Going all the back to November 7, when Japanese Prime Minister Sanae Takaichi first provoked outrage in China by suggesting that Japanese Defense Forces could militarily defend Taiwan in the event of a Chinese invasion, there’s been a steady spiraling in relations between Tokyo and Beijing. First, China’s punitive measures took place merely on the tourism, culture, and diplomatic fronts – also with some limited economic measures such as halting its exports of seafood from Japan. 

New action was also unveiled at not more than a weekly pace, or even monthly – but now after it’s been several months with no retraction and formal apology by Takaichi (demanded by Beijing), the screws are tightening on a daily basis. After this week barring Japan from dual use items (anything with military-civilian application), China has begun depriving Japan of rare earth minerals and rare earth magnets – which could have immediate impact on Japanese companies involved in components for global chip makers, and also hitting the defense and auto sectors. It will be felt by Japanese companies involved in advanced electronics, aviation components, drones and nuclear-related tech.

This sends a resoundingly clear signal to the US as well, after Beijing already moved to cut off rare-earth exports to American companies last year – and Trump blinked first by backing off his trade war with China, and now Beijing is ready and willing to apply the same leverage to close US regional ally Japan.

Referencing Tuesday’s move to ban exports to Japan of dual-use goods, The Wall Street Journal is confirming Thursday:

Then, in the days since, China began restricting exports to Japanese companies of scarce and expensive “heavy” rare earths, as well as the powerful magnets containing them, according to two exporters in China.

Another person familiar with Chinese government decisions said the review of applications for export licenses to Japan has been halted. The licensing restrictions extend across Japanese industry, the people said, and don’t only target Japanese defense companies. 

Japan is the world’s second-largest producer of rare-earth magnets after China, but is hugely dependent on Chinese raw materials for their manufacture. According to 2024 data, Japan relied on China for 63% of its rare earth imports.

For well over a decade Japan has struggled reduce its dependence on China, following significant supply disruptions related to clashing with China over contested islands – maritime and fishing disputes which are still ongoing. While at the time Beijing denied it was singling out Japan, this latest spiral in ties and punitive measures have been made much clearer. Beijing is now overt about these muscular trade measures as being due to Takaichi’s “erroneous” comments which constitutes a “crude interference in China’s internal affairs”.

What’s bad for Tokyo has been perhaps an immediate or short-term benefit for American companies, ironically enough, as WSJ observes:

Since then, some American companies say they have had an easier time getting licenses. Rare-earth magnet exports to Japan had also returned to normal levels even before the October deal between the U.S. and China, according to Chinese trade data.

If maintained, Chinese restrictions on rare earths could cause the equivalent of about $17 billion in economic losses over the course of the year, according to Nomura Research Institute.

The publication further cites rare-earths analyst David S. Abraham, who described that industrial disruptions in Japan would be felt across global supply chains. “That will filter down,” he assured.

China has announced new export restrictions targeting Japan—
including a ban on rare earth exports.

In response, Minister Onoda stated:

“We are developing rare-earth technologies,
magnets that do not rely on rare earths,
and heat-resistant superalloys that use fewer rare… pic.twitter.com/jUXp2xg6Jy

— Rutaso.Japan🇯🇵🐶 (@rutasosabu) January 7, 2026

Masaaki Kanai, secretary general of the Japanese Foreign Ministry’s Asian and Oceanian Affairs Bureau, has “strongly protested and demanded the withdrawal of these measures.” And Japan’s Chief Cabinet Secretary Minoru Kihara said, “A measure such as this, targeting only our country, differs significantly from international practice, is absolutely unacceptable and deeply regrettable” – among other condemnations out of Tokyo.

Authored by Michael Lebowitz via RealInvestmentAdevice.com,

It’s that time of year when every Wall Street analyst posts their forecast for where the S&P 500 will close at the end of 2026. This year, as in every other, Wall Street expects the S&P 500 to post positive returns. As shown below, Bank of America is the most cautious, with a 3% gain, while Deutsche Bank and Capital Economics are the most bullish. On average, the analysts shown below forecast a 10.5% return in 2026, below last year’s 16% but slightly above the longer-term average.

Like Wall Street, we could spitball a 2026 price forecast for the S&P 500, but why? It’s a fruitless endeavor. No one has enough insight into the countless events that will unfold in 2026 and their potential economic, fiscal, and monetary consequences to make a meaningful forecast. Furthermore, even if we had a crystal ball that predicted how the year’s events would unfold, gauging their impact on investor sentiment and, ultimately, on markets would be nearly impossible. 

Instead of offering a forecast for 2026, let us consider the potential events and factors that could influence investor sentiment and move markets this year. Inevitably, no matter how many events we and others are considering today, there will be market-moving ones that are not on anyone’s radar currently.

Perspective Matters

Before we focus on potential events in 2026, let’s review historical returns since 1970 to gain perspective.

The graph below shows annual returns (gold diamonds) and the range between the minimum and maximum returns for each respective year. The average annual return since 1970 has been 9.43%, with an average yearly drawdown of 11.12%. Moreover, the average annual maximum gain was 16.35%, approximately 7% higher than the average closing price. Thus, the market, on average, closes at the 65th percentile of its range.

The second graph below is courtesy of one of our clients. His graph helps us assess whether we can expect a fourth consecutive year of positive returns. As shown, eight straight years is the record, with two four- and five-year winning streaks.

The odds are stacked against positive. Since 1928, there have only been five times that a four-year gains streak occurred.

Beware Of Valuations

Valuations are stretched! The first graphic below, courtesy of Goldman Sachs, shows that 12-month forward P/E ratios are significantly elevated globally. The second from Crestmont indicates that the average of four widely used valuation techniques is at a record high.

Current valuations should serve as a constant reminder throughout 2026 to avoid complacency. While caution may be rewarded this year, we must also bear in mind that valuations make poor short-term timing tools.

The first graph below shows the extent to which the CAPE10 valuation at 39 is stretched. Based on historical correlations between valuations and returns, we should expect negative real returns over the next 10 years. However, the second graph indicates that returns of +/- 25% are possible in 2026.

2026 may be the year that valuations normalize, thus resulting in a down year. Even if that is the case, we must recognize that market valuations and those of individual stocks and sectors can differ significantly.  Some sectors are less expensive than others and may perform better in a down market. For example, the graph below, courtesy of Dimensional, shows that large-cap price-to-book ratios are at record highs, whereas those for small-cap value companies are at the midpoint of their range over the last 25 years.

Might 2026 be the year where value comes back into vogue, or will valuations, especially for the largest of stocks, get even more extreme?

QE And Liquidity

Last December, the Fed reintroduced QE under the guise of Reserve Management Purchases (RMP). The action is intended to supply the market with liquidity. Per the Fed’s Statement Regarding RMP:

The Desk plans to release the first schedule on December 11, 2025, with a total amount of RMPs of approximately $40 billion in Treasury bills; purchases will start on December 12, 2025. The Desk anticipates that the pace of RMPs will remain elevated for a few months to offset expected large increases in non-reserve liabilities in April. After that, the pace of total purchases will likely be significantly reduced in line with expected seasonal patterns in Federal Reserve liabilities.

Simply put, liquidity in the banking system was becoming scarce as reserves declined. To avoid worsening liquidity conditions, the Federal Reserve is injecting reserves into the banking system.

The question for investors is whether the $40 billion in monthly reserves, intended to last “a few months,” is sufficient to offset the expected decline in liquidity over that period.

If it’s not, then the markets may come under pressure as liquidity wanes.  

Conversely, if you think the Federal Reserve’s actions will boost reserves meaningfully, our article “QE Is Back” may offer a practical trading blueprint for the first few months of 2026. The article identifies which stock market indexes, sectors, and factors are strongly correlated with bank reserves. The table below, from the article, indicates that transportation, materials, consumer-discretionary, financial, and technology stocks could benefit most from a reserve increase. Conversely, the utilities, energy, and staple sectors offer little correlation.

Will QE once again prove to be a driving force for the stock market?

Powell Exits

Jerome Powell’s term as Fed Chair ends in May 2026, and Trump’s appointment of a new Chair is being closely watched. The new Chair’s stance on the trade-offs between inflation and labor-market weakness could significantly alter investor sentiment.

The two front-runners for Powell’s chair are Kevin Warsh and Kevin Hassett. We compared the two potential nominees in our Daily Commentary on December 17th–

Warsh is viewed as more hawkish than Hassett. He has frequently mentioned the inflation risk associated with dovish monetary policy. Moreover, as we noted above, he has expressed skepticism about aggressive QE. Conversely, Hassett, viewed as dovish, actively advocates deeper rate cuts to stimulate growth.

Kevin Warsh adheres to a Milton Friedman-style logic: inflation is a function of excessive money-supply growth. Based on recent speeches, Hassett is focused on growth-oriented easing and is not overly concerned with inflation.

Hassett likely appeals more to President Trump because of his dovish views. However, Kevin Warsh lends greater credibility to the Federal Reserve’s promise to reduce inflation. Additionally, Warsh is more likely to improve sentiment in the bond market, thereby lowering long-term yields.

Initially, the bond market is likely to be more affected than the stock market by President Trump’s decision regarding the next Federal Reserve chair. However, said changes in interest rates could readily impact the stock market.

To assess potential market reaction, we should monitor changes in inflation expectations. As noted below, 1-year inflation expectations are falling rapidly, despite the more dovish Kevin Hassett expected to replace Powell. Thus, at the moment, the market is not expressing concerns about a dovish Fed Chair.

Will it be the dovish Kevin Hassett or the hawkish Kevin Warsh running the Federal Reserve in 2026?

Midterm Elections and Fiscal Policy

The November midterm elections will determine the balance of power in the U.S. Congress. As shown below, the Polymarket betting site assigns a 79% probability to the Democrats taking control of the House and a 66% chance that the Republicans will maintain Senate leadership.

If one or both houses of Congress change hands, the administration will find it much more challenging to pursue its domestic and foreign policy objectives. From a market perspective, this may limit the President’s ability to manage fiscal spending and further change the tax code. Accordingly, changes in Congressional power and budgetary implications could significantly affect growth and inflation, as well as individual stocks and sectors.

As the year progresses, investors will likely pay closer attention to the betting markets and traditional polls for insight into the midterm elections.

While investors wait for the elections, it is worth noting that Americans will get a “gigantic” tax refund next year. The tax provisions in the Big Beautiful Bill should, in practice, result in larger-than-normal refunds this year. Per Treasury Secretary Scott Bessent via FoxBusiness:

I can see that we’re gonna have a gigantic refund year in the first quarter because working Americans did not change their withholdings,” Bessent told the “All-In Podcast” hosts. “I think households could see, depending on the number of workers, $1,000- $2,000 refunds.”

The AI Infrastructure Boom and Productivity Gains

The massive capital expenditure (CapEx) cycle for AI infrastructure, including data centers, the power grid, and supercomputing, is expected to continue into 2026 and beyond. As we saw in 2025, the spending will boost GDP growth and profits for many companies involved. However, toward the end of 2025, investors began to question whether some companies were spending and borrowing more than they would ever recoup.

We pose a few questions to help you consider what 2026 may bring.

• Will the AI-led bull market continue to charge ahead like last year on the belief and hope that massive CapEx spending will translate into enormous profits?

• Will the rapidly growing debt requirements needed to fund CapEx be a drag on the market?

• Given that technological change is occurring rapidly, might there be a new development to shake up the AI industry? Think about Deep Seek roiling the market last January.

• Might investors start to question whether the productivity benefits of AI are worth the cost?

• Is AI in a bubble like the dotcom bubble? If so, will 2026 be the year it surges, as in 1999, or the year it peaks, as in 2000?  

Tariffs and Trade

The Supreme Court has heard oral arguments in the tariff legality case and will announce its findings on January 9, 2026. According to Polymarket, the odds of a favorable ruling for Donald Trump are low at 29%.

If the Supreme Court strikes down the tariffs, the economic impact could be substantial. To begin with, the prices of some goods that are no longer subject to tariffs may fall, and trade flows will adjust accordingly.

However, it’s not wise to go down that road too far. The President reportedly has a Plan B ready. Tariffs or some other similar measure will most certainly be implemented if the Supreme Court rules against tariffs. But these measures may also be subject to judicial review. 

Whatever the final trade policy is, there will be supply chain realignments that could significantly affect import costs, profit margins, and global trade patterns.

The question is not the Supreme Court ruling itself, but the mechanism the administration will ultimately use to implement tariffs, taxes, or trade restrictions. Moreover, we should consider how investors will handle a period of uncertainty.

Miscellaneous

Geopolitical Hotspots: Ongoing conflicts and tensions in Ukraine, Venezuela, and the Middle East, along with increased provocations between the US, China, Iran, and Russia, pose persistent headline risks. Many of these tensions can cause sudden changes in energy prices and economic activity, and disrupt supply chains and consumer sentiment.

Debt Levels and Sovereign Risk: 2025 began with higher bond yields, driven by the “bond vigilantes” and their grave concerns about the U.S. fiscal situation.  With the U.S. government continuing to run massive fiscal deficits, the ability to finance these debts and manage interest costs will remain a concern. Renewed signs of bond market stress or investor concerns about a government’s ability to meet its debt obligations could trigger significant volatility, particularly in the U.S. Treasury market. Such volatility would quickly filter through to the stock markets. Will the bond vigilantes regain their voice?

Bear in mind, there is a risk of another government shutdown by the end of the month.

Monetary Policy: The ECB is considering raising interest rates. Might we find that the Fed reaches a similar conclusion later in 2026? Or might rates and inflation be heading much lower? As shown below, the Fed Funds futures market forecasts only one rate cut in 2026. The Fed has enough trouble predicting the next three to six months; what makes anyone think Wall Street is any better?

Yen Carry Trade: A depreciating yen strengthens the carry trade, supporting many US financial assets. At the same time, a depreciating yen heightens affordability issues and the popularity of its political leaders. This is primarily because Japan is heavily dependent on imports of energy and raw materials, whose prices rise when the yen depreciates.

Given domestic economic and political pressures, along with US persuasion, we expect the Japanese government to take steps to strengthen the yen. If any upward adjustment is done gradually, the impact on financial markets should be minimal. However, if it occurs suddenly, such as in August 2024, financial market volatility could spike.

Summary

There are 14 questions in this article, and we could easily have doubled or tripled that number. There are far more questions than answers about what the new year may hold. More importantly, there will be additional events that are not known today.  

Thus, instead of forecasting where the S&P will close in 2026 with zero confidence, we would rather take the market and news as they come. We suspect that QE will provide initial support to the market through the winter. Valuations should keep us on guard throughout the year. Many of the other items we discuss pose a constant risk and or the potential for better returns throughout the year.

As you consider your forecast for 2026, we leave you with a thought to ponder from Arthur Zeikel:

Most investors tend to cling to the course to which they are currently committed, especially at turning points.

Another foreign leader and strident Trump critic has had a rapid about-face after coming under ‘threat’. And this in turn has caused President Trump to cool his own condemnations and rhetoric. Colombia’s president Gustavo Petro has long been among the fiercest opponents of the US President’s Venezuela policy, and especially his weekend military action which ousted Nicolás Maduro. They’ve frequently clashed over several months of the American military build-up in the southern Caribbean, with Petro being the butt plenty of colorful Truth Social posts by Trump, including labeling Petro “sick”.

Suddenly the Colombian leader has made nice after Trump went so far as to hint that his country could be among those facing potential anti-narco trafficking military action, with the NY Times now reporting, “The two leaders spoke for about an hour late Wednesday afternoon in a call facilitated by the US Embassy in Colombia, according to the Colombian presidency.” It noted that “A US official also said the call lasted about an hour, which is unusually long for a call between Mr. Trump and another leader.” The Colombian side had a similarly positive assessment, with the Foreign Ministry calling it a “good meeting”.

And it hasn’t taken long, following Trump saying he appreciates Petro’s “call and tone” – for him to even get a White House invite. Trump said Petro had “called to explain the situation of drugs and other disagreements that we have had.”

Now a future meeting to further advance relations and cooperation is being arranged by Secretary of State Marco Rubio and Colombia’s foreign minister, Trump confirmed, which he said he is looking forward to. “I appreciated his call and tone, and look forward to meeting him in the near future,” Trump said in a fresh Truth Social post. The meeting will take place at the White House.

A mere days ago Trump had denounced Petro as heading up a “very sick” cartel infested country which he accused of “making cocaine and selling it to the United States” – and then this not very veiled threat and warning: “He’s not going to be doing it very long, let me tell you.” Trump even ominously responded to a reporter’s question about potential military intervention in Colombia with, “Sounds good to me.” He earlier said Petro must “watch his ass”.

Petro himself is a former member of a guerrilla group and Colombia’s first leftist leader in decades but he has sworn to “never to touch a weapon again” – but “for the homeland I would take up arms that I don’t want.”

Quick change of heart…

El Presidente de Columbia, Gustavo Petro, had a change of heart?! https://t.co/kOKbeALmkZ

— Pat Gray Unleashed (@PatUnleashed) January 7, 2026

Now, Petro is pledging cooperation and blaming the cartels for causing the severely strained relations between Bogota and Washington. Singing a different tune amid the ratcheting Trump pressure he had said as follows:

“I talked about two things: Venezuela and the issue of drug trafficking,” he told the crowd in downtown Bogotá, where demonstrators had just minutes earlier chanted slogans against the United States at Petro’s behest. Petro explained to the audience that Colombian politicians allegedly linked to narco-trafficking misled the U.S. president about Petro’s record to turn Trump against him.

“Those (people) are responsible for this crisis — let’s call it diplomatic for now, verbal for now — that has erupted between the U.S. and Colombia,” he added. 

Trump had earlier this week issued veiled warnings of muscular action against Cuba and Mexico as well, with Mexico likely being the next to try and mend ties with this unpredictable White House.

Top on our market radar this morning: a Bloomberg News report says China is preparing to approve limited imports of Nvidia’s H200 AI chips as soon as this quarter, restoring partial access to a massive market after years of restrictions.

If Bloomberg’s report proves accurate, you can imagine how Jensen Huang is feeling right now.

Sources told the outlet that H200 approval would be limited to select commercial uses. The chip, which is used to train large AI models, would remain barred from the military, sensitive government agencies, critical infrastructure, and state-owned enterprises, with some limited exceptions.

For context, the H200 is an older-generation Hopper chip that the Trump administration has permitted for export to China, unlike the newer Blackwell or future Rubin processors, which remain restricted on national security grounds.

Last week, Reuters reported that major Chinese tech firms, including Alibaba Group and ByteDance, have signaled interest in the H200 as they race to compete with Western tech companies.

Reuters added that Nvidia plans to deliver roughly 5,000 to 10,000 chip modules, equivalent to about 40,000 to 80,000 H200 AI chips, to China in the coming months.

Beijing’s move to reopen the Chinese market to limited H200 access would still represent a major win for Nvidia. Huang has recently estimated that China’s AI chip market could reach $50 billion within just a few years.

Bloomberg also cited comments from Nvidia executives at the Consumer Electronics Show earlier this week:

Nvidia executives said there is strong demand from Chinese customers for the H200, but noted that the company has not spoken directly with Beijing about approval and does not know when China may greenlight the sale. They added that license applications have been submitted to Washington and that final approval details from the US government are being finalized.

Related:

• Nvidia Prepares to Ship H200 AI Chips to China by Mid-February

• ByteDance Plans $14 Billion Nvidia H200 AI Chip Buying Spree as Computing Demand Soars

In New York, Nvidia shares in premarket trading are marginally higher on the news. 

European and US defense stocks rose early Thursday after President Trump pushed for a 50% increase in defense spending by 2027.

“After long and difficult negotiations with Senators, Congressmen, Secretaries, and other political representatives, I have determined that, for the good of our country, especially in these very troubled and dangerous times, our military budget for the year 2027 should not be $1 trillion, but rather $1.5 trillion,” Trump wrote on Truth Social late Wednesday.

Trump demanded a $500 billion increase in annual defense spending by 2027.

A Goldman Sachs basket of European defense stocks jumped as much as 3.8% and is up 18% year to date.

“Italy’s Leonardo tops the Stoxx Europe 600, up 4.2%, followed by Germany’s Rheinmetall. The UK’s BAE Systems was up about 6%, with Chemring 2.6% higher. About 35% of BAE’s sales are to the US Department of Defense, and around 20% of Leonardo’s are as well,” UBS analyst Tricia Wright said.

In the US, Northrop Grumman rose more than 8.5%, Lockheed Martin gained about 8%, and L3Harris Technologies climbed roughly 8%.

Goldman Sachs basket of US defense stocks… 

Wright noted, “The share price gains come amid broader concerns about security stability, as the US discusses aims to acquire Greenland, potentially including the use of the military.”

Comments from Bloomberg Intelligence: 

• Additional spending will likely be focused on shipbuilding, long-range strike capabilities and the Golden Dome missile- defense project, analysts Will Lee and George Ferguson write

• “This likely offsets pressure from Trump’s earlier message rebuking defense companies for prioritizing shareholder returns amid delays delivering military equipment to the Pentagon and in maintaining it”

Separately, Trump signed an executive order directing major defense companies to halt stock buybacks and dividends until they significantly increase investment in production capacity, infrastructure, and weapons development. The order also seeks to cap CEO pay at $5 million annually until new factories are built.

“A limit on capital return is an incremental negative, but the size is manageable,” Morgan Stanley analyst Kristine Liwag told clients, in response to the EO. She said that if dividends and buybacks were limited, this could free up billions of dollars in capital to be deployed to investments such as capacity increases or M&A.

JPMorgan analyst Seth Seifman noted, “We wouldn’t be surprised to see some upward pressure on capex estimates and perhaps some near-term limitations on share repo expectations when contractors offer their 2026 guidance shortly.” 

The “potential budget increase would support sustained growth, taking some sting out of the EO,” Seifman said, adding, “Smaller and midcap US defense tech stocks in our group (such as KTOS) tend not to return cash and so the executive order is less of a focus for them. They are already expected to grow quickly, but to the extent the administration can deliver some incremental defense budget, even if it is well below $500b, we assume that would be helpful for the stocks.” 

Jefferies analyst Sheila Kahyaoglu wasn’t thrilled about this new development, telling clients that Trump’s comments about buybacks, dividends and compensation seem “again to be an overreach.” 

“The industry has been clear that it is ready to invest on clearer demand signals along with procurement reform offering a clear avenue to accelerating development and production ramps,” Kahyaoglu said. 

Now we have some sort of an idea of how much control of the Western Hemisphere – or what some call the Donroe Doctrine – will cost. 

Following a decline in job cuts in December (according to Challenger Grey)…

…the number of people applying for jobless benefits for the first time ticked up very modestly from a lower revised number… but remains at very muted levels…

Source: Bloomberg

New York saw the largest jump in claims while New Jersey saw the largest decline…

Continuing jobless claims continued to rebound from the Thanksgiving/Shutdown decline, crossing back above the 1.9 million Maginot Line…

Source: Bloomberg

Nothing here to shift The Fed one way or the other…

US futures are lower as New Year optimism gives way to jitters about the economy and geopolitics with attention turning to tomorrow’s NFP report. Traders are also trying to make sense of Trump’s latest edicts on defense and corporate landlords, with a vortex of headlines making things feel more unpredictable than usual. As of 8:00am ET, S&P 500 futures drop 0.2% with Nasdaq 100 contracts -0.3% with tech names leading declines amid profit-taking on artificial-intelligence trade but off the day’s lows after a report that China is to approve some Nvidia H200 purchases as soon as this quarter. In premarket trading, Mag7 names mixed but net higher as Semis are weaker. Defense stocks are up after Trump demanded a $500 billion boost to annual defense spending. That followed an edict that major defense contractors that work with the government must end stock buybacks and dividends until they invest more in factories and research. Corporate landlords are also in the spotlight after Trump pledged on Wednesday to stop institutional investors buying more homes, with Blackstone closing 5.6% lower. Energy, Industrials, and Staples the leading sectors as the yield curve twists steeper and the USD has a slight bid. Key overnight headlines were that China is looking for new oil sources, and China will approve some NVDA H200 chips.  In commodities, crude is higher while Ags and Precious Metals are sold. Silver investors brace for an annual rebalancing of commodity indexes that could see futures contracts worth billions of dollars sold in the next few days. Today’s macro data focus is on jobless claims and the Challenger Job Cuts report, the latter showing a decline in job cuts as December hiring picks up. US economic calendar includes 3Q preliminary nonfarm productivity, weekly jobless claims and October trade balance (8:30am), wholesale inventories (10am), December NY Fed 1-year inflation expectations (11am) and November consumer credit (3pm). Scheduled Fed speakers include Miran (8am and 10am)

In premarket trading, Mag 7 stocks are mixed: Alphabet (GOOGL) gains 0.7% as Cantor Fitzgerald upgrades to overweight (Amazon +0.3%, Nvidia +0.4%, Tesla -0.9%, Meta -0.4%, Microsoft -0.6%, Apple -1.2%). 

• Defense stocks advance, with Northrop Grumman (NOC) up 8% and Lockheed Martin (LMT) rising 7%, after President Trump said he wants to increase the country’s military budget by about 50% to $1.5 trillion in 2027.
• Alcoa (AA) falls 3% after JPMorgan downgrades the stock to underweight, saying the rating cut reflects relative valuation following a period of outperformance. The bank also said it prefers copper over aluminum.
• Globus Medical (GMED) gains 7% after the medical device maker issued a profit forecast for 2026 that beat expectations.
• Helen of Troy (HELE) drops 5% after the consumer products company cut its adjusted earnings per share guidance for the full year.
• Revolution Medicines (RVMD) falls 6% after AbbVie says it is not in talks to buy the cancer-drug developer.
• Soho House (SHCO) declines 11% after the members’ club operator said it faces a funding gap tied to the company’s pending sale.

In other corporate news, a regulatory filing revealed that the DOJ is conducting an in-depth review of Paramount Skydance’s hostile tender offer for Warner Bros., while Netflix also said it is engaging with antitrust authorities. JPMorgan is set to replace Goldman Sachs as the partner for Apple’s credit-card business. Revolution Medicines fell in extended trading after AbbVie said it’s not in discussions to acquire the cancer-focused biotech firm. Constellation Brands reported comparable EPS and net sales for the third quarter that beat estimates and reaffirmed its full-year forecast. No major earnings are expected before the market opens.

Sentiment was muted for the second day in a row as the January rally fizzled after soft ADP data left little incentive to add risk before Friday’s payrolls number, while shockwaves from the US raid on Venezuela continue to play out. Gold and silver fell for a second day, with investors bracing for an annual rebalancing of commodity indexes that could see futures contracts worth billions of dollars sold in the next few days (See Silver About To Crash: Why Two Banks Think A Meltdown Looms Next Week).

Defense stocks are up premarket after Trump demanded a $500 billion boost to annual defense spending. That followed an edict that major defense contractors that work with the government must end stock buybacks and dividends until they invest more in factories and research. Corporate landlords are also in the spotlight after Trump pledged on Wednesday to stop institutional investors buying more homes, with Blackstone closing 5.6% lower.

“We see a bit of a profit-taking after a couple of days and I think geopolitical risk remains quite high,” said Nataliia Lipikhina, head of EMEA equity strategy at JPMorgan Private Bank. “The market is now really positioning for the upcoming earnings season.”

Elsewhere in AI, China plans to approve some imports of Nvidia’s H200 chips as soon as this quarter for select commercial use, according to people familiar. And 2025’s hottest corner of the stock market — memory and storage companies — remains scorching in the new year, but some Wall Street pros are now wondering if a reversal is coming.

The rally in global bonds also stalled, with the yield on 10-year Treasuries rising two basis points after announced layoffs at US companies dropped to a 17-month low in December. Weekly jobless-claims data will offer further clues on the state of the labor market after earlier figures this week offered mixed signals.

One of Trump’s earlier campaigns, tariffs, are also back in the news, with the US Supreme Court poised to decide the fate of most of the duties as soon as Friday. More than 1,000 corporate entities are now involved, court records show. Even if the Supreme Court declares the tariffs unlawful, the justices are likely to leave the question of refunds to lower courts. 

Meanwhile, corporations and governments in the US, Europe and Asia have borrowed roughly $260 billion across currencies by the close of business on Wednesday, the highest tally on record for the comparable period, according to data compiled by Bloomberg. A further barrage of bond offerings is poised to push that number higher. At least 23 issuers are expected to price bonds in Europe’s primary market, raising at least €23.8 billion, according to data compiled by Bloomberg. In Asia, China announced plans to issue about $75 billion of bonds early this month.

European stocks are also tilting lower: the Stoxx 600 is down 0.3%, weighed down by IT, energy and materials names.Banks outperform, while British food retailers lag on disappointing Christmas trading. Here are some of the biggest movers on Thursday: 

• Soitec shares jump as much as 11% on Thursday after the semiconductor wafer firm named Infineon executive Laurent Rémont as its CEO starting in April.
• BAE Systems shares rise as much as 7%, leading a broad rally in defense shares after President Donald Trump said on Wednesday he will request an increase in the US military budget.
• OVH Groupe shares surge as much as 8.2%, the most since April, after the IT services firm reported higher first-quarter revenue compared to last year.
• Implenia shares jump as much as 6.4% and hit a record high after its joint venture with Marti won new rail infrastructure contracts.
• M&S shares gain as much as 3.7%, the most since November, after the UK retailer maintained its full-year guidance despite reporting a slowdown in clothing sales.
• Cerillion shares jump as much as 11%, the most since 2023, after the IT service firm won its largest-ever contract worth ~£42.5 million with Oman Telecommunications.
• Associated British Foods shares drop as much as 12% to a nine-month low after the group warned its profit will be lower than expected this fiscal year due to weaker Primark sales and a mixed performance in its food business.
• Tesco shares slide as much as 6% after Britain’s largest supermarket chain posted softer-than-expected like-for-like growth in its core market over the Christmas period.
• Greggs shares decline as much as 8.2%, the most in five months, as the baker’s trading update for the last three months of 2025 disappoints analysts.
• Shell shares drop as much as 3% in London after the British integrated oil company published a trading update analysts saw as a slight negative.
• Logitech falls as much as 5.4%, to the lowest level in five months, after BNP Paribas downgrades the Swiss firm to neutral from outperform, with its peripherals and gaming-related sales likely to face a hit from hikes in memory pricing.
• Sabic shares fall as much as 4.8% to the lowest level since April 2009 after the petrochemical firm reported non-cash losses from divesting two units.

Earlier in the session, Asian stocks fell for a second day, with weakness in Hong Kong extending and Japanese shares reeling amid the country’s tensions with China.  The MSCI Asia Pacific Index dropped as much as 0.9%, the most in three weeks, with Tencent, SoftBank and Samsung among the biggest drags. Equities in Japan, Hong Kong and mainland China led the losses, while those in South Korea fluctuated. Hong Kong markets underperformed in the region, weighed down by a lackluster tech sector, with Lenovo sliding on concerns that surging memory prices will squeeze its margin. The mainland market was dragged by a retreat in local brokerage shares. After a strong start to 2026, the weakness in Hong Kong “may just be a breather,” said Marvin Chen, a strategist at Bloomberg Intelligence. Japanese stocks extended their declines as investors turned cautious amid rising tensions with China. In the latest escalation, Beijing launched an anti‑dumping probe into dichlorosilane, a semiconductor material imported from Japan. Shares of Japanese chipmaking‑materials firms fell, while Chinese companies involved in dichlorosilane jumped.

In FX, the Bloomberg Dollar Index is a touch higher. Antipodeans lag, with the Aussie dented after cautious comments from Deputy Governor Andrew Hauser.

In rates, treasuries hold small curve-steepening losses amid deeper selloff in bunds following European government bond supply surge including syndicated sales by Italy and Portugal and conventional offerings by France and Spain. US yields cheaper by 1bp to 2bp with curve spreads slightly wider; 10-year near 4.17% is 1.6bp cheaper on the day, German counterpart by an additional 1.5bp. German yields are 1-2bps higher following strong factory orders. US 10-year yield is up 1bp with no follow-through from the early release of Challenger data, with layoffs at a 17-month low. Focal points of US session include jobless claims data and corporate new-issue slate adding to already historic weekly volume.

In commodities, spot gold and silver are down for a second day in a row with respective losses of 0.7% and 3.3%. Spot gold slipped below $4,450 an ounce, after losing nearly 1% in the previous session. Silver dropped below $75 an ounce. Brent crude held above $60 a barrel. WTI crude has continued to climb throughout the European session, higher by 1.5% but still on track for a weekly loss. Prices remain sensitive to updates on Venezuela. Bitcoin is down 1.0%. 

Looking at the day ahead, the US economic calendar includes 3Q preliminary nonfarm productivity, weekly jobless claims and October trade balance (8:30am), wholesale inventories (10am), December NY Fed 1-year inflation expectations (11am) and November consumer credit (3pm). Scheduled Fed speakers include Miran (8am and 10am). Micron, Synopsys and News Corp are among companies presenting at the Needham growth conference in New York.

Market Snapshot

• S&P 500 mini -0.2%
• Nasdaq 100 mini -0.3%
• Russell 2000 mini -0.5%
• Stoxx Europe 600 -0.4%
• DAX little changed
• CAC 40 -0.2%
• 10-year Treasury yield +1 basis point at 4.16%
• VIX +0.4 points at 15.79
• Bloomberg Dollar Index little changed at 1208.2
• euro little changed at $1.1677
• WTI crude +0.9% at $56.51/barrel

Top Overnight News

• The White House is drafting an executive order broadly targeted at addressing Americans’ frustration with the cost of living, including a push to allow people to dip into their retirement and college savings accounts to afford down payments on homes. The draft is also expected to move toward banning large investors from acquiring single-family homes. Politico 
• Trump said our military budget for the year 2027 should not be $1tln, but rather $1.5tln.
• House votes to advance Democrats’ bill to extend expired healthcare subsidies. US bipartisan Senate group believes it is on the verge of a deal, regarding health care and a Obamacare subsidies extension, Punchbowl reports; however, the Hyde language is “now viewed more acutely as an insurmountable problem.”
• Trump signs a Presidential Memorandum directing withdrawal of US from participation in 66 international organisations.
• Punchbowl reported that the State of the Union date of February 24th is firm, which US President Trump will deliver.
• Colombia expects tensions with the US to ease following an hour-long phone call between Donald Trump and Gustavo Petro, a senior Colombian diplomat said. The two presidents will meet at the White House at some point. BBG 
• US officials are said to be working on options for business deals in Greenland, including rare earth minerals mining and hydroelectric power, to step up links to the island. BBG 
• California Governor Gavin Newsom will call for a crackdown on institutional investors buying up homes in the state, targeting private equity and hedge fund investors purchasing homes, particularly corporate entities buying at scale. BBG 
• President Trump and his advisers are planning a sweeping initiative to dominate the Venezuelan oil industry for years to come, and the president has told aides he believes his efforts could help lower oil prices to his favored level of $50 a barrel. WSJ 
• US oil companies want “serious guarantees” from Washington before they make splashy investments in Venezuela as Trump urges them to back his bid to reshape energy markets. FT 
• Following Trump’s approval, The Senate could vote as soon as next week to impose new sanctions aimed at pressuring Russia to end its war with Ukraine. Politico 
• China plans to approve limited imports of Nvidia’s H200 AI chips this quarter, people familiar said. Sales will exclude military and state sectors. Reuters reported that Nvidia is requiring Chinese buyers to make full payment upfront. BBG 
• China said its latest export controls are aimed at the military and won’t affect civilian trade. It sought to reassure Japanese businesses amid concern over supply chains and rare earths. BBG 

Trade/Tariffs

• China is to reportedly approve some NVIDIA (NVDA) H200 purchases as soon as this quarter, according to sources cited by Bloomberg; China to bar H200 from state bodies and critical infrastructure; Beijing is said to allow commercial use of H200 AI chip. Alibaba (BABA) and Bytedance have both reportedly informed NVIDIA that they are interested in ordering in excess of 200k units each of the H200, according to sources.
• India’s Foreign Ministry reportedly intends to remove restrictions on Chinese firms bidding for government contracts, according to sources.
• US President Trump posted “I have just been informed that Venezuela is going to be purchasing ONLY American Made Products, with the money they receive from our new Oil Deal”. Full Post: “I have just been informed that Venezuela is going to be purchasing ONLY American Made Products, with the money they receive from our new Oil Deal. These purchases will include, among other things, American Agricultural Products, and American Made Medicines, Medical Devices, and Equipment to improve Venezuela’s Electric Grid and Energy Facilities. In other words, Venezuela is committing to doing business with the United States of America as their principal partner – A wise choice, and a very good thing for the people of Venezuela, and the United States. Thank you for your attention to this matter!”.

Central Banks

• BoJ’s Nagoya region branch manager said US trade policy is having negative impact in the region, but is not dealing a severe blow to region’s economy. Some firms in the region see China’s export curb as potentially having an impact on their businesses.
• BoJ maintains its assessment on all Japan’s 9 regions in its quarterly regional report.
• ECB Consumer Expectations Survey (Nov 2025 vs Oct 2025): median consumer perceptions of inflation over the previous 12 months remained unchanged, as did median inflation expectations for the next 12 months, for three years ahead and for five years ahead. 1-year: 2.8% (prev. 2.8%). 3-year: 2.5% (prev. 2.5%). 5-year: 2.2% (prev. 2.2%).
• ECB’s de Guindos said the ECB is at inflation target, but uncertainty remains very high.
• BoE DMP (Dec): 1yr ahead CPI expectations maintained at 3.4%; 3yr ahead maintained at 2.9%. Wage Growth1yr ahead: 3.7% (prev. 3.8%).
• RBA Deputy Governor Hauser said likely seen the last rate cut in the cycle and the likelihood of near term rate cuts is very low, also noted November CPI data was helpful, but largely as expected, according to ABC interview.
• SNB Minutes: Governing Board confirmed that it remains willing to be active in the foreign exchange market as necessary; Board will continue to monitor the situation closely and adjust monetary policy if necessary.

A more detailed look at global markets courtesy of Newsquawk

APAC stocks eventually traded mostly negative following a similar handover from Wall Street, where the S&P 500 and DJIA pulled back from record highs. ASX 200 traded marginally higher as strength in health care, tech, consumer stocks, energy and financials, offset the losses in mining and materials, with mild tailwinds seen amid a softer yield environment in Australia. Nikkei 225 extended its decline beneath the 52,000 level amid soft wages data from Japan and further frictions with China after MOFCOM yesterday announced an anti-dumping probe into Japan’s dichlorosilane imports, which is a key chipmaking chemical, while Japan protested China’s operation of mobile drilling rigs in waters on the Chinese side of the Japan-China median line in the East China Sea. Hang Seng and Shanghai Comp eventually traded negative with the Hong Kong benchmark pressured amid tech-related weakness and with some early pressure seen in China’s OpenAI rival Knowledge Atlas Technology a.k.a. Zhipu, during its Hong Kong debut. The mainland eventually gave up the modest gains that were seen as the PBoC conducted a CNY 1.1tln outright reverse repo operation to maintain ample liquidity in the banking system.

Top Asian News

• China’s Ambassador rejects Japan’s export controls negotiations.
• PBoC announced on Wednesday it will conduct a CNY 1.1tln outright reverse repo operation on Thursday to maintain ample liquidity in the banking system.
• Fast Retailing (9983 JT) Q1 (JPY): Revenue 1.03tln (prev. 0.895tln), PBT 226.7bln (prev. 196.6bln), Net 147.5bln (prev. 131.9bln).

European bourses (STOXX 600 -0.4%) are mostly lower, following the negative tone seen in APAC trade. The DAX 40 (U/C) did initially buck the negative mood, with upside facilitated by strength in Rheinmetall (+3%) after President Trump called for a 50% increase in US defence spending by 2027. European sectors have opened mostly in the red. Leading sectors are Banks (+0.4%), Insurance (+0.2%) and Food Beverage & Tobacco (+0.2%). The banking sector has been underpinned by gains in BNP Paribas (+2.0%) after the Co. said that the judge’s decision to certify the verdict in Sudan clears the path for the bank to pursue an appeal, otherwise newsflow has been light for the other outperforming sectors. To the downside, Basic Resources is weighed on by downside across underlying metals.

Top European News

• EU plans to pursue a special rulebook for corporates outside national law, which would create a voluntary ‘28th regime’ for companies to operate across EU, according to FT.

FX

• DXY is essentially flat/incrementally firmer and trades above its 100 DMA within a fairly narrow 98.67 to 98.82 range; further upside for the Dollar could see the test of its 200 DMA at 98.87, the round 99.00 mark and then the 50 DMA at 99.08. G10s are mixed against the Dollar, with some underperformance in the Antipodeans which have been weighed on by the risk-tone and pressure in the metals complex.
• Really not much driving things for the Dollar this morning, but with some focus on an early release of the US Challenger Layoffs (Dec), which fell to 35.55k (prev. 71.3k). The inner report highlighted that “while December is typically slow, this coupled with higher hiring plans, is a positive sign after a year of high job cutting plans”. A constructive picture for the labour market, which follows on from a rebound in the ADP in the prior session (albeit that printed shy of expectations). Ahead, a couple more labour market metrics in the form of jobless claims and RevelioLabs Employment data.
• EUR is also flat and currently at the lower end of a narrow 1.1668-1.1682 range. A strong German Factory Orders print had little impact on the single currency this morning. Focus has been on regional geopolitics in the past couple of days; on one front, positive mood music out of Ukraine with President Zelenskiy suggesting that the war could end in H1’26. Elsewhere, Trump’s continued verbal assault on Greenland will keep NATO and allies on their toes.

Fixed Income

• A contained start for fixed benchmarks with newsflow somewhat light early doors aside from ongoing digestion of updates regarding Venezuela. But have gradually slipped from best levels as the morning progressed.
• USTs got to a 112-21 peak, firmer by three ticks, and Bunds to a 128.15 high with gains of 10 ticks at most early doors. Thereafter, the benchmarks began to gradually trim as the risk tone lifted off lows into the morning, with assistance coming via reporting regarding NVIDIA. For USTs, an early release of December’s Challenger Jobs series spurred no move, headline printed at 35.55k (prev. 71.3k).
• Supply this morning came from Spain (fine, but softer than is usually the case) and France (strong overall), but neither outing spurred any significant move.
• Gilts opened near-enough unchanged just above 92.00 before extending to 92.16 and then falling to a 91.88 low, in-fitting with action in peers. No move to the latest DMP survey.
• Spain sold EUR 6.28bln vs exp. EUR 5.5-6.5bln 2.70% 2030, 3.00% 2033, 3.45% 2043 Bono & EUR 0.726bln vs exp. EUR 0.25-0.75bln 1.15% 2036 I/L Bono. EUR 2.8bln 2.70% 2030: b/c 2.21x (prev. 1.97x); average yield 2.51% (prev. 2.471%). EUR 2.01bln 3.00% 2033: b/c 2.08x (prev. 2.34x); average yield 2.94% (prev. 2.88%). EUR 1.46bln 3.45% 2043: b/c 1.87x; average yield 3.8%. 1.15% 2036 I/L: b/c 1.9x (prev. 2.63x); yield 1.51% (prev. 1.469%).
• France sold EUR 13.5bln vs exp. EUR 11.5-13.5bln 3.50% 2035, 0.50% 2040, 3.60% 2042 & 3.75% 2056 OAT. 3.50% 2035: b/c 1.98x (prev. 2.147x); average yield 3.53% (prev. 3.43%). 0.50% 2040: b/c 2.37x (prev. 2.272x); average yield 3.95% (prev. 3.898%). 3.60% 2042: b/c 2.12x (prev. 2.922x); average yield 4.05% (prev. 3.92%). 3.75% 2056: b/c 3.4x; average yield 4.46%.
• Japan sold JPY 524.9bln 30-yr JGBs; b/c 3.14x (prev. 4.04x), and average yield 3.447% (prev. 3.427%). Lowest accepted price 99.15 vs prev. 96.55. Average accepted price 99.30 vs prev. 96.64. Tail in price 0.15 vs prev. 0.09.

Commodities

• WTI and Brent front-month futures post mild upside as the contracts rebound after two consecutive sessions of losses and after the US’ effective seizure of Venezuela’s crude, which promises more barrels in the market and a likely move away from Canadian oil for the US. WTI Feb resides in a USD 55.97-56.51/bbl range whilst Brent Mar sits in a USD 59.96-60.48/bbl band.
• Nat Gas, meanwhile, is on a firmer footing once again after Dutch TTF settled over 2.5% higher, albeit off best levels, with traders citing the current cold snap across some of Europe. ING suggests that EU gas storage is now 58% full vs a 5-year average of 72%.
• Spot gold resides closer to the bottom end of a USD 4,415.40-4,466.48/oz range, but is still holding onto a long-term upward trend.
• Base metals succumb to the modestly firmer dollar and overall weaker risk, with 3M LME copper dipping back under USD 13k/t before finding some support at USD 12,687/t. Newsflow overall remains light, but traders are also cognizant of the SCOTUS update tomorrow, which could provide a ruling on President Trump’s Liberation Day and some targeted tariffs (possible, not guaranteed).
• HSBC forecasts gold to hit USD 5000/oz in H1’26 due to geopolitical risk and increasing fiscal debt; High volatility trading level likely.
• ICE plans 22-hour trade for European and UK gas and power by February 23rd.
• US President Trump’s team works up a sweeping plan to control Venezuelan oil for years to come, while Trump believes his efforts could help lower oil prices to his favoured level of USD 50/bbl, according to WSJ.
• US oil companies warn they will need guarantees to invest in Venezuela, according to FT.
• Chevron is in talks with US government to expand Venezuela license and seeks authorisation to supply Venezuelan oil to other buyers, according to industry sources. US government also wants other US companies involved in oil exports from Venezuela.
• US Vice President Vance said Venezuela can only sell its oil if it serves US national interests, and the way we control Venezuela is to control the purse strings.

Geopolitics – Ukraine

• US VP Vance said seized oil tanker was a fake Russian tanker, while he stated the US had a legitimate indictment for Maduro and that President Trump will make a determination on Greenland.
• US Republican Senator Graham said after meeting Wednesday with US President Trump, that he has greenlit the bipartisan Russia sanctions bill, while Graham looks forward to a vote as early as next week.

Geopolitics – Middle East

• Israel considers Lebanon’s efforts to disarm Hezbollah ‘totally insufficient’, Sky News Arabia reports
• Iranian Foreign Minister said “We are ready for any situation and we do not want war, but we are ready for it and we are also ready to negotiate”, Al Jazeera reported. “We are ready to negotiate with the United States on the basis of mutual respect and mutual interests”.

Geopolitics – Other

• US President Trump said the US would be extracting Venezuelan oil for years; “the oil will take a while in Venezuela”; said US oversight of Venezuela could last for years.
• US President Trump’s administration draws up new legal justification for Maduro operation with DoJ’s opinion expected to say that it was lawful because it was part of a law enforcement action, according to WSJ.
• US VP Vance said seized oil tanker was a fake Russian tanker, while he stated the US had a legitimate indictment for Maduro and that President Trump will make a determination on Greenland.
• China hacked email systems of US Congressional Committee staff with Beijing intelligence said to have used Salt Typhoon to access communications used by top panels in US Congress, while the intrusions were detected in December, FT reported.
• US President Trump comments it was a great honour to speak with Colombia’s President, who called to explain the situation of drugs and other disagreements that we have had, Trump said he appreciates his call and tone and looks forward to meeting him. Full post: “It was a Great Honor to speak with the President of Colombia, Gustavo Petro, who called to explain the situation of drugs and other disagreements that we have had. I appreciated his call and tone, and look forward to meeting him in the near future. Arrangements are being made between Secretary of State Marco Rubio and the Foreign Minister of Colombia. The meeting will take place in the White House in Washington, D.C.”.
• US Republican Senator Graham said after meeting Wednesday with US President Trump, that he has greenlit the bipartisan Russia sanctions bill, while Graham looks forward to a vote as early as next week.
• UK PM Starmer spoke with US President Trump this evening and set out his position on Greenland.

US Event Calendar

• 8:30 am: 3Q P Nonfarm Productivity, est. 5%, prior 3.3%
• 8:30 am: 3Q P Unit Labor Costs, est. -0.09%, prior 1%
• 8:30 am: Jan 3 Initial Jobless Claims, est. 212.44k, prior 199k
• 8:30 am: Dec 27 Continuing Claims, est. 1900k, prior 1866k
• 8:30 am: Oct Trade Balance, est. -58.65b, prior -52.8b
• 10:00 am: Oct F Wholesale Inventories MoM, est. 0.2%, prior 0.5%
• 3:00 pm: Nov Consumer Credit, est. 10.08b, prior 9.18b
• 10:00 am: Fed’s Miran Speaks in Athens

DB’s Jim Reid concludes the overnight wrap

While geopolitical headlines stayed on the front page over the past 24 hours, market attention shifted towards domestic US policy late in yesterday’s session as President Trump’s social media posts dragged on shares of homebuilders and defence companies. That led the S&P 500 (-0.34%) to pull back after reaching new intra-day record highs. Sovereign bonds had a decent session thanks to soft European inflation and further oil price declines, with Brent crude (-1.22%) falling to below $60/bbl, though Treasuries underperformed as another strong batch of US data added to optimism on the 2026 outlook.

In the first of Trump’s posts that triggered a turn in market sentiment, the President said he was “immediately taking steps to ban large institutional investors from buying more single-family homes”, which weighed on various real estate-related stocks. Blackstone fell as much as -9% intra-day before closing -5.57% lower, while the capital goods industry group in the S&P was down -2.27%. Trump’s other target was the defence sector. He posted that “I will not permit Dividends or Stock Buybacks for Defense Companies” unless they invest more in production and maintenance and issued a related executive order later on. Defence contractors including Northrop Grumman (-5.50%), Lockheed Martin (-4.82%) and RTX (-2.45%) slid on the news. However, there were potentially better news for defence firms after the close, with Trump demanding a boost in the 2027 US defence budget from $1trn to $1.5trn. It is $901bn in the current 2026 fiscal year. 

The renewed policy risks left the S&P 500 -0.34% lower by the close. The move would have been considerably worse were it not for outperformance by the Magnificent 7 (+0.24%), as the equal-weighted S&P (-1.15%) had its worst day since November. In Europe, stocks had a mixed session, with a new record for the DAX (+0.92%) limiting losses for the STOXX 600 (-0.05%), with the FTSE 100 (-0.74%) leading on the downside.

The sell-off has mostly extended into Asia with the Hang Seng (-1.27%), Nikkei (-1.16%), and the CSI (-0.58%) lower. However, the KOSPI (+0.72%) is defying the negative trend, continuing its upward trajectory as demand for semiconductor stocks continues. The S&P/ASX 200 (+0.28%) is also experiencing slight gains on dovish central bank speak (details below). S&P 500 (-0.20%) and NASDAQ 100 (-0.31%) futures are both lower again. 

Early morning data indicated that Japan’s real wages fell by -2.8% year-on-year in November, worsening from October’s revised decline of -0.8% and marking the 11th consecutive monthly decrease, with the weakest result recorded since late 2023. Nominal wages exhibited a similar trend, with total cash earnings increasing by only +0.5% year-on-year (compared to +2.3% expected), representing the slowest growth rate since December 2021. 10-year Japanese Government Bonds (JGBs) have decreased by -3.4bps, trading at 2.08% as I write. 

Meanwhile, Australian government bonds are rallying hard, with 10-year bond yields decreasing by -9.0bps to trade at 4.67%. The policy-sensitive 3-year bonds are trading -8.4bps lower at 4.07%. This follows comments from RBA’s Deputy Governor Andrew Hauser, who expressed what is being interpreted as a dovish stance by indicating that the central bank is adopting a one- to two-year perspective on inflation instead of responding to individual data releases.

In term of yesterday’s US data, the highlight was the ISM services index for December, which hit a 14-month high of 54.4 (vs. 52.2 expected). So reassuring investors that the economy had ended the year in a strong position, particularly after the ISM manufacturing index hit a 14-month low earlier in the week. Indeed, the details were very strong as well, as the new orders component hit a 15-month high of 57.9, and the employment component hit a 10-month high of 53.9.

Other indicators also suggested that the US labour market was still in decent shape. We had the ADP print ahead of tomorrow’s jobs report, which showed that private payrolls grew broadly as expected at +41k in December (vs. +50k expected). Then we had the JOLTS report for November, with layoffs down to a 6-month low of 1.687m, whilst the quits rate of those voluntarily leaving their roles moved up to 2.0%. So overall, the print was seen as a sign of labour market strength, even as openings themselves dipped by more than expected to 7.146m (vs. 7.648m expected).

In the meantime, markets continued to face crosswinds from various geopolitical issues. One major development yesterday was that the US had seized a Russian-flagged ship in the Atlantic for violating US sanctions. Shortly afterwards, Defense Secretary Hegseth posted that “The blockade of sanctioned and illicit Venezuelan oil remains in FULL EFFECT — anywhere in the world.” It was also announced that another tanker had been seized in the Caribbean Sea. At the same time, US plans for Venezuelan crude continued to take shape, with Energy Secretary Chris Wright saying that the US plans to indefinitely control sales of Venezuelan oil. Brent crude fell -1.22% to $59.96/bbl, only a dollar above its post-2021 low reached in mid-December. Overnight it’s back up around half a percent.

Yesterday’s oil decline supported sovereign bonds, with the 10yr Treasury yield (-2.4bps) down to 4.15%, although the 2yr yield (+0.8bps) held up as investors priced in a bit more Fed hawkishness given the US data. 10yr yields are down another -1.2bps this morning. 

In Europe, bonds were also boosted by the latest European inflation numbers. Those showed that Euro Area inflation fell to +2.0% as expected in December, whilst core CPI was down to +2.3% (vs. +2.4% expected). So that pushed back against residual fears about a hawkish ECB pivot this year and added to the sense that the ECB might cut next rather than hike. Yields on 10yr bunds (-3.0bps), OATs (-3.1bps) and BTPs (-1.9bps) all moved lower. Meanwhile, UK gilts saw a particularly big outperformance, with the 10yr yield down -6.5bps, whilst the 2yr yield fell to its lowest since August 2024, at 3.67%. 

Finishing up with another round of geopolitical news, Trump also posted fresh comments about NATO yesterday, saying that “We will always be there for NATO, even if they won’t be there for us”, which followed a statement from several European leaders on Tuesday defending Greenland’s sovereignty. In an interview with Fox News, Vice President JD Vance said Trump is willing to “go as far as he has to” on Greenland.  Elsewhere, the dispute between China and Japan continued to escalate, with China starting an anti-dumping probe into dichlorosilane, which is used to make chips. That comes on top of a previous announcement this week from China, which bans the export of dual-use items to Japan that could have military uses. All the headlines notwithstanding, gold prices (-0.85%) yesterday fell back for the first time this year, suggesting that investor fears are easing back a little on the geopolitical side.

Looking at the day ahead, data releases include the Euro Area unemployment rate and German factory orders for November, along with the US weekly initial jobless claims. Otherwise, the ECB will release their Consumer Expectations Survey for November.

It didn’t take long. Within hours of an ICE-involved shooting in the Minneapolis area, the Democratic Party’s protest industrial complex moved into action, quickly creating conditions for coordinated demonstrations across multiple cities. The rapid response suggested these nonprofit activist networks were on standby, waiting for a catalytic event, as an army of radicals intensified pressure campaigns against federal agents, blocking streets, harassing officers, and openly doxxing them.

I want every ICE officer to know that their president, vice president, and the entire administration stands behind them.

To the radicals assaulting them, doxxing them, and threatening them: congratulations, we’re going to work even harder to enforce the law.

— JD Vance (@JDVance) January 8, 2026

Shortly after the ICE-involved shooting that left one woman dead, multiple videos of the incident went viral on X. In at least one video, she appears to be blocking the street with her vehicle in an attempt to impede ICE agents and is later shot and killed after advancing toward one of the agents. Numerous angles of the incident are circulating on X, offering competing narratives.

video shows ICE shooting in Minneapolis. pic.twitter.com/7E2GPAFfly

— Suhr Majesty (@ULTRA_MAJESTY) January 7, 2026

The Democratic Party’s propaganda machine, desperately searching for the next narrative after the optically displeasing Somali-linked daycare fraud scandal, was quick to deploy a new storyline.

As we noted hours before protest activity erupted in the Minneapolis area (read here), the left-wing nonprofit Minnesota Immigrant Rights Action Committee functioned as a rapid-response mobilization hub, coordinating a coalition of left-wing activist groups to flood the streets by late evening.

Footage of the demonstrations:

Anti ICE protesters are attacking innocents in vehicles.

This is exactly what @GovTimWalz and @Jacob_Frey asked for………buckle up.pic.twitter.com/Y2fPQ9VpCH

— Spitfire (@RealSpitfire) January 8, 2026

HOLY SH*T 🚨 Anti ICE Protestors are now waving FOREIGN FLAGS while chanting “F*CK ICE”

If you don’t want to be in this country

GET THE F*CK OUT pic.twitter.com/DZqJFypNe7

— MAGA Voice (@MAGAVoice) January 8, 2026

Anti ICE protest happening now in Foley Square after Minneapolis shooting. pic.twitter.com/oOZK4mV5nw

— Marla Diamond (@MDiamond8) January 7, 2026

The rapid response extended beyond Minnesota. In New York, Party for Socialism and Liberation New York City, reportedly funded by China-based far-left billionaire Neville Roy Singham, mobilized activists within hours.

EXPOSED 🚨 The protest tonight in New York City against ICE is being paid for and organized by ‘PSL New York City – Party for Socialism and Liberation’

They are funded by Neville Roy Singham who lives in China and works with the CCP

He donated over $20 million to entities like… pic.twitter.com/Fy508FFbqn

— Wall Street Apes (@WallStreetApes) January 8, 2026

About 1500-1000 anti ice protesters now marching around federal plaza. pic.twitter.com/GYMLcaW9Rk

— Ali (@MerruX) January 8, 2026

🚨BREAKING: NYC PROTESTORS CALL TO “TOPPLE THE TRUMP REGIME.”

Notice the yellow signs we’ve seen at every protest? pic.twitter.com/61HJltNiW3

— Nick Jacobs (@nickjacobs03) January 8, 2026

Communist Jackson Hinkle appeared enthusiastic about what appeared to be multi-city coordinated protests.

BREAKING: Tonight, cities across the country erupted in protest against ICEpic.twitter.com/CngPJd6AfE

— Jackson Hinkle 🇺🇸 (@jacksonhinklle) January 8, 2026

In Seattle:

🚨 Breaking — Antifa and leftist protesters are on the march in Seattle, chanting “Death to ICE!” pic.twitter.com/dQSBf5z4QN

— Katie Daviscourt 📸 (@KatieDaviscourt) January 8, 2026

Looking ahead, the socialists are planning pro-Maduro protests in the US, funded by PSL. 

The Trump Administration has kidnapped Venezuelan President Nicolas Maduro and started a blatantly criminal war against Venezuela.

Take action with DSA! ⬇️ pic.twitter.com/3DHbts9UOO

— DSA (@DemSocialists) January 7, 2026

Democrats appear prime for a George Floyd 2.0 moment.

Authored by Steve Watson via Modernity.news,

In response to decades of corporate-poisoned nutrition advice, the Trump administration has unleashed updated federal dietary guidelines that torch added sugars, champion protein and healthy fats, and slam the door on ultra-processed junk fueling America’s chronic disease crisis.

The MAHA triumph, spearheaded by HHS Secretary Robert F. Kennedy Jr. and USDA Secretary Brooke Rollins, flips the outdated food pyramid on its head—prioritizing real, nutrient-dense foods over the seed oil slop and pharma-dependent scams pushed at the expense of Americans’ health for far too long.

White House Press Secretary Karoline Leavitt kicked off the briefing with a clear message of reform. “To build on this progress the Trump administration is now updating federal nutrition standards and guidelines to insure that Americans have the most accurate data driven information supported by science and hard facts not special interests or partisan ideology,” she stated.

Another win for MAHA.

Karoline Leavitt opened her White House briefing by announcing that the Trump administration will update and release new dietary guidelines for America

A clear push to ensure Americans have science-backed, unbiased guidance…free from politics and special… pic.twitter.com/KcSI9pXWHr

— Overton (@overton_news) January 7, 2026

Leavitt highlighted President Trump’s directive. “President Trump has tasked two of the great individuals behind me, USDA Secretary Rollins and HHS Secretary Kennedy with collaborating on this vitaly important project.”

She continued, “Today they are here to officially unveil the 2025 to 2030 dietary guidelines for America.” Adding, “These new guidelines are informed by the best and most reliable research on health and nutrition.”

The move directly targets the epidemic of obesity and metabolic disorders plaguing the nation, ending subsidies for low-quality foods in schools, military bases, VA facilities, and federal programs. The new guidelines end the era of processed junk in schools, military bases, and federal food programs, promising REAL food and real results.

Eat Real Food! America’s new dietary guidelines were just released. See more here: https://t.co/0VNZUgT7aV pic.twitter.com/N3KY7LJ3Fu

— Trump War Room (@TrumpWarRoom) January 7, 2026

Secretary Kennedy was forthright in framing this as a historic overhaul. He announced the guidelines as “the most significant reset of federal nutrition policy in history,” emphasizing, “These guidelines replace corporate-driven assumptions with common sense goals and Gold Standard scientific integrity.”

Kennedy zeroed in on the true villains. “Added sugars…drive metabolic disease. Today, our government declares WAR on added sugar!” he proclaimed, adding that his core directive is to “eat real food.”

.@SecKennedy says the release of the new federal nutrition guidelines is “the most significant reset of federal nutrition policy in history.”

“These guidelines replace corporate-driven assumptions with common sense goals and Gold Standard scientific integrity.” https://t.co/H6AFcSGGsz pic.twitter.com/nMMsjfQPfL

— Rapid Response 47 (@RapidResponse47) January 7, 2026

This echoes the administration’s broader push to combat faulty past policies. “Faulty dietary guidelines have stacked the deck against families, which has fueled the chronic disease epidemic,” Kennedy noted. “This failed approach ENDS TODAY.” He added that following these guidelines means “Americans will be saving thousands of dollars” on healthcare costs.

The new framework urges Americans to prioritize high-quality protein, healthy fats, fruits, vegetables, and whole grains while avoiding highly processed, sugary, or salty packaged foods. As detailed in the official HHS fact sheet, the guidance calls to “avoid highly processed packaged, prepared, ready-to-eat, or other foods that are salty or sweet” and “avoid sugar-” laden items, easing restrictions on red meat and saturated fats in a direct rebuke to decades of misguided low-fat dogma.

USDA Secretary Rollins called out the systemic rot. “For decades, under both Republicans and Democrats, federal incentives have promoted low quality, highly-processed foods, and pharmaceutical interventions instead of prevention. As a result, nutrient-dense, whole foods, grown by America’s farmers have been increasingly displaced,” she said, adding “The Trump Administration is acutely aware of this danger, and today, this announcement is making a major step in doing something about it.”

.@SecRollins: “For decades, under both Republicans and Democrats, federal incentives have promoted low quality, highly-processed foods, and pharmaceutical interventions instead of prevention. As a result, nutrient-dense, whole foods, grown by America’s farmers have been… https://t.co/H6AFcSGGsz pic.twitter.com/bla120GO8N

— Rapid Response 47 (@RapidResponse47) January 7, 2026

This reset also aligns with the America First ethos, redirecting focus to homegrown, wholesome options that bolster farmers and cut reliance on global supply chains riddled with contaminants.

This development builds directly on Kennedy’s 2026 MAHA agenda, outlined last month, which promised GRAS reform to scrub untested additives, front-of-pack labeling for transparency, and a ban on petroleum-based food dyes linked to hyperactivity and other ills.

Despite a federal judge temporarily halting a similar state-level dye ban in West Virginia over vague language, the Trump team’s federal push charges ahead undeterred—exposing how activist judges often shield Big Food’s toxic empire.

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