Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Our recent article, Why Are Bond Yields Rising, explains that the recent 1% increase in yields, as shown below, is almost entirely due to negative sentiment. As we wrote, the bond market calls sentiment the term premium. Of the 1% yield increase, only 10% is due to fundamental factors, leaving 90% a function of bond investor concerns. Consequently, the term premium is at its highest level since at least 1990, and it’s perched three standard deviations above its norm. The article focuses on two culprits driving the premium: rising deficits and inflation. A Twitter user replied to our article saying, “It’s the Dollar, stupid!” Despite the rudeness, he is correct; the rising dollar is also to blame.

As such, let’s discuss the recent strong correlation between the appreciating dollar and rising yields and the reasons for the relationship.

The Dollar And Yields – Historical Context

The graphs below chart the 10-year UST yield and US dollar over three different time horizons. Furthermore, we show the three-month rolling correlations for statistical context to the relationship.

The first graph, covering the last two years, shows a significant statistical relationship between the dollar and yields. Yields and the dollar over this period are not only visually tracking each other closely but are statistically as well. The rolling correlation has averaged 44.5% and, more recently, around 75%.

The second graph, spanning the post-financial crisis to the present…

…and the third, dating back to 1973, have positive correlations over their respective periods, but the relationships are not statistically significant. Furthermore, the correlation constantly shifts back and forth between positive and negative.

The first graph may lead some investors, as it did our Twitter commenter, to believe the dollar’s trend is crucial to forecasting yields. The other graphs show this is not necessarily true. A positive or negative relationship can persist for months or longer, but the likelihood of the recent strong positive relationship continuing is fleeting with time.

With that graphical context, let’s better understand what may be responsible for the recent strong positive relationship.

The Reserve Currency

The US dollar is the world’s reserve currency. That means that most international trade is transacted in dollars, whether a US-based customer is involved or not. Thus, the dollar’s value is a determinant of foreign economic activity. Moreover, many nations hold dollar reserves to transact more efficiently. Reserves are used to facilitate trade and, for liquidity purposes, primarily invested in Treasury securities. Lastly, many foreign nations and corporations borrow in US dollars because the US offers the cheapest financing in most cases, as it has the most liquid capital markets by a long shot.

Let’s dig into those statements to appreciate the impact they may be having on the dollar.

For more information on the dollar and its importance to global economic activity, we share articles we have written on the topic:

Our Currency, The World’s Problem Part 1 & Part 2

The Dollars Death, Not So Fast  Part 1 & Part 2

International Trade in Dollars

The value of the dollar versus other currencies has a direct impact on foreign economies.

Consider, for example, a German exporter of widgets. If the euro’s value versus the dollar fell from 1.10 to 1.00, the widget producer would get paid 10% less from dollar-paying customers due to the euro’s decline. Similarly, the price of the widget would decline 10% for the purchaser.

Therefore, as we have recently been experiencing, an appreciating dollar weighs on foreign revenue and economic growth for exporters. The US runs consistent trade deficits; thus, recent dollar strength negatively impacts the economic activity of those countries exporting to us.

The table below, courtesy of the US Census Bureau, shows that through the first 11 months of 2024, the US has imported over $1 trillion more in goods than we have exported.

The US has sizeable trade deficits with the following nations and block of nations:

• China $270 billion
• European Union $213 billion
• Canada $55 billion
• Japan $62 billion
• Mexico $157 billion

Those nations and regions running trade surpluses with the US are witnessing weaker economic growth than would otherwise have had the respective currency relationships with the dollar stable. Furthermore, weakness in those nations and relative economic strength in the US incentivize foreign investors to buy US assets. Moreover, it often rewards US investors for investing their money domestically instead of in international assets. Such investment flows feed dollar strength to the detriment of other currencies.

Additionally, some foreign exporters hedge against adverse currency movements. While hedging helps protect profits against currency changes, it feeds the stronger dollar.

The economic and hedging impact of an appreciating dollar strengthens the dollar. Then, circularly, weak foreign economic activity and hedging further strengthen the dollar. Dollar strength begets dollar strength until the trend flips.

Dollar Reserves

To maintain the purchasing power of a nation’s reserves against a stronger dollar, the country will add to its reserves, thus owning more dollars.

As we noted in the prior section, here, too, dollar strength begets dollar strength.

Foreign Dollar Borrowing

When most foreign entities borrow in US dollars, they are not only responsible for the principal and interest payments but for the change in the currency value over the life of the debt.

Thus, if the dollar rose 10% versus a borrower’s home currency, the borrower must come up with an additional 10% of their currency to convert to dollars to make good on the interest and ultimate principal repayment.

Simply, a rising dollar pushes borrowing costs higher in foreign countries. Higher effective interest expenses result in reduced borrowing, which reduces liquidity and often weakens economic activity. Borrowers worried about rising debt costs due to the dollar may pay back their debt early. Doing so requires them to sell their home currency to buy the dollars necessary to pay it back.

Again, a similar theme: dollar strength begets dollar strength.

Currency Intervention

Outside of trade and trade-related activities, other factors can impact currency values. At times, central banks’ role in regulating currency values is among the most significant.

Central banks are notorious for intervening in the currency markets. Given the massive role currency values can have on economic and liquidity conditions, they aim for stable currency values versus the dollar. As an aside, Switzerland and Saudi Arabia peg their currency to the dollar. Such a strategy entails consistent intervention.

Today, it’s highly likely that foreign nations are selling dollars to support their depreciating currency. All dollars are invested. Thus, to sell dollars, they must sell assets. As we noted earlier, in most cases, the reserves are invested in Treasury securities. Accordingly, central bank intervention and associated selling of Treasury securities may push yields upward and keep dollar gains less than they otherwise might be. The graph below adds credence to the hypothesis.

Market Sentiment

Traders’ perceptions and market sentiment can drive a temporary but sturdy relationship between bond yields and the dollar. Such actions can create a feedback loop where shifts in one lead to movements in the other. As such, while some drivers of dollar strength may not directly affect bond yields, trader perceptions of the relationship between yields and the dollar may currently be the most significant driver of yields.

If the market believes a relationship exists, whether logical or not, the market will trade that relationship until it breaks.  

Safe Havens

The dollar and Treasury bonds are both considered safe havens. In times of financial distress, money from abroad flocks to the dollar and often into Treasury bonds. Similarly, during distress, domestic investors divest foreign assets, repatriate their money back to the dollar, and frequently park the cash in the safety of Treasury bonds.

Accordingly, the rising dollar is causing economic and liquidity problems in foreign nations. If it persists, the dollar may catch a safe haven bid. Bonds could be the key beneficiary of the flow to dollars. In such a case, while the dollar may continue to rise, we may witness the positive relationship with bonds deteriorate as yields decline in step.

Summary

There is credibility to the fact that the strong dollar drives higher yields. But it’s also important to note that market psychology does as well. Traders are convinced that the dollar and bond yields are linked and will trade the pair accordingly.

However, sentiment will change at some point, traders will exit the trade, and the relationship will splinter.

We remind you that dollar and bond yields significantly influence the global economy. Thus, recent movements of both are likely to trigger economic and financial market changes in the opposite direction, which, in turn, could put pressure on the dollar and force lower yields.

Outsized returns lay in wait for those contrarians able to spot the change in sentiment and momentum.  

Russia says there is a ‘small’ window of opportunity to make a deal with Donald Trump over Ukraine, just one day after the US President threatened to impose sanctions on the Kremlin if Russian President Vladimir Putin refuses to negotiate.

“Compared to the hopelessness in every aspect of the previous White House chief (President Joe Biden), there is a window of opportunity today, albeit a small one,” Russian Deputy Foreign Minister Sergei Ryabkov told an audience at the Institute for US and Canadian Studies in Moscow, a Russian think tank that focuses on US and Canadian affairs.

“Compared to the hopelessness in every aspect of the previous White House chief (President Joe Biden), there is a window of opportunity today, albeit a small one,” he added. “It’s therefore important to understand with what and whom we will have to deal, how best to build relations with Washington, how best to maximise opportunities and minimise risks.”

Putin has repeatedly said that he’s ready to negotiate an end to the war in Ukraine, but that Russia’s current control of roughly one-fifth of the country would have to be accepted, and that Ukraine must remain neutral, Reuters reports.

Trump Threatens Tariffs

In a Wednesday post to Truth Social, Trump said he’s not looking to ‘hurt’ Russia, but that he’s going to do the country “whose Economy is failing, and President Putin, a very big FAVOR,” adding “Settle now, and STOP this ridiculous War! IT’S ONLY GOING TO GET WORSE. If we don’t make a “deal,” and soon, I have no other choice but to put high levels of Taxes, Tariffs, and Sanctions on anything being sold by Russia to the United States, and various other participating countries.”

The post follows Tuesday comments from Trump, in which he said “We’re talking to (Ukrainian President Volodymyr) Zelenskiy, we’re going to be talking with President Putin very soon,” adding “We’re going to look at it.”

Reporter: “If Vladimir Putin doesn’t come to the table to negotiate with you, will you put additional sanctions on Russia?”

Trump: “Sounds likely.”

“The war should have never started. If you had a competent President, which you didn’t, the war wouldn’t have happened.
The war in… pic.twitter.com/JDj43sFQCW

— Leftism (@LeftismForU) January 21, 2025

The United States has already slapped Russia with heavily sanctions over its invasion of Ukraine in February of 2022.

According to Trump, Ukraine has lost 700,000 soldiers in the war, and Russia nearly a million.

Trump:
Ukraine lost 700 thousand soldiers, and Russia – almost a million. pic.twitter.com/4qTdU11QB9

— Sprinter Observer (@SprinterObserve) January 21, 2025

Authored by Zachary Stieber via The Epoch Times,

Acting Homeland Security Secretary Benjamine Huffman issued a directive on Monday that rescinds guidelines that barred federal officers from arresting illegal immigrants at so-called sensitive places, including schools, churches, and food banks.

The guidelines were released in 2021 during the Biden administration. While churches and schools had been off-limits for immigration-related arrests since 2011, Biden administration officials expanded the list of prohibited places to other settings such as food banks, homeless shelters, and playgrounds.

“We can accomplish our enforcement mission without denying or limiting individuals’ access to needed medical care, children access to their schools, the displaced access to food and shelter, people of faith access to their places of worship, and more,” then-Homeland Security Secretary Alejandro Mayorkas said at the time.

The guidelines covered officers with Customs and Border Protection (CBP) and Immigration and Customs Enforcement (ICE), both of which are within the Department of Homeland Security.

Rescinding the guidelines “empowers the brave men and women in CBP and ICE to enforce our immigration laws and catch criminal aliens—including [murderers] and rapists—who have illegally come into our country,” Huffman said in a Jan. 21 statement.

“Criminals will no longer be able to hide in America’s schools and churches to avoid arrest. The Trump Administration will not tie the hands of our brave law enforcement, and instead trusts them to use common sense.”

A second directive stopped the broad use of humanitarian parole, which the previous administration had used for millions of illegal immigrants. Parole will now be granted on a case-by-case basis, officials said.

Tom Homan, President Donald Trump’s border czar, said on Tuesday that deportation operations have already started.

“ICE teams are out there as of today,” he said.

‘Revolution of Common Sense’

Trump has vowed to carry out mass deportations of illegal immigrants. After taking office on Monday, he signed multiple executive orders related to immigration, including declaring a national emergency at the U.S.–Mexico border and clarifying that U.S. policy aims to prevent illegal entry, remove all illegal immigrants, and pursue criminal charges against those who facilitate their presence.

“With these actions, we will begin the complete restoration of America and the revolution of common sense,” Trump said in his inaugural address.

“All illegal entry will immediately be halted, and we will begin the process of returning millions and millions of criminal aliens back to the places from which they came.”

Immigration advocates have criticized the president over his immigration-related actions.

“Trump’s words and actions reveal the enormity of the danger we’re facing, which compels us all to mobilize to fight back,” Kica Matos, president of the National Immigration Law Center, said in a statement.

Groups that support limiting illegal immigration, on the other hand, backed the moves.

“President Trump has broad public support for his promise to remove millions of illegal aliens in this country, beginning with criminals, people who have been issued final orders of removal and the millions more who entered our country during the previous administration,” Dan Stein, president of the Federation for American Immigration Reform, said in a statement.

In recent days, the Department of Homeland Security has removed all members from its advisory committees, reinstated a program requiring asylum seekers who traveled through Mexico to wait in Mexico for their claims to be adjudicated, and ended the use of an application that allowed migrants outside of the United States to schedule appointments at U.S. ports of entry.

Authored by Zachary Stieber via The Epoch Times (emphasis ours),

President Donald Trump said on Jan. 20—moments after being sworn into office—that he would reinstate former members of the military who refused to receive a COVID-19 vaccine.

“This week, I will reinstate any service members who were unjustly expelled from our military for objecting to the COVID vaccine mandate with full back pay,” Trump said at the U.S. Capitol in Washington.

“And I will sign an order to stop our warriors from being subjected to radical political theories and social experiments while on duty. It’s going to end immediately.”

Both promises drew applause from the crowd that had gathered to watch Trump be sworn in and deliver a speech.

“Our armed forces will be freed to focus on their sole mission: defeating America’s enemies,” Trump said.

Under direction from then-President Joe Biden, the military imposed a COVID-19 vaccine mandate in 2021. More than 16,000 troops requested religious accommodation, but many of the requests were denied. The military discharged more than 7,000 troops whose requests were denied, and who still refused to receive a COVID-19 shot.

The military rescinded the mandate in 2023, obeying a bill approved by Congress and signed by Biden.

Another bill required the military to consider reinstating former members who were discharged for refusing the vaccine and had requested reinstatement, but it did not compel the military to accept them back.

Some lawmakers advocated for including mandatory reinstatement in the legislation but did not succeed in ultimately including it.

“Thank you @realDonaldTrump for pledging to implement provisions in my bill, the Troop Act, which would reinstate soldiers who were discharged for refusing to take a COVID shot,” Rep. Neal Dunn (R-Fla.), a doctor, wrote on the social media platform X on Monday. “Today marks the beginning of the American golden age!”

Thank you @realDonaldTrump for pledging to implement provisions in my bill, the Troop Act, which would reinstate soldiers who were discharged for refusing to take a COVID shot.

Today marks the beginning of the American golden age! https://t.co/1alrLEW6xe

— Dr. Neal Dunn (@DrNealDunnFL2) January 20, 2025

Multiple courts found that the military violated federal law in processing religious exemption requests, although one of those rulings was thrown out by the U.S. Supreme Court.

A federal watchdog also concluded that several branches violated their own rules in handling requests for exemptions from the mandate. A settlement reached in one of the lawsuits brought by aggrieved members resulted in the correction of records for the members, which led to them being eligible for reenlistment.

Trump’s nominee for defense secretary, Pete Hegseth, told senators on Capitol Hill recently that the Pentagon would be giving back pay to former members who were “forced out due to an experimental vaccine.”

He also said the individuals would be reinstated to their previous rank, and receive apologies.

By Michael Every of Rabobank

The world’s eyes remain fixed on the Goliath in Washington D.C.

President Trump now wants to urgently renegotiate the USMCA trade agreement with Canada and Mexico, which looming 25% tariffs are now also focused on: towards a further ring-fencing against transhipment from China, as seen with NAFTA > USMCA; or more US local content provision; or some kind of North American Union? In the economic statecraft toolkit ‘trade’ category that ticks the FTAs, tariffs, and non-tariff barriers boxes – and it may be getting results already: Korea Economic Daily reports Samsung and LG may move some home-appliance manufacturing from Mexico to the US.

Also on trade, Trump threatened additional 10% tariffs against China over fentanyl, as a warm-up for what will almost certainly be higher threatened tariffs over other issues. China is promising to buy more from the US to smooth relations. Again. Those who want to spend time fantasizing a ‘Farce Two Trade Deal’ are welcome to do so.

Within the economic statecraft ‘other’ category, fiscal policy opened a ‘tax war’. Trump ordered officials to investigate “whether any foreign countries are not in compliance with any tax treaty with the US or have any tax rules in place, or are likely to put tax rules in place, that are extraterritorial or disproportionately affect American companies”, and within 60 days to draw up retaliatory measures, including doubling the tax rate for foreign individuals and entities. This places the US in direct opposition to the OECD.

Trump also announced a $500bn ‘Stargate’ investment to maintain US AI supremacy, including in defence, and that he would like Elon Musk or Larry Ellison to buy TikTok and give 50% to the US government.  Where the Biden administration tried to break Big Tech up, Trump is taking the Chinese route in ensuring it works for US grand strategy.  

Moreover, newly sworn-in Secretary of State Rubio just communicated to all US diplomatic outposts that: “Every dollar we spend, every program we fund, and every policy we pursue must be justified with the answer to three simple questions” – Does the action make America safer, stronger, and more prosperous? Certain priorities will be replaced, certain issues deemphasized, and some practices we will cease altogether.” I had stressed that the key market question is now not “What is GDP?” but “What is GDP *for*?” Now we see what that ‘for’ is.

There are very few eyes on Davos, with empty seats, and awards being given to the footballer David Beckham and fashion designer Diane von Furstenberg, whose dresses retail for around $500.

German Chancellor Olaf Scholz addresses a half-empty congresshall at #wef25 in Davos. My colleague Mr. Gersemann even managed to secure a seat in the front row. pic.twitter.com/evZdmcnVtj

— Holger Zschaepitz (@Schuldensuehner) January 21, 2025

Those who can ‘bend it’, real power, and real money are all in D.C., but we also heard from:

• German Economy Minister Habeck, who warned Europe shouldn’t rely on US energy in case it blackmails it like Russia. Besides ensuring a trade war, the EU can then turn to Qatar, friendly with Iran and backing the Muslim Brotherhood, or to China’s green energy, and upstream-to-downstream supply chains that leave no upside for Europe. Habeck also stressed, “In a world in which we have to expect energy supply chains to be exploited for power politics, energy dependency is always a problem.” Which is why Germany turned off its nuclear plants. (And see our new report showing the green transition means higher EU inflation out to 2030.)

• EU President Von der Leyen, who argued, “I believe that we must engage constructively with China – to find solutions in our mutual interest. 2025 marks 50 years of our union’s diplomatic relations with China. I see it as an opportunity to engage and deepen our relationship with China, and where possible, even to expand our trade and investment ties. It is time to pursue a more balanced relationship with China, in a spirit of fairness and reciprocity.” Is this the EU attempting to show the US it has options? It does – but bad and worse. If Europe thinks it can resist ‘America First’ by moving closer to China, it has a realpolitik lesson looming. Trump is merely mirroring Chinese policy. Moreover, reports of US “economic warfare” are desperately naïve about history: all Trump is doing so far is to act for the US in a zero-sum sense; if he wanted to actively move against Europe using economic statecraft, it would be devastating.

• Ukrainian President Zelenskyy, who also had strong words for Europe: “Europe needs to learn how to fully take care of itself, so that the world can’t afford to ignore it… We need a united European security and defence policy, and all European countries must be willing to spend as much on security as is truly needed, not just as much as they’ve gotten used to during years of neglect. If it takes 5% of GDP to cover defence, then so be it, 5% it is.” Or there is always the “slow agony” that Draghi promised, which could now be a lot faster, especially as “European competitiveness has one foot in the morgue,” as Nokia’s CEO warns.

Of course, in the Bible, little David slays mighty Goliath. That’s a long (sling) shot in 2025, requiring the deep, blind faith that only neoclassical economists retain. I would be strongly backing Goliath.

Amid heightened concerns over a series of undersea cable disruptions in the Baltic Sea—believed to be caused by anchor draggings—European security officials have been alarmed by the possibility of hybrid attacks targeting critical infrastructure by Russia or China. Adding to the unease, Britain’s defense minister issued a warning on Wednesday about a Russian spy ship operating in UK waters. 

UK Defence Secretary John Healey made clear to the House of Commons that a Russian spy ship, Yantar, had been detected in the English Channel and loitered over critical undersea infrastructure. This was first reported by the Financial Times. 

“Russia remains the most immediate and pressing threat to Britain … and any threat will be met with strength and resolve,” Healey said. 

He said the Yantar spy ship had passed through the Strait of Dover and into Dutch waters. 

Healey noted that a Royal Navy submarine surfaced near the Yantar to warn the crew that its every movement would be tracked. 

“I want President Putin to hear this message: ‘We see you, we know what you’re doing and we will not shy away from robust action to protect this country,” the defense official told lawmakers. 

He added: “We will continue to call out the malign activity that Putin directs, cracking down on the Russian shadow fleet.” 

In a statement to the House of Commons, Defence Secretary John Healey made clear that Russia is the most immediate threat to Britain. Watch here. pic.twitter.com/RkjRUxaHuR

— UK Defence Journal (@UKDefJournal) January 22, 2025

Over the past 18 months, three alarming incidents have been reported in which commercial ships traveling to or from Russian ports are suspected of severing undersea cables in the Baltic region.

The question remains whether the three incidents were acts of sabotage or merely just accidents. 

Authored by Ryan McMaken via The Mises Institute,

Donald Trump yesterday issued a new executive order declaring that so-called “birthright citizenship” does not apply to the children of foreign nationals residing illegally within the United States.

The order reads, in part:

 (a) It is the policy of the United States that no department or agency of the United States government shall issue documents recognizing United States citizenship, or accept documents issued by State, local, or other governments or authorities purporting to recognize United States citizenship, to persons: (1) when that person’s mother was unlawfully present in the United States and the person’s father was not a United States citizen or lawful permanent resident at the time of said person’s birth, or (2) when that person’s mother’s presence in the United States was lawful but temporary, and the person’s father was not a United States citizen or lawful permanent resident at the time of said person’s birth.

There is a common misconception in the United States that the Fourteenth Amendment to the US Constitution mandates that the US government grant citizenship to anyone and everyone born within the borders of the United States.

This misconception is largely due to the fact that, for several decades, US courts and technocrats have conspired to redefine the original meaning of the amendment, and thus apply it to every child of every tourist and foreign national who happens to be born on this side of the US border.

Some have even attempted to define access to birthright citizenship as some sort of natural right. This is a common tactic among some libertarians who have twisted the idea of property rights to extend the idea of a “right” to the governmental administrative act known as “naturalization.”

Even when looking at the issue strictly in terms of procedural legal rights, however, it is clear that the current definition of birthright citizenship is in conflict with the law as originally intended and interpreted.

To understand the central point of contention, let’s note the text of the Fourteenth Amendment itself, which states that citizenship shall be extended to: “[a]ll persons born or naturalized in the United States and subject to the jurisdiction thereof…”

Note that there are two qualifying phrases here.

The persons in question must be both born or naturalized in the United States and subject to the jurisdiction thereof.

It is this second qualification that remains a matter of debate.

What does it mean to be subject to the jurisdiction of the United States? This issue is explained by legal scholar Hans Spakovsky who notes that advocates of granting birthright citizenship to anyone born in the United States

erroneously believe that anyone present in the United States has “subjected” himself “to the jurisdiction” of the United States, which would extend citizenship to the children of tourists, diplomats, and illegal aliens alike.

But that is not what that qualifying phrase means. Its original meaning refers to the political allegiance of an individual and the jurisdiction that a foreign government has over that individual.

The fact that a tourist or illegal alien is subject to our laws and our courts if they violate our laws does not place them within the political “jurisdiction” of the United States as that phrase was defined by the framers of the 14th Amendment.

This amendment’s language was derived from the 1866 Civil Rights Act, which provided that “[a]ll persons born in the United States, and not subject to any foreign power” would be considered citizens.

Sen. Lyman Trumbull, a key figure in the adoption of the 14th Amendment, said that “subject to the jurisdiction” of the U.S. included not owing allegiance to any other country.

The courts themselves have historically recognized this distinction, noting that the whole purpose of the Fourteenth Amendment was to grant citizenship to former slaves who obviously were not connected to any other country or sovereign. In the Slaughter-House Cases, 83 U.S. 36 (1872), the court ruled:

That [the Fourteenth Amendment’s] main purpose was to establish the citizenship of the negro can admit of no doubt. The phrase ‘subject to its jurisdiction’ was intended to exclude from its operation children of ministers, consuls, and citizens or subjects of foreign States born within the United States.”

This was further confirmed by the Court in 1884 (in Elk v. Wilkins, 112 U.S. 94) when the Court stated that the idea of birthright citizenship did not apply to Native American tribes which were nonetheless within the borders of the United States:

“[The Fourteenth Amendment] contemplates two sources of citizenship, and two sources only: birth and naturalization. The persons declared to be citizens are ‘all persons born or naturalized in the United States, and subject to the jurisdiction thereof.’ The evident meaning of these last words is, not merely subject in some respect or degree to the jurisdiction of the United States, but completely subject to their political jurisdiction, and owing them direct and immediate allegiance. And the words relate to the time of birth in the one case, as they do to the time of naturalization in the other. Persons not thus subject to the jurisdiction of the United States at the time of birth cannot become so afterwards, except by being naturalized, either individually, as by proceedings under the naturalization acts; or collectively, as by the force of a treaty by which foreign territory is acquired. Indians born within the territorial limits of the United States, members of, and owing immediate allegiance to, one of the Indian tribes (an alien though dependent power,) although in a geographical sense born in the United States, are no more ‘born in the United States and subject to the jurisdiction thereof,’ within the meaning of the first section of the Fourteenth Amendment, than the children of subjects of any foreign government born within the domain of that government, or the children born within the United States, of ambassadors or other public ministers of foreign nations.”

In short, the court recognized that the tribal lands were within the legal jurisdiction of the United States, but this did not mean that everyone born within those borders was automatically granted citizenship. Those tribal members believed to be subjects of “foreign” tribal governments were therefore not “subject to the jurisdiction” of the United States in a way that conferred automatic citizenship. 

Congress further reinforced the court’s interpretation by adopting new legislation granting citizenship to all tribal members in 1924. Had the Fourteenth Amendment really granted automatic citizenship to everyone born within the borders of the United States, no such legislation would have been necessary.

In the year 2024, however, advocates of the new and novel interpretation of “birthright citizenship” insist that the child of foreign nationals automatically becomes a citizen of the United States based entirely on the location of birth. 

This is a rather odd way of doing things. In historical practice nearly everywhere, citizenship depends largely on the citizenship of parents, or on the parents’ place of birth, and not on the place where parents happen to temporarily reside when the child is born. Thus, historically and globally, the child of foreign nationals is himself a foreign national. This is true, for instance, of children born to American nationals overseas. 

Only in the United States does there appear to be widespread confusion about this.

Of course, some libertarian or “classical liberal” readers might argue that such legal precedents are meaningless, and that everyone “deserves” the legal “right” of citizenship. How citizenship is any sort of natural right or property right, however, remains a mystery. Has the child somehow “homesteaded” his citizenship? Obviously not. Has the child entered into a contract with a legitimate property owner to acquire the “property” of citizenship? To ask these questions is to see the absurdity of them. 

On the other hand, it is important to note that a lack of citizenship in any particular place does not negate anyone’s property rights. Real property rights—what Rothbard called “universal rights”—exist regardless of one’s citizenship, where he lives, or where he happens to have been born.

Shortly after President Donald Trump revealed the “Stargate” project—a joint venture between OpenAI, Softbank, and Oracle aimed at investing tens of billions of dollars to bolster America’s artificial intelligence infrastructure—a new report from the Financial Times stated that ByteDance, the owner of TikTok, is planning a $12 billion investment spree on AI infrastructure this year.

Sources familiar with ByteDance’s plans indicate that the Chinese company plans to purchase $5.5 billion in AI chips from domestic chip companies this year, with additional plans to spend $6.8 billion on chips from overseas suppliers to enhance its AI models. 

About 60% of ByteDance’s domestic chip orders would go to Huawei and Cambricon, while the rest would be spent on Nvidia chips that abide by the US Commerce Department’s restricted trade list. Sources also noted that Beijing asked tech companies to purchase at least a third of all chips from domestic suppliers. 

The move by ByteDance to boost its AI capacity comes as Trump saved the Chinese social media video app from being banned in the US – after going dark for 12 hours – with an executive order Monday that gives it a 75-day extension to make a deal with new US ownership. 

On Tuesday evening, Trump told reporters at the White House: “I’m open to Elon Musk buying TikTok if he wants it. I’m also open to Larry Ellison buying it. You’re a rich guy, Larry, do you want it? I want then to do a 50/50 JV deal with America. With us, it’s worth trillions. Without us, nothing. What do you think, Larry?” 

Oracle’s Larry Ellison responded: “Sounds like a good deal to me, Mr. President!”

🚨 TRUMP: “I’m open to Elon Musk buying TikTok if he wants it. I’m also open to Larry Ellison buying it. You’re a rich guy, Larry, do you want it? I want then to do a 50/50 JV deal with America. With us, it’s worth trillions. Without us, nothing. What do you think, Larry?”… pic.twitter.com/it3siFamIT

— Autism Capital 🧩 (@AutismCapital) January 21, 2025

Also, Trump also announced the Stargate Project.

🚨BREAKING: President Trump has just announced Stargate Project, a new American company which will invest $500 billion over the next four years building new AI infrastructure in the United States.

Oracle’s Larry Ellison, SoftBank CEO Masayoshi Son, and OpenAI Sam Altman were… pic.twitter.com/f0SL7zby2l

— Charlie Kirk (@charliekirk11) January 21, 2025

Thank you to President Trump for announcing Stargate Project with us today. $500B for AI data centers for OpenAI, built in the US. 🇺🇸 https://t.co/vwBPeypPQ6 pic.twitter.com/M5QJ1HOKjI

— Greg Brockman (@gdb) January 22, 2025

News of Stargate continued to push Oracle shares higher, up nearly 9% in premarket trading.

Data from Omdia shows that tech firms spent $229 billion on servers in 2024, with Microsoft leading the charge with $31 billion, followed by Amazon at $26 billion.

Update (0845ET): It took President Trump a few hours to gather his thoughts and put digital pen to pixelated paper to explain his disappointment at the weaponization of yesterday’s National Prayer Service sermon by far-left activist bishop of DC.

But, his well chosen words are as follows (emphasis ours):

The so-called Bishop who spoke at the National Prayer Service on Tuesday morning was a Radical Left hard line Trump hater.

She brought her church into the World of politics in a very ungracious way.

She was nasty in tone, and not compelling or smart.

She failed to mention the large number of illegal migrants that came into our Country and killed people. Many were deposited from jails and mental institutions. it is a giant crime wave that is taking place in the USA.

Apart from her inappropriate statements, the service was a very boring and uninspiring one.

She is not very good at her job! She and her church owe the public an apology!

Ouch! But hey, at least she can gloat in her self-satisfaction that she is a member of the #Resistance…

Don’t these people ever learn?!

*  *  *

The looks on Trump and Vance’s faces (and their wives) tells you all you needed to know about how this morning’s Inauguration Prayer Service went…

Just hours after President Trump signed executive orders to crack down on illegal immigration and one that states the government will only recognize the two sexes – male and female – Episcopalian Bishop Mariann Edgar Budde decided this was the perfect opportunity to politically weaponize her sermon, urging President Trump to “have mercy” on immigrants and transgender youth.

“In the name of our God, I ask you to have mercy upon the people in our country who are scared,” Budde said from a pulpit.

“There are gay, lesbian, transgender children, Democratic, Republican, independent families – some who fear for their lives.“

It is unclear why they fear for their lives…

But the bishop was not done yet, she had a lot more virtue to signal from her ‘bully pulpit’…

“The people who pick our crops and clean our office buildings, who labor in poultry farms and meatpacking plants, who wash the dishes after we eat in restaurants and work the night shifts in hospitals…

…they may not be citizens or have the proper documentation, but the vast majority of immigrants are not criminals.”

She outlined that those workers “pay taxes”, are “good neighbors” and are “faithful members” of U.S. churches, mosques, synagogues and temples, arguing that their children “fear their parents are going to be taken away.”

Additionally, she called on Trump to aid people fleeing war zones and persecution.

“Find compassion,” she said.

Watch the full sermon here…

Just take one look at this witch and you know everything you need to know about her, even before she starts talking

pic.twitter.com/AtlMl2bbQq

— Matt Walsh (@MattWalshBlog) January 21, 2025

Perhaps some of that compassion should be found for the children that are trafficked; or for the American citizens who have been raped and/or murdered by numerous ‘illegal’ crop-pickers and office-cleaners?

Reporters were desperate for a comment from Trump as he left the service, he threw it back in their faces:

“What did you think, did you like it? Did you find it exciting? Not too exciting was it,” the president stated.

“I think it was a great service.”

🚨REPORTER TO TRUMP: “Mr. President, what did you think of the sermon?”

TRUMP: “What did *you* think? Did you like it? Did you find it exciting?” 😂💀pic.twitter.com/jieLQgRXDh

— Autism Capital 🧩 (@AutismCapital) January 21, 2025

“They could do much better,” Trump added.

Bishop Budde’s profile pic… of course!

Finally, who could have seen this coming from such a virtuous member of the clergy…

The bishop who spoke at the National Prayer Service today previously said “we need to replace President Trump” in 2020.pic.twitter.com/VtOXUkKKKa

— Thomas Stevenson (@RealTStevenson) January 21, 2025

Budde is no stranger to woke causes, proclaiming on her diocesan website that she is “an advocate and organizer in support of justice concerns, including racial equity, gun violence prevention, immigration reform, the full inclusion of LGBTQ+ persons, and the care of creation.”

US equity futures are higher to start the third day of Trump’s presidency – and not too far from a new all time high – led by tech following blowout Netflix earnings and a fresh extension of the AI frenzy, coupled with signs that US tariffs on trade partners could be less harsh than feared. As of 8am ET, S&P futures are up 0.5%, rising for the third day in a row, and lifted by strong corporate results; Nasdaq 100 futures surge 0.9%, spurred by a 15% premarket jump in Netflix to a new all time high above $1,000 after the streamer reported a blowout quarter with record subscriber gains, and Oracle which jumped 9% after the company teamed up with SoftBank and OpenAI to form a $100 billion joint venture that will fund AI infrastructure. The Russell is lagging as Trump expands his tariff threats to include China and EU (10% as of Feb 1) as well as Canada/Mexico (25% as of Feb 1). Elsewhere, European shares ground higher with the Stoxx Europe 600 hitting a record on higher volumes; Asian stocks are also higher led by Japan, although China slumped after Trump repeated his threat to impose 10% tariffs on the nation’s goods because fentanyl was being sent from China to the US via Mexico and Canada. The dollar touched its lowest level in a month with 10Y TSY yields lower amid relief that Trump has so far held back from slapping harsher penalties on trade partners and which JPM said “the market may being viewing the tariffs threats as more negotiating tool than longer-term policy/strategy.” The commodity complex is mixed with Energy leading, Precious over Base, and Ags mostly lower. Today’s macro data focus is the Leading Index and 20Y auction, as earnings ramp.

In premarket trading, Netflix shares surged 15% after the streaming company reported fourth-quarter results that beat expectations, boosted by its biggest quarterly subscriber gain in history.  If Netflix’s premarket gains carry through the day, the stock will hit an all-time high and will be poised for its biggest rise since October 2023. Here are some other premarket movers:

• Oracle shares jump 9% as the company teams up with SoftBank Group and OpenAI to form a $100 billion joint venture that will fund artificial intelligence infrastructure. The AI euphoria also lifted the broader Mag7 (Apple +0.1%, Nvidia +2.7%, Microsoft +1.4%, Alphabet -0.1%, Amazon +0.7%, Meta Platforms +0.6% and Tesla -0.6%).
• Seagate shares rise 5.6% after the computer hardware and storage company reported second-quarter earnings and revenue that beat the average analyst estimate. Analysts highlighted the company’s strong gross margins during the quarter.

Fears that Trump’s protectionist policies would derail global growth and spark US inflation had pushed the dollar to a 13-month high earlier in the month and driven up bond yields. Instead, Trump’s first two days in office have largely been supportive of sentiment, as investors zero in on his pro-business policies.

“There was just relief that as of day one, we didn’t get the tariffs that were expected,” said Corinne Lord, a senior investment specialist at St James Place Management. “The question is to what extent we will get them compared to what he’s promised. There is still a lot of nervousness about what might lie ahead.”

On Tuesday, the US president said he was still considering a 10% tariff on all goods from China, following a threat to enact tariffs of as much as 25% on Mexico and Canada by Feb. 1. Yet the only actual action he’s taken so far is the call for a review of trade practices that’s due by April 1, potentially giving China and others almost 10 weeks to avert new levies or address his demands.  As a result, a catch-up trade is building for stock market laggards on bets that Trump will take a softer approach on tariffs, according to Bank of America Corp.’s monthly survey of fund managers. That’s also reflected in steady Treasury yields.

“The bond market is not buying into inflation angst from tariffs,” said Kenneth Broux, strategist at Societe Generale in London. He described Trump’s threat of a 10% levy on China as “not draconian.” Even so, few investors are straying from tech stalwarts notching new highs for the S&P 500, with bullish bets on Magnificent 7 stocks ranked as the most crowded trade in BofA’s survey. That was followed by the US dollar and cryptocurrencies.

European shares continue to grind higher with the Stoxx Europe 600 rising 0.7% and hitting a record on higher volumes as AI and electrification names lead gains, notably ENR, up 9% and SU, up 3%, on US President Trump’s announcement of large-scale investments in AI infrastructure. The Stoxx 600 industrial goods and services index, up 1.3%, and the Stoxx Europe technology index, up 1.2%, are the top performers. The UBS European desk is 60/40 better to buy with both hedge funds and long only 60/40 net buyers. The desk is active in insurance and better buyers, led by MUV2, up 4%, and is a better buyer of healthcare, led by ROG and NOVOB. It is a net seller of industrials and a two-way better seller of staples. It has also been buying luxury, energy, telcos and utilities. Here are the biggest movers Wednesday:

• BMW shares rise as much as 1.9% after an upgrade to buy at Berenberg, which sees stronger near-term product momentum and cash support for the German automaker than for its peer Mercedes
• PolyPeptide shares jump as much as 11%, the most since Nov. 1, after the stock was initiated with an overweight recommendation at Barclays, which cites “significant value” for the Swiss firm
• Telecom Italia shares rose as much as 3.6% in Milan trading after Bloomberg News reported that the Italian government must return about €1b ($1b) to the phone carrier, according to people familiar
• Pantheon Resources rises as much as 30%, hitting levels not seen since March 2023, after US President Donald Trump signed an executive order to prioritize the development of Alaska’s LNG potential
• Intermediate Capital rises as much as 6.4%, the most in a year, after the private equity firm reported assets under management of $107 billion. Analysts say the update is strong
• DFDS falls as much as 22%, the most since 2001, after the Danish marine logistics group updated its 2025 guidance and withdrew targets for 2026-2027. RBC says the update is a clear negative
• EasyJet shares slide as much as 5.4%, the biggest drop since July. The budget airline’s headline winter loss and unit revenue guidance for the upcoming second quarter are weaker than the market expected
• Schaeffler shares slump as much as 19% to a record low after the German car-parts firm issued its second profit warning for 2024, while Deutsche Bank lowered its rating on the stock to hold
• Barry Callebaut drops as much as 6.3% after the Swiss chocolatier lowered its FY sales volume outlook, flagging the significant acceleration of cocoa bean prices, which analysts noted was “unprecedented”
• Hochschild Mining shares plunge as much as 18%, the most since April 2023. The mining company said the cost of producing gold and silver this year will be higher than previously guided
• Delivery Hero shares extend a decline on Wednesday after its South Korean operations reduced commission fees for restaurants, a sign of further pressure in the food delivery firm’s largest market
• Carrefour shares fall as much as 2.8% as BNP Paribas Exane cuts its recommendation to underperform from neutral as risks are “stacking up”

Asian stocks rose, with technology hardware shares gaining on optimism over President Donald Trump’s push for investment in artificial intelligence, offsetting losses in China. The MSCI Asia Pacific Index rose 0.2% after jumping as much as 0.7%, with Taiwan’s TSMC and Japan’s SoftBank the biggest contributors. Key stock gauges in Japan and Taiwan rose about 1% after Trump announced a joint venture to fund AI infrastructure that involves firms including SoftBank and OpenAI. However, the regional benchmark pared its gain as Chinese equities slumped amid renewed concern over US tariffs. Hong Kong and mainland China led declines after Trump said his threat to impose 10% tariffs on all Chinese imports was still being considered. While that’s lower than the 60% levy he touted during his election campaign, investors are bracing for further volatility as details remain far from clear.

“I think it only gets tougher from here — it’s a reminder that Trump will do something, because the first day might have given some the false impression that he might not,” said Xin-Yao Ng, an investment director at abrdn Plc. “More gradual tariffs might also delay or reduce the force of stimulus that market wants.”

In FX, the Bloomberg Dollar Spot Index falls 0.2% having reversed an earlier gain. The euro is among the better performers, rising 0.3% to a year-to-date high around 1.0450. The yen is the weakest of the G-10’s falling 0.1% against the greenback.

In rates, treasuries inch higher, with US 10-year yields falling 1 bps to 4.57%, up from a session low of 4.55%; Germany’s 10-year also little changed, showing minimal reaction to a flurry of ECB speak out of Davos, including from President Lagarde who said they are not lowering interest rates too slowly. UK’s gilts are slightly cheaper on the day. US treasury auctions this week include $13b 20-year bond reopening and Thursday’s $20b 10-year TIPS new issue; WI 20-year yield at about 4.89% is ~20bp cheaper than last month’s, which tailed by 1.5bp

In commodities, oil prices advance, with WTI climbing 0.5% to $76.20 a barrel. Spot gold rises $17 to around $2,762/oz. Bitcoin falls 2% to around $105,0000.

The US calendar is rather bare, and the only event is the December Leading index at 10am.

Market Snapshot

• S&P 500 futures up 0.5% to 6,112.50
• STOXX Europe 600 up 0.7% to 529.42
• MXAP up 0.3% to 181.79
• MXAPJ little changed at 572.01
• Nikkei up 1.6% to 39,646.25
• Topix up 0.9% to 2,737.19
• Hang Seng Index down 1.6% to 19,778.77
• Shanghai Composite down 0.9% to 3,213.62
• Sensex up 0.7% to 76,406.54
• Australia S&P/ASX 200 up 0.3% to 8,429.79
• Kospi up 1.2% to 2,547.06
• German 10Y yield little changed at 2.50%
• Euro little changed at $1.0430
• Brent Futures up 0.4% to $79.62/bbl
• Gold spot up 0.6% to $2,761.09
• US Dollar Index little changed at 107.97

Top Overnight News

• China could agree to ByteDance selling TikTok as part of a broader deal with the US which would cover issues such as trade, via FT citing sources; talks are at an early stage.
• US President Trump said they are talking about a 10% tariff on China from 1st February for them sending fentanyl to Canada and Mexico, while he added that the European Union treats the US badly and that the EU will be in for tariffs; The Hang Seng fell. BBG
• China has been relieved so far by Trump’s actions and rhetoric on trade.  While Chinese officials were prepared for Trump to deliver as extreme as immediate 60% tariffs on exports, his opening moves have been less severe than feared, rekindling hope in Beijing that negotiations might be possible to avoid a second trade war. FT
• US President Trump is using tariffs threat to push for an early renegotiation of US trade deal with Mexico and Canada, according to WSJ.
• Trump announced an AI project with OpenAI, SoftBank and Oracle to form a JV called Stargate which will invest at least USD 500bln in AI infrastructure in the US and will create 100k jobs. Trump said he is going to help through emergency declarations and will make it possible to get the electricity production needed. Furthermore, Stargate will begin immediately to build infrastructure, while Oracle’s Chairman Ellison said data centres are under construction in Texas with expansion to other locations too and SoftBank CEO Son said they will immediately deploy USD 100bln in AI investment.
• Indian PM Modi is reportedly considering lower tariffs and more imports to counter threats from US President Trump; India could purchase additional whisky, steel and oil from the US: BBG
• The BOJ is on track to raise rates to the highest since 2008 on Friday, according to a survey of economists. Overnight-indexed swaps priced in an over 94% chance of a hike. BBG
• The ECB isn’t lowering rates too slowly and will maintain its measured approach to easing, Christine Lagarde told CNBC. Klaas Knot said investor bets for rate cuts in January and March are reasonable. BBG
• Debt interest costs pushed up UK government borrowing more than predicted last month, putting Chancellor Rachel Reeves on course to overshoot official forecasts. Reeves declined to say whether she wanted to increase her fiscal headroom and said public finances are in order. The government will push ahead with controversial infrastructure projects to spur growth, she said. BBG
• A flood of Canadian oil is heading to the US to beat Trump’s potential tariffs, prompting Enbridge’s largest export pipeline to ration space for each shipper. The influx may help refill inventories in the Midwest, Rystad said. BBG
• Google is backing artificial intelligence developer Anthropic with a further $1 billion, building its stake in one of the most promising rivals to OpenAI. The new funding comes in addition to more than $2 billion that Google has already invested in Anthropic. BBG
• Republican leaders in Congress apparently agree to begin work on a single reconciliation bill, resolving what had been a key source of tension between the House and Senate. The Hill
• President Trump is using the threat of imposing stiff tariffs on goods from Canada and Mexico as soon as next week to pressure the two nations to start renegotiating the US-Mexico-Canada trade agreement (USMCA). WSJ
• Gold advanced to its highest in 11 weeks as investors weigh Trump’s tariff and tax policies. Bullion, up about 3.5% this year, may get a further boost from haven demand amid concerns about immigration policy and fraught foreign relations. BBG

A more detailed look at markets courtesy of Newsquawk

APAC stocks traded mixed as most major indices took impetus from the gains on Wall St after President Trump’s first full day back in office although Chinese markets lagged after Trump suggested 10% tariffs on China for sending fentanyl to Mexico and Canada which ends up in the US. ASX 200 notched mild gains amid strength in tech, industrials and financials but with gains capped by losses in miners. Nikkei 225 outperformed and surged above the 39,000 level with SoftBank among the biggest gainers after President Trump announced an AI project with OpenAI, SoftBank and Oracle to form a JV which will invest at least USD 500bln in AI infrastructure. Hang Seng and Shanghai Comp were pressured after US President Trump warned of 10% tariffs on China from February 1st for sending fentanyl which overshadowed the PBoC’s substantial CNY 1.16tln reverse repo operation.

Top Asian News

• China is to allow foreign financial institutions to offer new types of financial services in some free trade zones, similar to those provided by Chinese financial institutions, according to Reuters. To support cross-border purchases of certain types of financial services at some free trade zones.
• Chow Tai Fook Jewellery (1929 HK) – Q4 retail sales growth -14.2%, Q4 same store sales growth in China -16.1%
• Japanese PM Ishiba to present investment plan to US President Trump at the summit, according to Kyodo.
• China releases plan for promoting the entry of medium and long term funds into the market. To increase the ratio of insurance money in stock market. Guide big state owned insurers to raise a share invest. Expand the scale of swap facilities for securities firms. Promote the use of refinancing tools to support share buybacks and increases in holdings.
• China is to cap pay at central gov’t owned financial firms ay CNY 1mln/year, via Reuters citing sources
• US President Trump said he has met with TikTok owners and he is open to Elon Musk buying TikTok, while he is thinking of telling someone to buy TikTok and give half of it to the US.
• SK Hynix (000660 KS) is scheduled to hold its Q4 conference on Thursday, during which it is expected to remark that operating profit hit a record KRW 8tln peak with AI memory chip s accounting for 42% of sales, via journalist Nystedt.

European bourses (Stoxx 600 +0.7%) began the session on a modestly firmer footing, but sentiment continued to improve as the session progressed – with a more pronounced bid following commentary via ECB’s Lagarde. As it stands, indices generally reside at session highs; the Stoxx 600 hit a fresh record high, currently at 529.60. European sectors hold a strong positive bias, with only a handful of sectors residing in the red. Industrial Goods tops the pile, joined closely by Insurance and Healthcare to form the top 3 performers. Insurance is lifted by Munich Re and Hannover Re, which both received broker upgrades at HSBC. Telecoms is found at the foot of the pile.

Top European News

• ECB’s Lagarde says no immediate US tariffs were her expectation, it is a smart approach, via CNBC; does not mean to say that tariffs won’t happen, will be more selective. Reasonably optimistic about the future. Confident EZ inflation target over course of 2025. There are downside risks to EZ growth in 2025. Not overly concerned about the export of inflation in Europe. Exchange rate will be of interest, and may have consequences. “We will see if early-2025 delivers a reduction in services inflation”. Does not believe the ECB is behind the curve. Gradual moves in rates “come to mind currently”. Attentive to energy, haven’t anticipated a declined in energy prices.
• ECB’s Nagel says confident that EZ inflation will return to the 2% target by mid-year, according to Spiegel.
• ECB’s Escriva says the ECB will not pre-commit to a decision, markets expect a 25bps rate cut – is the most likely scenario. Incoming information points towards converging to the 2% inflation goal. There are downside risks to growth. Unclear whether there will be inflation spillovers from US policy. To retain full optionality is more important than ever.
• ECB’s Stournaras says rates should be lowered at the order of 25bps each time to get close to the 2% target by the end of the year Possible US tariffs would speed up rate cuts in the Eurozone.
• ECB’s Villeroy says it is too early to tell but inflationary effects from the new US administration could be expected. Disinflation in Europe is still on track.There could be a decoupling between ECB and Fed on rates, but it is not an issue. There is a risk that the benefits of disinflation and monetary easing are lost by policy fragmentation and too lax fiscal policy.
• ECB’s Knot says he sees little obstacles to another cut in January, via Bloomberg TV; data is encouraging and confirms they will return to target. New downside risks from trade policies (regarding growth), inflation outlook is not as clear. Comfortable with market expectations for the next two meetings. Meeting-by-meeting approach to policy decisions has worked well.
• UK Chancellor Reeves, when asked about UK bank ring-fencing, says we “always keep an open mind”. says “our public finances are now in order”. Will meet fiscal rules.
• SNB Chair Schlegel says its not discussing a new CHF cap at the moment; cannot exclude negative rates. Does not like negative rates but can use them. Not uncomfortable with inflation currently. Intervention has worked in the past and would be willing to do it again. SNB is prepared to intervene in the FX market if required. Inflation is well inside SNB target range and over SNB forecast cycle. Cannot exclude negative interest rates. Not uncomfortable with inflation at present. Reiterates ready to intervene in FX market as necessary. When questioned on the prospect of the US labelling them as a currency manipulator again, says this is not something that would influence their intervention decisions.
• EU Defence Commissioner Kubilius says they need to spend more, better and European in defence

FX

• DXY is lower in the wake of yesterday’s heavy selling pressure which was triggered by relief over a lack of tariff actions by Trump on day one of his Presidency. That being said, overnight, Trump has threatened both the EU and China with tariffs and is reportedly pushing for an early renegotiation of the US trade deal with Mexico and Canada. DXY sits towards the bottom end of yesterday’s 107.92-108.79 band.
• EUR is marginally firmer vs. the USD after a particularly strong showing at the start of the week on account of Trump refraining from any explicit tariff actions on day one of his Presidency. Trump remarked overnight that the “European Union treats us badly and the EU will be in for tariffs”. In an interview at Davos, ECB President Lagarde appeared to downplay concerns surrounding tariffs. EUR/USD has just broken above the top end of yesterday’s 1.0341-1.0435 range.
• JPY is softer vs. the USD despite some fleeting support after reports that Japanese PM Ishiba is to present an investment plan to US President Trump at the summit, according to Kyodo. USD/JPY currently sits within yesterday’s 154.76-156.23 range.
• GBP a touch softer vs. the USD and EUR in the wake of higher-than-expected December borrowing data alongside an upward revision to the prior presents another headwind for the Chancellor and her fiscal space. Cable comfortably on a 1.23 handle and in close proximity to yesterday’s best at 1.2359 (as context, the low from yesterday sits at 1.2228).
• Mildly diverging fortunes for the antipodeans. NZD/USD has had to digest CPI metrics with the headline Y/Y printing at 2.2% vs. Exp. 2.1%. However, ING notes that the closely monitored non-tradable index slowed slightly faster than expected from 4.9% to 4.5%; lowest level since Q4 2021. ING suggests this paves the way for a 50bps RBNZ cut next month (priced at 65%).

Fixed Income

• USTs are awaiting fresh tariff updates from US President Trump. Overnight, Trump spoke about potential measures on China and the EU. As it stands these remain hypothetical with the President yet to initiate measures though the February 1st date he continues to reference is moving ever closer. USTs are firmer by a handful of ticks and have been moving directionally with EGBs (see Bunds) in the European morning. Holding at the upper-end of 108-19 to 108-28 bounds, with yields lower across the curve which itself is flattening very modestly.
• Bunds saw some modest pressure early doors on the UK PSNB data (see below), thereafter the main move of the morning came via ECB’s Lagarde at Davos. An interview from which the main takeaway was Lagarde seemingly not being too concerned about US tariffs at this point in time, a reading-between-the-lines assessment which drove EGB upside. As a reminder, Trump overnight said “…the EU will be in for tariffs.”. Specifically, Bunds were driven to a 132.22 peak as Lagarde spoke, posting upside of 28 ticks on the session at the time and setting a new WTD high, resistance now not seen until 132.57 from earlier in the month.
• Gilts began the session on the back foot, gapping lower by 11 ticks after a much larger than expected December PSNB figure and an upward revision to the prior. Metrics which further illustrate the challenges the Chancellor is facing on the UK’s public finances. For reference, in an interview this morning Reeves stuck to her usual lines on the subject.
• Books for the Spanish 10yr syndication in excess of EUR 150bln.
• Germany sells EUR 1.129bln vs exp. EUR 1.5bln 2.60% 2041 and EUR 0.392bln vs exp. EUR 0.5bln 2.50% 2044 Bund Auctions

Commodities

• Slight upward bias across the crude complex as the dollar pulls back from overnight highs and sentiment across Europe is now firmer. That being said, upside is capped by tariff threats from US President Trump who flagged a 10% levy on China in retaliation to fentanyl flows from the country, whilst noting Europe could be hit by tariffs too. Brent Mar resides in a USD 78.81-79.70/bbl parameter.
• Precious metals are firmer across the board the back of the softer dollar, with the schedule today relatively light aside from equity earnings. Spot gold extends on gains to trade in a USD 2,741.96-2,762.41/oz range.
• Base metals are mixed despite the softer dollar and constructive risk mood, but likely amid China’s underperformance amid the US tariffs threats, whereby US President Trump said they are talking about a 10% tariff on China for sending fentanyl. Copper futures mildly pulled back after the prior day’s intraday rebound with prices not helped by the underperformance in China. 3M LME copper resides in a narrow USD 9,206.50-9,279.50/t range.
• Accident reported at 18k/T of oil reservoirs located in Ray City, Iran, according to Tasnim. [NOTE: subsequent reports indicated the fire is at a LNG site rather than an oil site]
• Citi Brent outlook revisions (USD): Q1-2025 75/bbl; Q2-2025 68/bbl; Q3-2205 63/bbl; Q4-2025 60/bbl. 2025 average of 67/bbl. WTI: 2025 view revised up to 63/bbl.
• Indonesia’s Energy Minister says price cap of USD 6/MMBTU may be raised due to global gas prices

Geopolitics: Middle East

• Lebanese media report an Israeli drone attack in the Hasbaya area in southern Lebanon, north of Mount Hermon, via Kan 11’s Kais.
• “Israel is trying to extend the 60-day deadline for the withdrawal of forces from Lebanon by three days”, according to Lebanese press cited by Israeli journalist Kai.

Geopolitics: Ukraine

• Russian Deputy Foreign Minister Ryabkov says as of today, there is a “small window of opportunity” for agreements with new US administration, via Interfax.
• US President Trump said if Russian President Putin does not come to the table on Ukraine, it is likely that he would put sanctions on Russia, while he added that they are looking at the issue of sending weapons to Ukraine, as well as noted the European Union should be paying more on Ukraine and should equalise spending on Ukraine. Furthermore, Trump said he is looking to speak with Russian President Putin soon and told Chinese President Xi to help settle the Ukraine issue.
• US Secretary of State Rubio and Japanese Foreign Minister Iwata discussed concerns over North Korea’s political and security alignment with Russia and China’s support for Russia’s defence industrial base.

Geopolitics: Other

• Australia, India, Japan and the US said they reaffirmed a shared commitment to a free and open Indo-Pacific after the first Quad ministerial meeting of the new Trump presidency. Furthermore, the Quad countries strongly oppose any unilateral actions that seek to change the status quo by force or coercion, while they will meet on a regular basis in the coming months to prepare for the next leaders’ summit hosted by India.

US Event Calendar

• 07:00: Jan. MBA Mortgage Applications, prior 33.3%
• 10:00: Dec. Leading Index, est. -0.1%, prior 0.3%

DB’s Jim Reid concludes the overnight wrap

The planets were aligned last night both in stargazing terms and in financial markets. For those without clouds you could have seen Venus, Mars, Jupiter, Saturn, Uranus and Neptune in the sky together in a rare event. However, an even rarer event will take place on February 28th when Mercury joins in the fun and all other seven planets will be visible. Don’t blink and miss it as you’ll have to wait until 2492 for the next occurrence. So, if markets can’t go up on February 28th when all the planets are aligned, we could be in trouble.

Six being aligned was enough for a strong performance over the last 24 hours, especially in the US, with investors reassured by the lack of day 1 tariffs from the new administration. Clearly there’s a lot of nervousness about what might still be ahead, but for markets, the decision added to the sense that tariffs still might be a leverage play where the worst outcomes don’t materialise, and it also meant some near-term inflation risk was taken off the table. Whether that optimism materialises is another matter, but in the meantime, it helped the S&P 500 (+0.88%) to close above the 6,000 mark for the first time this year, while the 10yr Treasury yield (-5.1bps) came down to 4.58%.

But even though US assets did fairly well, there was some negative reaction for the targets of Trump’s tariff threats. For instance, with Trump re-floating the idea of 25% tariffs on Canada and Mexico as soon as February 1, it meant the Mexican Peso weakened by -0.60%, although the Canadian dollar was little changed (-0.09%) by the close after trading around -1% lower early in yesterday’s session. We also got some fresh signs of how others might retaliate as well, with Canadian PM Trudeau saying that “I support the principle of dollar-for-dollar matching tariffs.” The extent of any retaliation could be a big curveball factor over the next couple of years, as so far the focus has mostly been on how the US will adjust tariffs, rather than what happens in response.

Tariffs have again grabbed the headlines overnight as Trump commented in the evening that his threat of a new 10% tariff on China was still on the table “based on the fact that they’re sending fentanyl to Mexico and Canada” and that this could also come into effect as soon as February 1. So Trump’s comments leave plenty of near-term uncertainty even though the trade investigations from his day 1 executive orders will take some time to play out. Against that background, Chinese equities are losing ground with the Hang Seng (-1.73%) trading sharply lower while the CSI (-1.26%) is breaking a four-day winning streak with the Shanghai Composite (-1.12%) also underperforming. The Chinese yuan (-0.23%) is also weakening after three consecutive sessions of gains, trading at 7.28 versus the dollar.

Whilst there’s definitely a fair amount of volatility in markets at the moment, that backdrop failed to stop a fresh advance for US equities yesterday, with the S&P 500 (+0.88%) up to a fresh YTD high as it reopened after the public holiday. Small-caps put in a very strong performance, with both the Russell 2000 (+1.85%) and the equal-weighted S&P 500 (+1.17%) posting a 6th consecutive advance. For all you stats collectors the S&P 500 saw more than 68% of its constituents climb for the sixth consecutive day (82.5% yesterday), an outright record since data begins in 1928. So maybe that’s the impact of the planetary alignment.

The Magnificent 7 saw a smaller gain (+0.30%), primarily due to a large decline from Apple (-3.19%). That saw Apple again overtaken as the world’s most valuable company by Nvidia (+2.27%). The chip giant gained amid a strong day for AI-related stocks that came in anticipation of a new AI investment announcements from Trump. Confirmed after the US close, this saw SoftBank, OpenAI and Oracle form a $100bn joint venture to fund AI infrastructure. SoftBank Group shares are up +10.73% in Tokyo this morning following the news. In other company news, Netflix shares spiked by over +14% in after-hours trading last night after reporting its strongest ever quarterly subscriber gain. It had advanced by +1.35% in yesterday’s session. This is helping the S&P 500 and NASDAQ 100 futures trade +0.31% and +0.72% higher respectively this morning in Asia.

Treasuries also put in a robust performance yesterday, with investors becoming more relaxed about inflationary pressures following the tariff news. That got further support by the decline in oil prices, with WTI down -2.56% yesterday to $75.89/bbl, down from a recent peak above $80/bbl last week. So that helped inflation swaps to come down, with the 2yr swap falling -5.7bps on the day to 2.65%. And in turn, Treasury yields declined across the curve, with the 2yr yield (-1.0bps) down to 4.27%, whilst the 10yr yield (-5.1bps) fell to 4.58% where it’s broadly stayed in the Asia session.

Over in Europe, it was a much less eventful day, but the general direction of travel was much the same, with bonds and equities moving higher across the continent. That included a 5th consecutive advance for the STOXX 600 (+0.40%), which moved up to a 3-month high, whilst the DAX (+0.25%) hit another all-time high. And in FX, the euro (+0.35%) closed above 1.04 against the dollar for the first time this year. Nevertheless, there was some weakness among the trade-sensitive sectors in light of Trump’s tariff threats on Canada and Mexico, with the STOXX 600 automobiles and parts index down -0.71%. Moreover, automakers led the declines in the DAX, with BMW (-1.79%) as the worst performer in the index yesterday reversing much of Monday’s gains. In case Europe felt lower down the tariff pecking order in Trump’s trade crusade last night he said “We have a $350 billion deficit with the European Union. They treat us very very badly, so they’re going to be in for tariffs.” This leaves the direction of travel quite clear for the continent.

For sovereign bonds, there was also a strong performance, with yields on 10yr bunds (-1.7bps), OATs (-2.8bps) and BTPs (-2.9bps) all moving lower. The biggest outperformance actually came from UK gilts however, where the 10yr yield was down -6.9bps following the latest labour market data. It showed that the number of payrolled employees was down by -47k in December (vs. -8k expected), and the unemployment rate in the three months to November also ticked up a tenth to 4.4%. So that helped to cement the idea that the Bank of England are on course to cut rates at their next meeting in early February, with overnight index swaps dialling up the likelihood to 93% by the close.

In the meantime, yesterday brought yet another report that the Bank of Japan are moving closer to a rate hike at Friday’s meeting, with the latest coming from Kyodo. Both market pricing and the consensus of economists now expect a 25bp hike at this meeting, so we’re now at the point where the bigger market reaction would likely come if one didn’t happen.
For today the Nikkei (+1.43%) is actually outperforming even with the hike this week being increasingly likely with Trump’s AI investment plan supporting the likes of SoftBank which is currently up over 10%.

Looking at yesterday’s other data, Canada’s CPI surprised slightly on the downside at +1.8% in December (vs. +1.9% expected). In turn, that added to expectations that the Bank of Canada would deliver another cut at their meeting next week, with a cut priced as an 85% probability at the close even if it has slightly dropped to 81% this morning. Separately, the German ZEW survey’s expectations component was weaker than expected in January, coming in at just 10.3 (vs. 15.1 expected). However, the current assessment reading did pick up from its post-Covid low in the previous month, rising to -90.4 (vs. -93.1 expected).

To the day ahead now, and data releases include the UK public finances for December, along with the Conference Board’s leading index for the US in December. Otherwise, central bank speakers include ECB President Lagarde, along with the ECB’s Villeroy, Knot and Nagel.