Trump backs down on European tariff threat

US President Donald Trump has said that the US will not impose tariffs on European nations over their resistance to US efforts to take control of the territory of Greenland. After his speech in Davos at the World Economic Forum, President Trump held a meeting with the head of NATO which was described as “very productive” and that the tariff threat was “off the table.” Markets have yet to show much reaction but more bilateral negotiation rather than threats from either side will likely help to eliminate some of the volatility in currency markets from the last week.

Inflation in the UK picked up in December to 3.4% y/y from 3.2% a month earlier. Much of the gains were due to higher tobacco and air travel costs while broader services was more or less unchanged at 4.5%. Core inflation was unchanged at 3.2% y/y.

Inflation in South Africa also picked up marginally in December, rising by 3.6% y/y from 3.5% a month earlier. Core inflation rose 3.3% y/y, slower than markets had been expecting.

Today’s Economic Data and Events

11:00 TU capacity utilization Jan

15:00 TU One-week repo rate

17:30 US GDP annualized q/q Q3 (t): forecast 4.3%

17:30 US initial jobless claims Jan 17: forecast 209k

19:00 US personal income Nov: forecast 0.4%

19:00 US PCE price index y/y Nov: forecast 2.8%

Fixed Income

US Treasuries had a choppy day overnight, interpreting the impacts of the geopolitical tensions between the US and European nations. Yields on the 2yr UST ultimately ended the day down 1bps at 3.5845% while the 10yr yield was lower by almost 5bps at 4.2428%.

JGBs showed some recovery after a sharp sell off earlier in the week with the 10yr JGB yield down almost 8bps to 2.276% while the 20yr yield fell 20bps, recovering all its move from the rapid sell off on 20 January 2026.

The US Supreme Court is hearing arguments in the case of whether Fed governor Lisa Cook committed mortgage fraud with several conservative members of the court expressing scepticism over the government’s push to dismiss her.

Regional credit markets caught an uplift yesterday with gains across all geographies in the GCC as well as across nearly all sectors.

FX

Currency markets reversed some of their gains from earlier in the week as the geopolitical temperature between the US and Europe eased. EURUSD fell 0.3% to 1.1685, GBPUSD was lower by 0.1% to 1.3429 while Japanese yen ticked up to 158.30. USDCHF also pushed higher, up by 0.7% to 0.7956.

In emerging currencies, the Indian rupee extended its losses for a 10 th day in a row, with USDINR rising by 0.8% to 91.705. Turkish lira was unchanged while the Egyptian pound was stronger by 0.2% at 47.3887.

Equities

Equity markets had a more confident session overnight with the Dow Jones, the S&P 500 and the NASDAQ all rising by 1.2%. European markets were still mixed with a gain 0.1% in the FTSE and a loss of 0.2% in the Euro Stoxx.

Local markets remained bid. The DFM index was higher by 0.4% while the ADX gained 0.1%. In Saudi Arabia the Tadawul rose by 0.3%.

Commodities

Oil prices edged higher overnight with 0.5% gains in both Brent and WTI to USD 65.24/b and USD 60.62/b respectively.

The API reported a build in US stocks of 3m bbl last week along with a large increase in gasoline inventories.

The IEA revised up its oil demand growth forecast for 2026 to 0.93m b/d from 0.86m b/d previously. All of the growth in oil demand this year is still set to come from emerging economies with Asia alone representing almost 600k b/d. The IEA expects the global oversupply to reach 2.5m b/d on average in 2026 provided OPEC+ carries on with its production increases.

Precious metals had a mixed session with gold up 1.4% to USD 4,831.73/oz while silver was down 1.6% at UDS 93.06/oz.