By: Jose Torres, Senior Economist

Markets are suffering sharp losses following an eventful three-day weekend that featured heightening geopolitical tensions amidst a violent selloff in Japanese debt that sent yields on the longest tenors to all-time highs. President Trump’s threats to increase tariffs on eight European nations if an agreement allowing the US to purchase Greenland isn’t completed is generating angst on Wall Street that a potential transatlantic trade conflict could spark significant periods of market turbulence like those experienced last year, which were also caused by cross-border disputes. Meanwhile in Tokyo, Prime Minister Sanae Takaichi’s efforts to hold a snap election next month and move forward with tax cuts and heavier spending are dinging the nation’s fiscal outlook, lifting inflation expectations and dampening duration appetite globally as investors turn defensive.

Is “Sell America” Back?

The Treasury curve is jumping in bear-steepening fashion led by the long end, as wider differentials from overseas hurt demand for domestic fixed-income instruments. But “Sell America” sentiments influenced by worries about near-term foreign relations have precipitated the rare event of the greenback and Treasuries sinking simultaneously. Stocks are getting pounded against the backdrop as well with every major benchmark and sector lower minus energy, which is being bolstered by soaring natural gas and crude oil prices. Commodities are indeed strengthening, as mounting standoffs and general uncertainty especially drive interest for gold and silver safe havens, which reached fresh records again. A lack of speculative enthusiasm is hurting crypto, with Bitcoin and Ethereum down heavily; however, forecast contracts are catching bids. 

Private-Sector Hiring Slows

Private sector payrolls increased by an average of 8k workers in each of the four weeks during the period ended Dec. 27, according to ADP. It was the sixth consecutive week with a positive number, and that’s raising confidence that the labor market is increasingly stable. However, the result marked a deceleration from the 11.25k roster expansion in the interval culminating on Dec. 20.

Rhetoric, Financial Stability Are Top of Mind for Wall Street

How the rhetoric evolves on the geopolitical stage is poised to become a major determinant of market direction in the near term, primarily, as it relates to Greenland and the potential for associated retaliatory tariffs. Rising tensions are likely to weigh on the economic outlooks of the US and EU, limit corporate earnings growth, hamper investor sentiment and raise uncertainty, narrowing the trail for further multiple expansion. On the other hand, though, mutual understanding alongside a path forward would stabilize conditions and foster an environment of buoyant performances. Turning to Tokyo, developments in their fixed-income and currency markets are crucial to watch from a risk-appetite standpoint, since many participants borrow in yen to purchase higher-yielding securities and similarly, some Japanese traders prefer to buy foreign debt to avoid subdued domestic coupons. But now, several of those yields are at records, particularly at the longest-ends, and the county’s currency has strengthened significantly, threatening to upend traditional cross-country investment relationship and spark volatility on Wall Street, like it did in August 2024.

International Round Up

UK Payrolls Reverse After Previous Decline

The number of payrolled workers in the UK fell by 43k in December and by 184k from the year ago period, according to preliminary data from the Office for National Statistics. The monthly data has generated strong interest because December reflects the impact of Chancellor of the Exchequer Rachel Reeves’ budget, which includes tax increases. Unemployment claims during the month increased by 17k, exceeding the estimate of 15.6k after declining by 3.3k in November.

In comparison, UK payrolls expanded by 82k positions during the three-month period ended in November compared to the number of workers in the August-through-October period. The result exceeded the economist consensus estimate of 27k and was a reversal from the 16k contraction in the preceding period. The unemployment rate, meanwhile, remained unchanged at 5.1% as more individuals, including those seeking work, entered the labor force.

In another matter, year-over-year (y/y) growth of earnings ex bonus and with bonus slowed from 4.6% and 4.8% in October to 4.5% and 4.7% in November. The median pay increase in December was 4%, according to a preliminary estimate. The ex bonus metric matched estimates while the growth of compensation including benefit exceeded the consensus forecast for growth of 4.6%.

EU Construction Slows

Construction output in the euro area descended 1.1% month over month (m/m) in November, according to Eurostat. It also sank 0.8% y/y , reversing from October 1.9% y/y gain.

Canada CPI Falls Relative to November

Canada’s CPI dipped 0.2% m/m in December, a smaller decline than the -0.4% economist estimate. The gauge was up 0.1% in November. Relative to December 2024, shoppers saw costs ascend 2.4%. Economists predicted a 2.2% increase, which would have matched November’s pace.

When excluding items with volatile pricing, the resulting core CPI came in at -0.4% m/m and 2.8% y/y following a 0.1% reduction and 2.9% gain in the preceding period.

A temporary goods and services tax was the key driver of the headline’s y/y acceleration. Categories that became more expensive along with the extent of the changes were as follows:

• Food at restaurants, 8.5%
• Alcoholic beverages served in licensed establishments, 6.5%
• Alcoholic beverages purchased from stores, 5.6%
• Toys, games (excluding video games) and hobby supplies, 7.5%
• Children’s clothing, 4.8%

Conversely, less pain at the pump helped ease the headline’s hike with per gallon gasoline costs tanking 13.8%.

Originally posted on January 20, 2026 on Traders’ Insight blog

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