General Market News

U.S. Treasury yields edged slightly higher on Thursday as investors monitored escalating geopolitical risks, including tensions over Greenland ownership and potential U.S.-Iran conflict. The benchmark 10-year yield rose less than 1 basis point to 4.143%, while concerns about Federal Reserve independence under White House pressure also weighed on markets.

• The 10-year Treasury yield increased marginally to 4.143%, while the 30-year yield fell slightly to 4.793% amid geopolitical uncertainty
• A White House meeting between U.S., Denmark, and Greenland officials ended in 'fundamental disagreement' over the island's ownership, which Trump claims is central to U.S. national security
• An ongoing investigation into Fed Chairman Jerome Powell is raising concerns about central bank independence, with global central bankers defending it as 'a cornerstone of price, financial and economic stability'

Tariffs have become a daily operational reality for companies, forcing strategic pivots amid supply chain disruption and demand uncertainty. Nearly half of product leaders at goods firms report tariffs are mostly or completely negative for their finances, with 88% expecting supply-chain reconfiguration. The crisis is shifting technology investments away from long-term transformation toward short-term efficiency tools, particularly AI-driven supply-chain optimization.

• Goods firms and mid-sized companies ($100M-$400M revenue) face the sharpest impact, with product leaders twice as likely as CFOs to cite tariffs as a financial drag due to frontline exposure to sourcing and logistics challenges
• Nine in 10 B2C goods firms report macroeconomic conditions are cutting into demand, limiting ability to raise prices and offset tariff costs in competitive, price-sensitive markets
• While 60% of firms report tariff uncertainty has constrained AI and automation funding, two-thirds are simultaneously investing in AI for immediate supply-chain optimization, with 82% of goods firms using AI to manage tariff pressure

South Korea's Industry Minister Kim Jung-kwan stated the government will monitor U.S. tariffs on AI semiconductor chips to minimize impact on domestic companies. The White House announced 25% tariffs on some advanced chips, though exemptions for data center and startup chips mean limited immediate effect on Korean firms. However, potential broader tariffs on semiconductor imports create significant industry uncertainty.

• The U.S. imposed 25% tariffs on certain advanced AI chips, but exemptions for data center and startup applications will limit direct impact on South Korean semiconductor companies
• South Korean officials met with semiconductor company representatives to assess the situation and develop response strategies
• President Trump may impose broader tariffs on semiconductor imports and derivative products to incentivize domestic manufacturing, creating significant uncertainty for the Korean chip industry

European markets are set to open higher on Thursday as investors monitor geopolitical developments involving U.S. President Trump's threats regarding Greenland and Iran. A Wednesday meeting between U.S., Danish, and Greenland officials ended with no resolution on Greenland's ownership, though talks will continue. Trump also moderated his stance on Iran after threatening military action over protestor executions.

• UK's index expected to open 0.6% higher, with Germany up 0.18%, France up 0.2%, and Italy up 0.34%
• High-stakes meeting between U.S., Denmark, and Greenland officials concluded Wednesday with no agreement on the Arctic territory's ownership, despite Trump's threats to seize it by force for national security
• Trump softened tone on Iran after threatening military action, saying he was assured executions of protestors had stopped; Thursday's agenda includes UK GDP data and European inflation figures

ECB policymaker Martins Kazaks warned that the U.S. administration's attack on the Federal Reserve raises significant risks to the European economic outlook. The Latvian central bank governor cited concerns about Fed independence erosion, potential AI financial bubbles, and China's trade policies as threats requiring vigilance. He emphasized there is no room for complacency despite inflation nearing the ECB's 2% target.

• Kazaks described the U.S. attack on Fed independence as 'emerging market politics' that could lead to higher inflation and interest rates for American consumers
• Additional risks include AI-driven market valuations creating potential bubbles and China's aggressive trade policies involving subsidies and exchange rate manipulation
• ECB rates remain appropriate as core inflation measures move closer to the 2% target, though Kazaks advocates for a European response including potential industrial policy

Global inflation cooled from 4.4% to 3.3% in 2025, but experts warn that inflation may remain elevated and more volatile over the next five years compared to the 2010s. The U.S. faces higher inflation risk in 2026 due to fiscal spending, immigration policy, tariffs, and a positive output gap, while other major economies have room to grow without triggering inflation.

• Inflation has eroded purchasing power by over 20% in the past four years, though portfolio returns have kept pace with rising prices
• Secular factors turning inflationary include slowing globalization, shifting demographics, increased fiscal spending with weakened deficit concerns, and AI infrastructure buildout driving up processor and memory costs
• Recommended inflation hedges include dividend-paying equities (with dividend growth historically outpacing inflation) and real asset exposure such as the TSX index

Federal Reserve Chair Jerome Powell's final months in office coincide with a critical period for US monetary policy, as the Fed faces internal divisions and external pressure. Wells Fargo analysts highlight that the labor market shows slack with near-zero private sector job growth, while core inflation has eased to 2.6% year-over-year in December. The narrowing window for rate cuts reflects competing pressures from labor conditions, inflation trends, and anticipated fiscal stimulus.

• Wells Fargo forecasts two 25 basis point rate cuts in March and June, bringing the federal funds rate to 3%-3.25%, followed by a prolonged pause
• Unemployment at 4.4% remains above estimates of the natural rate, while core CPI has cooled to 2.6% from above 3% earlier in 2025
• Analysts warn the 'window for additional cuts is starting to close' due to expected fiscal stimulus, easing financial conditions, and potential economic growth firming through spring and summer

Major U.S. banks reported strong fourth-quarter gains from their prime brokerage units, which lend to hedge funds. JPMorgan's equities revenue surged 40% to $2.9 billion, while Bank of America saw a 23% jump and Citigroup's prime balances grew over 50%. The growth reflects robust hedge fund performance in 2024, with multi-strategy funds posting mostly double-digit returns amid an AI-powered stock rally.

• Banks have been aggressively competing for prime brokerage market share following Credit Suisse's collapse and exit from the business after the Archegos crisis
• Hedge fund leverage is near all-time highs, with stock-picking funds returning 16.24% in 2024, roughly matching the S&P 500's 16.4% gain
• Large multi-manager funds including D.E. Shaw, Balyasny, Bridgewater and Point72 achieved mostly double-digit gains, benefiting from market volatility driven by AI trends and trade tensions

Federal Reserve Governor Stephen Miran criticized foreign central banks for commenting on threats against Fed Chair Jerome Powell, calling their involvement inappropriate. Miran dismissed concerns about U.S. institutional resilience following threatened criminal indictment of Powell, characterizing media coverage as clickbait. His comments came in response to a letter from European and other policymakers defending Powell amid concerns about central bank independence.

• Miran stated central bankers should not involve themselves in non-monetary policy issues domestically, and especially not in other countries
• He characterized institutional resilience concerns as 'people writing things for clicks' and emphasized U.S. institutions are 'very, very strong'
• The controversy stems from a threatened criminal indictment against Powell that prompted international policymakers to write a letter of support

The S&P 500 recovered from initial losses to close at all-time highs Monday despite news of a criminal investigation into Federal Reserve Chair Jerome Powell. While the Dow initially dropped nearly 500 points on concerns about Fed independence, stocks reversed course as Republican opposition to the probe emerged and global economists voiced support for Powell.

• Markets initially sold off on fears the investigation represented a broader push to strip away the Fed's autonomy in setting interest rates
• Republican opposition became clearer throughout Monday, with Sen. Tillis pledging to block Trump's Fed nominees, giving traders confidence the situation would not escalate
• Safe-haven assets like gold and silver climbed to new highs and the dollar slid against peers, showing some investor concern despite the stock market recovery

Wall Street's main indexes declined at the open on Wednesday as investors assessed earnings reports from Bank of America and Citigroup. Retail sales and producer price data released the same day failed to shift market expectations regarding interest rate cuts anticipated later in the year.

• The Dow Jones fell 103.7 points (0.21%) to 49,088.25, the S&P 500 dropped 26.3 points (0.38%) to 6,937.41, and the Nasdaq declined 146.0 points (0.62%) to 23,563.916
• Major bank earnings from Bank of America and Citigroup drove investor sentiment at market open
• Economic data on retail sales and producer prices had minimal impact on market expectations for interest rate cuts later in 2026

US stocks declined for a second straight session on Wednesday, with the S&P 500 down 0.5% and the Nasdaq falling nearly 1%, as investors digested mixed corporate earnings and economic data. The pullback follows recent record highs, with financial stocks leading losses after disappointing bank earnings from Wells Fargo and Bank of America. Concerns about Federal Reserve independence amid political pressure on Chair Jerome Powell added to market uncertainty.

• Wells Fargo and Bank of America shares dropped over 3% each after reporting earnings that failed to meet investor expectations, weighing heavily on the financial sector
• Producer price index rose 3.0% year-over-year in November (vs 2.8% prior), while retail sales surged 0.6% to $735.9 billion, exceeding forecasts and showing consumer resilience
• Political pressure on Fed Chair Jerome Powell, including a Justice Department criminal investigation, continues to raise concerns about central bank independence as rate-cut expectations persist

US producer prices rose 0.2% month-over-month in November 2025, accelerating to 3.0% annually from 2.8%, while retail sales surged 0.6% to $735.9 billion, beating forecasts of 0.4%. The data, delayed by the government shutdown, shows persistent upstream price pressures alongside resilient consumer spending, though economic fragility remains amid rising food costs and labor market slack.

• Core producer prices were flat monthly (below 0.2% forecast) but rose 3.0% annually, exceeding the 2.7% estimate and indicating stubborn inflation despite cooler monthly growth
• Retail sales excluding autos, gas, building materials and food services rose 0.4% in November, supporting GDP estimates with the Atlanta Fed projecting 5.1% Q4 growth
• Consumer spending strength is uneven, driven by higher-income households while lower-income consumers face strain from food prices rising by the most in over three years

Social Security's 2.8% cost-of-living adjustment (COLA) for 2026 slightly outpaced actual inflation due to a timing quirk where prices cooled after the adjustment was locked in based on mid-2025 data. This provides modest relief for retirees, though essential spending categories like food and utilities continue rising faster than headline inflation. The narrow advantage may not last if economic conditions shift.

• The 2.8% COLA exceeded actual inflation because it was calculated using mid-2025 data before prices decelerated in late 2025, giving retirees slightly more purchasing power than anticipated.
• Food prices, dining costs, and utility bills rose faster than overall inflation, disproportionately affecting retirees who allocate more spending to these necessities.
• Combining Social Security with other income sources like dividend-paying stocks (REITs, utilities, telecom) helps buffer timing mismatches, as corporate dividends track earnings rather than consumer prices.

Wholesale inflation rose less than expected in November with the producer price index increasing 0.2% versus forecasts of 0.3%, while retail sales exceeded expectations with a 0.6% gain compared to the anticipated 0.4% increase. The data shows consumer spending remained robust even as producer-level price pressures moderated month-over-month.

• Core PPI excluding food and energy was flat in November against expectations for a 0.2% gain, though headline PPI remained elevated at 3% year-over-year, above the Federal Reserve's 2% target
• Retail sales rose 0.6% in November, beating the 0.4% forecast, with broad-based gains across sectors including motor vehicles, building materials, and sporting goods stores all posting increases exceeding 1%
• Energy prices jumped 4.6% and accounted for more than 80% of the goods price increase in the PPI, while services prices remained flat for the month

European central bankers are warning that President Trump's attacks on the Federal Reserve, including a DOJ criminal probe into Fed Chair Jerome Powell, pose grave risks to global financial stability. Former ECB Governor Jean-Claude Trichet argues that an 'obedient' Fed under White House control would undermine nearly 50 years of central bank independence in developed economies. The concerns arise as Powell revealed the investigation into a $2.5 billion Fed headquarters renovation appears to be political retaliation for refusing to lower interest rates faster.

• Global central bank heads including the Bank of England's Andrew Bailey and ECB President Christine Lagarde issued a joint statement defending Powell against Trump's pressure campaign
• Bank of Finland Governor Olli Rehn warned that undermining Fed credibility could cause a structural rise in global inflation with worldwide ramifications given the U.S. economy's systemic importance
• Citi analysts caution that populist government pressure on central banks could spread to Europe, as shorter-term government debt makes countries more sensitive to rate decisions and vulnerable to political interference

U.S. retail sales rose 0.6% in November, exceeding expectations of 0.4%, driven by rebounding motor vehicle purchases and increased consumer spending. The stronger-than-expected data points to solid economic growth in the fourth quarter, with the Atlanta Federal Reserve forecasting GDP growth at a 5.1% annualized rate.

• Core retail sales (excluding autos, gas, building materials, and food services) increased 0.4% in November, a key indicator for GDP's consumer spending component
• Spending growth remains heavily skewed toward higher-income households, with Bank of America noting a 'K-shape' divergence between income cohorts that widened through 2024
• October retail sales were revised down to a 0.1% decline from previously reported flat growth, while consumer spending drove much of the third quarter's 4.3% GDP growth

President Trump dismissed JPMorgan Chase CEO Jamie Dimon's warning that a DOJ probe into Federal Reserve Chair Jerome Powell threatens Fed independence, calling Dimon 'wrong' and defending the investigation. The probe focuses on Powell's congressional testimony about the Fed's $2.5 billion headquarters renovation, sparking bipartisan backlash and market concerns. Trump plans to name Powell's replacement within weeks despite criticism from Wall Street executives and Republican lawmakers.

• The DOJ investigation centers on whether Powell misled Congress about the scope and cost of the Federal Reserve's $2.5 billion Washington headquarters renovation
• Multiple Wall Street leaders, including Dimon and Bank of New York Mellon CEO Robin Vince, warn that undermining Fed independence could raise inflation expectations and push interest rates higher rather than lower
• Sen. Thom Tillis (R-NC) on the Senate Banking Committee has vowed to block actions until the investigation is resolved, while former Goldman Sachs CEO Lloyd Blankfein called it an 'attempt at murder-suicide' for both institutions

Core inflation rose 0.2% monthly and 2.6% annually in December, below economist expectations, potentially reducing pressure on the Federal Reserve to cut interest rates this month. Saks Global filed for Chapter 11 bankruptcy after running out of cash, while major banks reported mixed fourth-quarter earnings. Meta is cutting over 1,000 jobs from its Reality Labs metaverse unit to redirect resources toward AI development.

• Core CPI increased 0.2% month-over-month and 2.6% year-over-year, both below forecasts of 0.3% and 2.7%, with the cooler data likely insufficient to prompt Fed rate cuts at the upcoming meeting
• Saks Global filed for Chapter 11 bankruptcy and secured $1.75 billion in financing commitments, with former Neiman Marcus CEO Geoffroy van Raemdonck immediately taking over as CEO
• Meta is laying off approximately 10% of Reality Labs staff (over 1,000 employees) and shutting down multiple VR game studios to pivot resources toward artificial intelligence initiatives

Historical data shows the S&P 500 has struggled during Martin Luther King Jr. Day holiday weeks since 1998, averaging a 0.49% loss with only 43% of weeks ending positive. This pattern contrasts with typical weeks that average 0.18% gains with 57% positive outcomes. Technology stocks have historically outperformed during this period while energy and banking stocks have underperformed.

• The SPX has declined the day after MLK Day in seven of the past nine years, with Tuesday averaging a 0.22% loss and Friday typically being the worst trading day of the week
• Technology stocks like Nvidia (NVDA) and Workday (WDAY) have bucked the negative trend, with WDAY outperforming the SPX every year over the past decade during MLK week
• Energy companies and banking stocks are disproportionately represented among the worst performers during the holiday-shortened week