Market Report.

⚠️ Weekly Top 3 Risks: US CPI & Nonfarm Payrolls data, UK GDP figures, and a flurry of central bank speeches (Fed, ECB, BoE) guiding rate expectations.

🇯🇵 Fumio Kishida has been succeeded as Prime Minister of Japan by Sanae Takaichi, ushering in the prospect of longer-term political stability, winning a supermajority of 352 seats in the 465-seat lower house of parliament. Takaichi’s victory clears the way for more defense spending, tax cuts, corporate reforms, and generally reflationary policies in Japan.

💴 Takaichi’s plans to suspend an 8% sales tax on food have raised questions about how Japan, with the heaviest debt burden among advanced economies, will fund the policy.

📈 Equity investors welcomed the news, but the prospect of increased debt-funded spending pushed 2-year Japanese government bond yields to their highest level since 1996, reaching 1.3%.

💱 The Japanese yen saw a modest bounce after initially being sold in anticipation of Takaichi’s victory, with the dollar dipping around 0.3% to 156.80 yen.

🇬🇧 Keir Starmer’s chief of staff, Morgan McSweeney, has resigned over Starmer’s decision to appoint Peter Mandelson as U.S. ambassador, despite Mandelson’s known links to Jeffrey Epstein.

🚨 McSweeney took responsibility for advising Starmer to make the Mandelson appointment, which has sparked a police investigation over allegations that Mandelson leaked market-sensitive information to Epstein when he was a government minister.

📂 The release of documents related to Epstein’s ties to Mandelson could create further headaches for Starmer, potentially damaging his relationship with U.S. President Donald Trump if messages about London’s approach to the Trump administration are made public.

🏛️ According to Bloomberg, a group of cabinet ministers may urge Starmer privately to step down.

👁️ The fate of the largest central bank in the world is being revealed to us in greater detail, and we are paying attention.

🏦 Warsh’s call for a new Fed-Treasury accord has stirred debate about the potential implications for the $30 trillion U.S. Treasury market and the Fed’s independence

🧑‍💼 Kevin Warsh, who has been nominated as the next Federal Reserve Chair, has called for a new “accord” between the Fed and the U.S. Treasury Department, similar to the 1951 agreement that limited the Fed’s role in the bond market.

📜 A new accord could stipulate that the Fed would only make large-scale Treasury purchases with the Treasury’s endorsement, or lay out a plan for the Fed to shift its portfolio more towards short-term Treasury bills.

📊 Shifting the Fed’s portfolio towards bills could allow the Treasury to scale back issuance of longer-dated notes and bonds, but this could also increase volatility in the Treasury market and borrowing costs.

⚖️ Prioritising control of public debt yields over control of inflation. This could lead investors to consider US bonds as intervened, and therefore reduce international investors’ interest in the pound and its bonds, but in line with what Trump would want.

📉 Meanwhile, the U.S. recorded 108,000 job cuts last month, marking the worst January since the 2009 Great Recession, according to a report from Challenger, Gray & Christmas.

💻 The crypto crash has been a major disappointment for retail traders who believed Trump’s pro-crypto policies would insulate the market from volatility, highlighting the continued risks and cyclical nature of the crypto space.

📉 The recent crypto market crash has been a sharp reversal from the crypto rally fueled by optimism around Donald Trump’s pro-crypto policies as president. Bitcoin surged past $125,000 during this period, but has now fallen over 50% from those highs.

🏛️ The White House has maintained its commitment to crypto, but has limited ability to directly intervene to “bail out” Bitcoin. Some in the president’s party have called for the government to start buying Bitcoin, but the Treasury Secretary said he lacks the authority to do so.

🔄 The dramatic price swings and prolonged downturns pose a challenge for crypto’s narratives, from a replacement for fiat to an inflation hedge. A protracted slump could further erode confidence in the market.

Geopolitics.

🚀 Elon Musk said he will cover the legal defense costs for anyone who “tells the truth” about the Jeffrey Epstein case and is sued as a result. “I will pay for the defense of anyone who speaks the truth about this and is sued for doing so,” Musk said.

🤝 Israeli Prime Minister Benjamin Netanyahu will meet with U.S. President Donald Trump in Washington next week to discuss the ongoing U.S.-Iran negotiations.

🗣️ The meeting comes after the launch of indirect talks between Trump’s envoys and the Iranian foreign minister in Oman, which are focused on capping Iran’s nuclear program.

🎯 The upcoming Netanyahu-Trump meeting reflects Israel’s efforts to shape the U.S. approach to negotiations with Iran, seeking to expand the scope beyond just the nuclear program.

🇵🇹 Portugal: For the first time in 20+ years, a socialist wins the Portuguese presidential election.
António José Seguro defeats the anti-mass immigration candidate André Ventura with 65% against 35%.
The victory was made possible by center-right voters supporting the socialist AJS.

✈️ According to EFE, the Government of Cuba has warned international airlines operating on the island that, as of this Monday, the country will run out of aviation fuel, blaming the situation on what it described as a U.S. oil siege. The warning raises the risk of flight disruptions and highlights the growing impact of energy constraints on Cuba’s transportation sector.

Market View.

📊 Equity markets rebounded into Friday’s close, with S&P 500 futures moving back above the 6,950‑point level. Nasdaq 100 futures also managed to break above 25,345 points, although they have since pulled back to around 25,155 points.

💵 The US Dollar Index (DXY), which approached the 98‑point level during the early hours of Thursday into Friday, has since retreated to around 97.40. This has allowed EUR/USD to reclaim the 1.18 handle, currently trading close to 1.1850.

🇪🇺 In Europe, DAX 40 futures approached the 25,000‑point mark and are currently holding around 24,885 points. Euro Stoxx 50 futures have once again moved above 6,000 points, and are trading near 6,025.

🛢️ The oil market remains range‑bound, with spot Brent crude trading at the lower end of its range, around $67.25 per barrel.

🥇 Gold futures also staged a rebound, managing to move back above the $5,000 per ounce level, and are currently trading around $5,025.

₿ Finally, Bitcoin has managed to stabilise after the very sharp sell‑off seen last week, holding above the $70,000 level and currently trading near $70,330.