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The infoshot to help kick-start your week

Markets drop before Trump backs down over Greenland

Markets started the week poorly after President Trump threatened eight European Nato allies with new tariffs in his push for the US to take “ownership” of Greenland. On Tuesday, US markets had their worst day since October with the S&P 500 finishing down 2.1% and the Nasdaq falling 2.4%.

They steadied on Wednesday after Trump told the audience at Davos that he “won’t use force” to take Greenland. Former presidential candidate, Al Gore, said the stock market response had scared Trump into backing down saying, “many people have speculated that the bond market and stock market have a lot of influence on him. And when it goes down almost 900 points, and people do interpret it as a Sell America trade, that may well have been the reason he backed down.”

They were further stablised when a few hours after his speech, Trump announced the US and Nato were seeking “the framework of a future deal with respect to Greenland” and he withdrew his threat of tariffs against the eight countries. With few details on what was discussed, and the US already having permission to widen its military operations in Greenland, the main inclusions in any deal may involve allowing the US to mine for rare earths on the island. The deal was met with scepticism by Danish and Greenlandic officials. The Greenlandic politician, Aaja Chemnitz Larsen, said the US and Nato having any say over the country’s sovereignty or minerals was “completely out of the question.” 

Gold continued to rise throughout the week and this morning it went past $5,000 an ounce for the first time as investors sought a safe haven from the turmoil of geo-politics.

Rick Rieder emerges as favourite for Fed Chair as another shutdown looms

On the domestic front, Trump is expected to nominate a new Federal Reserve Chair soon, possibly this week. Last week, BlackRock’s Rick Rieder surged ahead to become the front runner according to American prediction markets. Rieder has served on advisory committees to the Fed and the Treasury, and his extensive investment experience (particularly in comparison to some of the other Trump favoured candidates) is likely to mean his appointment is cheered by markets. The next Fed committee meeting is on Wednesday where they’re expected to hold interest rates.

The odds on another government shutdown increased dramatically this weekend after the killing of intensive care nurse Alex Pretti by US Border Patrol agents in Minneapolis. Democrats are now likely to oppose the funding bill for the Department of Homeland Security (DHS), forcing a partial shutdown if compromises can’t be reached by Friday’s midnight deadline.

Japanese markets fall and bonds spike

Japanese markets fell last week after Prime Minister Sanae Takaichi pledged to reduce the tax on food from 8% to 0% if she secures re-election in February. The proposed tax cut caused the yields on Japanese government bonds to spike. As expected, the Bank of Japan (BoJ) kept interest rates at 0.75%.

The yen jumped to a two-month high this morning following reports that the New York Federal Reserve and the Japanese Ministry of Finance (MOF) are considering a joint intervention to halt the currency’s ongoing slide. If it goes ahead, it would be the first US-Japanese coordinated currency intervention since the Fukushima earthquake in March 2011.