Global markets rattled by geopolitics

Global markets remain fixated on geopolitical developments and the deterioration in relations between the US and its allies in Europe and elsewhere. French President Emmanuel Macron said the “endless accumulation of new tariffs that are fundamentally unacceptable” ahead of the appearance of his US counterpart Donald Trump at the World Economic Forum later this week. At the same time a rapid sell off in Japanese bonds has strained bond markets globally, leaving markets looking for haven assets.

In the UK, the unemployment rate in the three months to November remained steady at 5.1%, in line with market expectations. Average earnings were stable in November at 4.7% y/y though private sectors earnings did drop to 3.6% y/y from 3.9% previously. Total payrolls fell by 43k in December, worse than a month earlier and ahead of market expectations.

In Germany, the ZEW survey for January improved more than expected to a headline reading of 59.6, up from 45.8. The January 2026 print was the strongest for the index since the post-pandemic recovery year of 2021. Both the current situation and expectations component of the ZEW improved markedly month/month, with hope that Germany will be able to pull out of the tepid growth of just 0.2% in Q4 2025.

Data from the ADP reported a slowdown in hiring in the average of the four weeks ending December 27 to 8,000, down from more than 11,000 in the previous four-week average.

Today’s Economic Data and Events

11:00 UK CPI y/y Dec: forecast 3.3%

12:00 SA CPI y/y Dec: forecast 3.6%

19:00 US construction spending m/m Oct: forecast 0.1%

Fixed Income

A disappointing 20yr auction for Japanese government bonds helped to precipitate a wider bond rout, particularly in longer-dated bonds around the world. At the front end of the UST curve, the 2yr UST yield showed little movement, closing at 3.5968% while the 10yr yield was higher by almost 7bps at 4.2925% and the 30yr yield added 8bps to 4.9189%. Japan’s 20yr bond yield spiked 21bps to 3.466% though it has recovered somewhat in early trade today.

Bond markets in Europe also sold off with most of the weakness concentrated in the longer parts of the curves. Emerging market local currency bonds were broadly weaker with the 10yr Turkish government bond yield up almost 16bps.

GCC credit was also caught up in the sell off with declines across all geographies and also by category. An index of UAE bonds fell 0.3% overnight, with similar moves in Saudi Arabia. Corporate bonds and sukuk fared best with declines of just 0.1% each.

FX

As markets keep their focus on geopolitics and whether the US will continue to push its demand for Greenland to be brought under its sovereignty, markets have sold the dollar against nearly all peer currencies. That move comes even as many of the core markets of the European Union are under threat of additional tariffs from the US. EURUSD rallied 0.7% overnight to 1.1725 while GBPUSD added 0.1% to 1.3439. Swiss franc continues to receive haven support with USDCHF down almost 1% to 0.7898 near its strongest level in the last five years.

Commodity currencies were broadly stronger while emerging markets held ground. USDINR was flat at 90.975, Turkish lira was at 43.2819 and Egyptian pound closed at 47.4769.

Equities

US equity markets dropped overnight as there is a growing fear of a “sell America” trade emerging. The Dow Jones fell 1.8% while the S&P 500 sank 2.1% and the NASDAQ was lower by 2.4%. European markets were also weaker though not by anywhere near the same scale.

In local markets, the DFM added 0.5% while the ADX index rose 0.3%. The Tadawul closed near unchanged.

Commodities

Oil markets were stronger overnight with a 1.5% rise in Brent futures to UDS 64.92/b and a similar sized rally in WTI to USD 60.34/b. However, both have lost much of those gains in early trade today as markets again fixate on the geopolitical noise centred on the World Economic Forum.

In that context precious metals prices continue to perform well with gold up 2% at USD 4,763/oz with gains across silver and the rest of the complex. Industrial metals were broadly weaker though.