26/01/2026 Daily Reports
Tariff Threats Rattle Markets as Stocks Slide Early, Yen Strength Pressures Nikkei, and Brent Holds Steady
Tariff Threats Rattle Markets as Stocks Slide Early, Yen Strength Pressures Nikkei, and Brent Holds Steady
- Following the US’s threats of tariffs on European countries triggering volatility, a widespread sell-off occurred at the start of this week, with the Nasdaq recording a significant drop at the market opening during this sell-off.
- The Nikkei index fell about 1.8% at the opening, negatively affecting exporters as the yen gained against the US dollar, but then recovered.
- While other Asian markets were mixed, US stock futures (S&P 500, Dow) also weakened at the opening due to tariff uncertainty but recovered.
- Brent crude oil traded unchanged at around $65.91 per barrel early Monday, with investors seen trying to balance recent gains with overall market uncertainty.
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Fed on Hold: The Davos Backdrop & The "Powell vs. Trump" Battle
- January 28 Pause Expected: Markets are virtually certain (97% probability) that the Federal Reserve will hold rates steady at 3.5%–3.75% this Wednesday. After 175bps of cuts since late 2024, the FOMC is entering a “wait-and-see” mode.
- The Davos Shadow: With President Trump speaking at Davos, the market’s attention has shifted from data to the next Fed Chair nominee. Treasury Secretary Scott Bessent indicated an announcement is imminent, with the shortlist narrowed down to Kevin Warsh, Christopher Waller, and Rick Rieder (Kevin Hassett’s prospects have reportedly cooled).
- Independence in the Crosshairs: Chair Jerome Powell’s recent robust defense of Fed independence (Jan 11) signals that the committee will resist political pressure for immediate cuts despite Trump’s public demand for rates as low as 1%.
- Economic “K-Shaped” Divergence: While the top 20% of households are spending freely, boosted by wealth gains, the bottom 60% are feeling the pinch from job security fears and potential tariff-driven price hikes.
- The “Sell America” Test: Watch today’s $13bn 20-year Treasury auction. Any sign of weak demand would bolster the “Sell America” narrative, suggesting that investors are finally demanding a premium for US fiscal deficits and political volatility.
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