to sell bonds, and disrupted corporate debt issuance, with some investors likening the episode to a “Liz Truss moment” for Japan. While some opportunistic buyers stepped in amid the dislocation, broader sentiment turned more bearish, reflecting doubts about the credibility of fiscal plans, rising long-term rates, and growing pressure from global bond investors who seem willing to punish unfunded policy ambitions. More below on how Japan’s bond market is reacting today.
Wonder who he’s talking about. In an address at Davos, Carney argued that the rules-based international order is effectively dead, and that middle powers must band together to resist coercion by dominant states that increasingly use tariffs, finance, and supply chains as weapons. Without naming the U.S., Carney clearly pushed back against recent pressure tactics, including threats tied to Greenland, reaffirming Canada’s support for Greenland and Denmark and its commitment to NATO. He warned that accommodation and compliance no longer buy safety, arguing that in the current environment, “if you are not at the table, you are on the menu.” Carney framed this as a strategic shift for Canada, pointing to broader engagement with partners across Asia and emerging markets, higher defence spending, and investment in energy, critical minerals, and infrastructure as Canada positions itself for a more fragmented global order.
The anatomy of a taco. The “TACO” trade, the belief that Trump always backs down before markets suffer real damage, is starting to show cracks as rising tensions with Europe and Trump’s push on Greenland spark more significant volatility. While investors have spent months shrugging off aggressive talk and buying risk assets, that confidence may now be limiting the market pain needed to force Trump to take a step back, leaving stocks more exposed as valuations sit near record highs and hedging remains light. With markets much higher than they were during last spring’s tariff shock, the assumption that TACO will always work may itself be becoming a bigger vulnerability in the market.
Still waiting. The U.S. Supreme Court is delaying a decision on challenges to Trump’s tariffs, meaning the duties will remain in place for at least another month while the justices begin a four-week recess. Although the case was heard in November, the court did not issue a ruling before its final scheduled session this week, cutting hopes for a quick rollback and ensuring importers will continue paying more than $16 billion a month in levies. By late February, collections under the disputed law are expected to surpass $170 bln, raising the stakes for businesses that have already filed thousands of refund claims. A ruling against Trump would represent a major legal defeat and could undermine his ability to threaten new tariffs on Europe, but even if the court strikes the current duties down, the White House has indicated it would attempt to reimpose them using other legal tools. In any case, it’s clear the longer the court waits, the more complicated any potential refunds become, leaving companies and markets in limbo as they await a decision.
If you’re looking for a snapshot of changing life in China, this is an interesting one. A new app called Are You Dead? has become the country’s most downloaded paid app, tapping into the realities of more people living alone and looking for simple safety checks. Launched last year, the app prompts users to check in every two days and alerts a designated contact if they don’t respond, positioning itself as a practical tool for solo residents, students, and others who want a bit of reassurance. Its popularity reflects broader demographic shifts, with China expected to have as many as 200 million single-person households by 2030. While the name has drawn some criticism for being blunt, the concept has resonated, attracting investor interest and sparking plans to expand the service to older users and overseas markets.
Diversion: That’s Trust
