Market Report.
⚠️ And once again, we started the week with new tariff threats, this time against Canada.
🇺🇸 President Trump has issued a stern warning to Canadian Prime Minister Mark Carney, threatening to impose a 100% tariff on Canadian goods if Canada makes a trade deal with China. Trump suggested that China would try to use Canada as a “drop off port” to avoid paying U.S. tariffs, and that Carney is “sorely mistaken” if he thinks he can facilitate this.
🇨🇦 Canada has recently clarified that it has no intention of pursuing a free trade deal with China, despite reaching a preliminary agreement-in-principle on certain trade issues just few days ago.
🗣️ Carney spoke the following words after meeting with Chinese officials just 10 days ago:
“I believe the progress that we have made in the partnership (with China) sets us up well for the New World Order”.
🔄 This threat comes just a week after Trump had voiced support for Carney pursuing a trade deal with China, saying “if you can get a deal with China, you should do that.” However, Trump appears to be taking an increasingly hardline stance, withdrawing his invitation for Carney to join the “Board of Peace” after the Canadian PM cautioned against economic coercion by superpowers.
⚖️ Aligning too closely with one superpower risks retaliation from the other. Canada needs to choose between deepening economic ties with China or preserving its critical trade relationship with the United States
🇮🇳 Meanwhile, India has announced plans to reduce its tariffs on EU vehicles.
🚗 India is planning to significantly reduce tariffs on cars imported from the EU, slashing the rates from as high as 110% down to just 40% immediately. This is part of the broader free trade agreement being finalized between India and the EU, which is being dubbed the “mother of all deals.”
📦 The tariff cut will apply to a limited quota of around 200,000 combustion-engine cars per year that are priced over 15,000 euros. These tariffs will be further reduced to 10% over time. This move is aimed at opening up India’s vast automotive market, which is the third-largest in the world, to European automakers like Volkswagen, Mercedes-Benz, BMW and Renault.
🔋 However, electric vehicles will be excluded from the tariff cuts for the first 5 years, in order to protect investments by domestic Indian players like Mahindra and Tata Motors in the nascent EV sector. This could further depress industries to continue in the line of producing electric vehicles, with their demand weakening in Europe after withdrawing their incentives, with new taxes on these vehicles.
📉 Currently, European brands hold less than 4% share of India’s 4.4 million units per year car market, which is dominated by Japanese automaker Suzuki and local Indian brands.
🇯🇵 The other key topic today is what’s going on in Japan.
📈 The recent crash in Japanese government bond (JGB) yields, with 30-year yields surging over 4%, has sent shockwaves through global financial markets. This is a dramatic shift from the historically low and stable JGB yields that had made Japan a source of cheap funding and stability.
🏛️ The bond selloff has been fueled by rising inflation in Japan, as well as the new Prime Minister Sanae Takaichi’s plans for expansionary fiscal policies, which are raising concerns about Japan’s already massive government debt burden.
🗳️ The volatility in the $7.3 trillion JGB market is expected to continue as Japan heads towards a snap election on February 8th, with both Takaichi and her rivals campaigning on looser budgets.
🌍 The bond market turmoil is putting upward pressure on yields globally, with estimates that every 10 basis point “idiosyncratic JGB shock” adds 2-3 basis points to US Treasury yields. The carry trade, which has used cheap yen funding to invest in higher-yielding assets globally, is also seen as vulnerable as Japanese interest rates rise, potentially leading to forced unwinds that could roil markets.
🔁 There are fears that the new era of higher Japanese yields could prompt a massive repatriation of the estimated $5 trillion in Japanese capital deployed overseas, which would have significant ripple effects on global asset prices.
💱 The yen extended its gains Today, rising as much as 0.8% against the dollar, as traders became increasingly alert for potential intervention by Japanese authorities to address the yen’s recent slide. Prime Minister Sanae Takaichi warned on Sunday that the government will take “all necessary measures” to address “speculative and highly abnormal movements” in the currency market. This raised the risk of intervention.
🚨 These developments can be seen as a “last warning” before potential intervention, which could significantly impact global markets if the two countries coordinate to prop up the yen.
📌 Japan likely has a lower tolerance for “speculative” currency moves under the Takaichi administration compared to previous governments, increasing the chances of intervention.
📰 Japanese Prime Minister Sanae Takaichi has vowed that her government will take “necessary steps” against “speculative or very abnormal market moves” in the wake of the recent volatility.
🏦 The sudden spike in the yen on Friday, after the New York Federal Reserve conducted rate checks, heightened speculation about potential joint intervention by Japan and the U.S. to support the currency.
🤝 U.S. Treasury Secretary Scott Bessent has signaled Washington’s concern over the market turmoil in Japan, saying he has been in touch with his Japanese counterparts to try to “calm the market down.”
📜 A coordinated Japan-U.S. intervention to stabilize the yen would echo the 1985 Plaza Accord that helped devalue the U.S. dollar, and could have widespread ramifications for global markets. As we have described in our reports in the past, the yen acts as a buffer for the dollar, allowing the US to make its currency cheaper or more expensive when necessary.
🏦 Some opposition parties in Japan have proposed using the Bank of Japan’s holdings of exchange-traded funds (ETFs) and currency intervention reserves to fund a cut in the consumption tax, as advocated by Takaichi. However, tapping the BOJ’s assets could undermine the central bank’s independence and further weaken the yen.
🇨🇳 And in parallel to all this, the Chinese yuan has hit a new 32-month high against the U.S. dollar, as the People’s Bank of China (PBOC) continues its practice of carefully guiding the currency higher by lifting the official midpoint.
📊 The onshore yuan rose to a high of 6.9539 per dollar, the strongest level since May 2023, before settling at around 6.9558. The offshore yuan also strengthened to 6.9522 per dollar. The yuan’s recent gains have been supported by a weaker U.S. dollar and increased corporate demand ahead of the Lunar New Year holiday in mid-February, when exporters typically settle more foreign exchange receipts.
🔗 The yuan’s strength has also been influenced by the recent jump in the Japanese yen, which spiked to a more than two-month high on growing speculation about potential coordinated intervention by U.S. and Japanese authorities.
🥇 Gold prices have blasted past $5,000 per ounce to reach a new all-time high, extending a historic rally. The latest catalyst for the surge in gold prices is the “crisis of confidence in the U.S. administration and U.S. assets” triggered by the “erratic decision-making” of the Trump administration. This includes Trump’s abrupt reversal on threats to impose tariffs on European allies, as well as his threats to hit French wines and Canada with new tariffs.
🛡️ Not only that, the increase in geopolitical tensions, the military deployment of the United States in the Middle East, the suspicions of an imminent military intervention on Iran, unpredictable given the last intervention of Trump in Venezuela, are encouraging safe havens.
📈 Spot gold climbed as high as $5,092.71 per ounce, a record level, while U.S. gold futures for February delivery gained 1.6% to $5,056.60 per ounce.
🏦 And by the way, German politicians and EU officials are pressuring the German government to return 37% of its gold reserves, currently held in US vaults and valued between $100-193 billion. Does anyone else doubt that Trump will not return the gold to the Germans?
Geopolitics.
⚓ The USS Abraham Lincoln aircraft carrier and accompanying destroyers have arrived in the Middle East and are now within Iran’s strike range.
💣 The Islamic Revolutionary Guard Corps (IRGC) in Iran has reportedly begun advanced preparations to shut down the critical Strait of Hormuz. This includes constructing thousands of explosive boats, deploying naval mines, and positioning missile-armed warships.
🚢 An IRGC spokesperson stated that Iran is preparing to close the Strait of Hormuz amid indications the U.S. may soon launch attacks on Iran. Closing the Strait of Hormuz would represent a major escalation, as it is the world’s most critical energy chokepoint.
🎙️ In a media interview, Iran’s ambassador to Spain warned that “if there is a threat from Trump against Denmark, why not against Iran?”
📣 Former U.S. President Donald Trump stated on Truth Social that “the Iranian people have asked President Trump for help in their battle with the Mullahs” and that “help is on the way.”
🔥 Ali Khamenei, supreme leader of Iran, called in an ironic tone, that the Trump regime stop killing protesters, after the death of another activist in the US in protests against the federal forces of the ICE. The irony is that Trump called on the Iranian regime to stop the killing of protesters immediately.
🇬🇧 Keir Starmer’s government has paused the Chagos transfer legislation after warnings it could breach the 1966 UK‑US treaty over Diego Garcia and amid open pressure from the Trump administration, which attacked the deal as a national security mistake. This goes directly to the strategic role of Diego Garcia and wider US–China competition in the Indian Ocean.
Market View.
📊 S&P 500 futures remain below the 7,000‑point level. The market has improved its positioning, reaching around 6,945 points, but has yet to recover recent highs. Meanwhile, Nasdaq 100 futures have managed to move above 25,700 points, although it is worth noting that their most recent highs were recorded in October 2025.
💵 The US dollar has weakened again, with the DXY index falling below the 97.25 level. This move is widely attributed to concerns surrounding overheating in Japanese government debt, which may be forcing Japanese investors to unwind US dollar positions. As a result, USD/JPY has dropped more than 3% since Friday, falling to around 154. EUR/USD started the week close to the 1.19 level.
🇪🇺 Against this backdrop, European markets are also attempting to recover. DAX 40 futures are moving closer to the 25,000‑point mark, while Euro Stoxx 50 futures are likewise attempting to reclaim the 6,000‑point level.
🥇 Meanwhile, gold futures have posted yet another all‑time high, surging to around $5,100 per ounce.
🛢️ The oil market is also gaining strength, with spot Brent crude trading near $65 per barrel.
₿ Finally, Bitcoin remains range‑bound and struggles to regain momentum, currently trading around $87,925.
