It was a full-blown risk-off tape around the globe yesterday as traders once again seized on two simmering fault lines beneath the surface (Neither was US eco data or earnings!) \u2014 all while the Davos sideshow kicked off.<\/p>\n
Escalating tariff rhetoric between the U.S. and Europe, reignited by the Greenland drama, and fresh instability in the Japanese bond market were enough to send investors to the sidelines and push risk assets lower across regions.<\/p>\n
And as always, global investors, traders, and algos reacted first only to ask questions later. Money moved to the sidelines as volatility spiked (the VIX up more than 30% at one point) – exactly the way it does whenever geopolitical uncertainty erupts. Stocks are now at levels seen 3 months ago\u2026. the S&P breaching short term support at 6,830 to end the day at 6,793\u2026. leaving the intermediate term trendline at 6,745 in the \u2018line of sight\u2019.<\/p>\n
Markets across Asia finished Tuesday lower (Taiwan being the lone exception), European bourses fell between 0.5% and 1.4%, and by 4:00 pm here at home it was the same story. The Dow lost 870 points (-1.8%), the S&P fell 142 points (-2%), the Nasdaq got spanked \u2014 down 561points (-2.4%), the Russell lost 31 points (-1.2%), Transports gave up 386 points (-2.1%), the Equal-Weight S&P dropped 120 pts or 1.5%, while the Mag 7 got hit hardest \u2014 down 1030 pts or nearly 3.1%.<\/p>\n
This morning cooler heads appear to be prevailing\u2026but we\u2019ll get to that a little later.<\/p>\n
Ok look \u2014 it all feels very familiar. Lots of noise, very little in the way of actual policy impact. And noise creates uncertainty \u2014 and markets hate uncertainty. When the news<\/a> cycle turns noisy, algos flip into sell mode and drag the weak hands with them. Some investors panic and sell. Others step in and buy the fear. That\u2019s exactly what we saw \u2014 no change in fundamentals, just a headline-driven reaction.<\/p>\n Yesterday morning, Greenland headlines dominated the airwaves just as the annual Davos boondoggle got underway, with world leaders weighing in on the latest \u201cbig idea\u201d \u2014 a proposed Board of Peace floated by Donald Trump, initially framed around post-conflict Gaza reconstruction but now broadly pitched as a body to tackle global disputes \u2013 pushing the UN to the back of the line. Big talk, big headlines \u2014 but no immediate policy traction.<\/p>\n And as if markets needed more uncertainty, Japan added fuel to the fire. The media dubbed it a \u201cJapanese bond meltdown\u201d as yields surged. Both stocks and bonds<\/a> went into a tailspin after PM Takaichi called a surprise snap election, injecting yet another layer of political risk into an already fragile backdrop.<\/p>\n Takaichi unexpectedly dissolved the lower house and scheduled an early election for February 8, 2026 \u2014 well ahead of the normal 2028 timeline. It\u2019s a calculated gamble aimed at securing a stronger mandate and stabilizing a thin majority. A victory would give her greater latitude to push through policies on taxes, fiscal spending, and defense \u2014 though markets worry that looser spending could further strain Japan\u2019s already-fragile national finances.<\/p>\n The move also allows her to strike while popularity remains high, sidestep prolonged parliamentary infighting, and compress the campaign \u2014 all advantages against an unprepared opposition.<\/p>\n In the end \u2013 it is what it is – Dramatic headlines cause volatility to spike and algo\u2019s to run for the exits all while US economic fundamentals barely budge.<\/p>\n Just to be clear – Japan\u2019s problem (isn\u2019t a surprise) they are trying to unwind 30 years of ultra-easy money without breaking its economy. The government carries massive debt, the population is aging and shrinking, and growth has been weak for decades \u2014 all of which were manageable only because interest rates were near zero. Now that inflation has finally lifted its head, the BoJ<\/a> is under pressure to raise rates and normalize policy, but even small moves cause Japanese bond yields to jump, the yen to swing wildly, and financial stress to build.<\/p>\n That volatility makes it harder and more expensive for Japanese investors to hold foreign assets, including US stocks and bonds (think treasuries), so when anxiety rises in Japan, money often comes home and in order for money to come home, they have to SELL those foreign assets (think stocks and bonds) \u2014 and that stress spills directly into global stock & bond markets. And btw \u2013 this problem didn\u2019t just appear \u2013 everyone knew that this would become a \u2018problem\u2019 at some point. I guess we are at or near that point now \u2013 so expect to hear more about this issue in the months ahead.<\/p>\n In the end, though, this all sounds vaguely familiar \u2014These episodes create chaos in the short term, but they tend to cool over time. None of this changes the trajectory of the U.S. economy or the expectations for a strong 2026.<\/p>\n We are now smack in the middle of what is expected to be a strong Q4 earnings season, backed by a massive AI capex super-cycle, with Big Tech set to deploy roughly $550 billion. Earnings are expected to grow about 15% year over year (that would be the 3rd year of double-digit gains), while GDP<\/a> is tracking north of 2.5% (with Bank of America raising its call to 2.8%). Inflation is sticky but not accelerating, the Fed<\/a> is approaching a leadership transition, the \u201cBig Beautiful Bill\u201d is in play, tax refunds are expected to rise, and inflation-adjusted tax brackets and standard deductions are higher for 2026 and beyond.<\/p>\n Bottom line: Much of yesterday\u2019s headlines were a sideshow. Having a plan is not. Volatility is your friend, and weakness should be used to build positions in quality leaders that are getting unnecessarily whacked by the headlines.<\/p>\n So \u2013 where was the action \u2013 Consumer Staples ended the day HIGHER +0.3% (makes perfect sense), while the other 10 sector lost ground\u2026.Tech, Financials, Industrials, and Consumer Discretionary \u2013 all lost more than 2%, Communications \u2013 1.3%, Utilities \u2013 1.1%, Basic Materials -1%, Real Estate \u2013 1.8%, Energy \u2013 0.2%, & Healthcare \u2013 0.15%.<\/p>\n Down the chain \u2013 Homebuilders lost 2.3%, Airlines \u2013 2.7%, Retail \u2013 1.8%, Cyber \u2013 2.8%, Semi\u2019s \u2013 1.8%, Exploration & Production \u2013 0.75%, Big Pharma \u2013 0.5%, the Value Trade \u2013 1.6%, while the Growth Trade lost 2.1%. Quantum Names were down 2% – 4% while one name \u2013 IONQ rose by 1.2% – UBS making some broad comments on the industry \u2013 IONQ was part of that lineup, although \u2013 nothing so specific, so I wonder what we are going to learn in the days ahead.<\/p>\n The contra trades were the winners on the day \u2013 the DOG + 1.7%, SH + 2%, PSQ + 2.1%, VIXY + 11.6% and the Triple Levered Short \u2013 SPXS added 6.4%.<\/p>\n Bonds got crushed! TLT down 1.3%, TLH down 1.0%. Yields spiked sharply higher \u2014 the 10-year now at 4.29%, up nearly 7 bps, while the 30-year is yielding 4.91%, up 8 bps. Remember: 5% on the 30-year is a red line.<\/p>\n This move in bonds was a direct result of what\u2019s happening in Japan and what\u2019s happening in Denmark. Anxiety there created anxiety here. Rising stress around Japanese rates<\/a> and the yen \u2014 driven by BoJ policy uncertainty, higher JGB yields, and FX volatility \u2014 rattled global markets. And don\u2019t forget: Japanese institutions are among the largest foreign holders of U.S. Treasuries. So, when they get anxious and start hitting the sell button, guess what gets sold? US Treasuries!<\/p>\n On a side note \u2013 there was also news that a large Danish Pension fund was also selling US treasuries in a bid to show their displeasure with the whole Greenland narrative \u2013 only adding more drama.<\/p>\n Oil has been all over the map. Two weeks ago, we were trading near $56. Last week we kissed $62. Yesterday we settled at $60.34, leaving us just below trendline resistance.<\/p>\n For now, the near-term trading range remains $58.50 to $60.50, while the broader range is still $56 to $62. Remember – demand remains solid and there is plenty of supply, so the downside is protected while the upside appears to be limited.<\/p>\n On the back of all this anxiety, gold surged another $88, ending the day at yet another record high \u2014 $4,758\/oz. The trendline drawn off the April 2025 high points to a near-term target around $4,860. And if the geopolitical music keeps playing, we could dance right up to it \u2014 and straight through it. And this morning that is exactly what is happening\u2026. Gold<\/a> up another $100 at guess where? $4,865!<\/p>\n At this point? Let it rip!<\/p>\n Overnight \u2013 calm prevailed\u2026. stocks in Asia ended mixed \u2013 Japan, Australia and Taiwan lower while Hong Kong, China and South Korea all ended higher.<\/p>\n European markets are a bit lower \u2013 all down about 0.5%.<\/p>\n U.S. futures are all higher this morning \u2014 Dow +60, S&P +15, Nasdaq +30, Russell +9.<\/p>\n Yes we have some eco data and we will hear from a half dozen S&P companies \u2013 TFC, SCHW, HAL, JNJ, TRV & ALLY \u2013 I don\u2019t expect any of them to drive the broader narrative at all\u2026.the focus is squarely on Davos and Trumps speech in front of the crowd that is supposed to take place at about 9 am est.<\/p>\n We\u2019re still waiting for the Supreme Court\u2019s decision on tariffs.<\/p>\n The S&P 500 closed yesterday at 6,796, down 143 points, giving back all of its early-2026 gains and now down 0.7% ytd. The Nasdaq and Mag 7 have slipped into negative territory as well. Meanwhile, the Dow, Russell, Transports, and the Equal-Weight S&P are all still up on the year \u2014 a reminder that this is rotation, not collapse.<\/p>\n Expect more noise out of Davos. California Governor Gavin Newsom is there and is using the global stage to criticize the U.S. president as he kickstarts his 2028 presidential campaign \u2014 a move that\u2019s neither helpful nor productive, but politics is an ugly game.<\/p>\n This is when discipline matters most. Ignore the noise. Stay focused. Stick to your plan. Markets don\u2019t reward panic \u2014 they reward conviction.<\/p>\n Sweet sausage risotto<\/p>\n This dish can be a first or main course depending on how hungry you are.<\/p>\n You will need: olive oil, butter, onions, sweet Italian sausage (removed from casing), minced garlic, thyme, Arborio Rice, white wine, chicken broth, frozen peas and Parmegiana Cheese.<\/p>\n In a saucepan – heat up about 6 cups of chicken broth.<\/p>\n In a heavy pan – heat the oil and 1\/4 stick of butter over med heat. Add chopped onion and saut\u00e9 until soft and translucent. Next add the sausage meat and brown.<\/p>\n When ready add minced garlic – no more than a tblspn, and some thyme….do not overdo…. about 3\/4 tspn. You can always add less and then taste. Saut\u00e9 for another couple of mins to blend the flavors.<\/p>\n Now add 1 1\/4 cup of Arborio Rice and about 1 cup of dry white wine…mix well and stir until the wine is absorbed. Season with a bit of pepper. NO SALT needed.<\/p>\n Now – one ladle at a time…add the hot stock to the rice and stir…you must stay at the stove – this is key. You need to stir the rice and not allow it to stick. As the stock is absorbed – add another cup and stir…continue this until the rice is tender and creamy…. maybe like 20 mins…. but taste as you go to determine.<\/p>\n Now add 1 cup + of frozen peas…you can always add more if you like peas…..and a handful of grated Parmegiana Cheese. Stir well for about another 3 mins so that the peas have time to warm up……taste. Taste good? then you are ready to serve…. Do not let the rice dry out \u2013 keep enough stock<\/a> to add so that it remains nice and creamy.<\/p>\n This meal should take you about 30 mins – (40 max).<\/p>\n Serve in warmed bowls and garnish with a bit of chopped Parsley…always have extra cheese on the table for your guests.<\/p>\n","protected":false},"excerpt":{"rendered":"It was a full-blown risk-off tape around the globe yesterday as traders once again seized on two simmering…\n","protected":false},"author":2,"featured_media":244517,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[138,219,111,139,69],"class_list":{"0":"post-244516","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-business","9":"tag-economy","10":"tag-new-zealand","11":"tag-newzealand","12":"tag-nz"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/244516","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/comments?post=244516"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/posts\/244516\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media\/244517"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/media?parent=244516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/categories?post=244516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/nz\/wp-json\/wp\/v2\/tags?post=244516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}