Sell America is Back

STOCK INDEX FUTURES

The indexes are lower to start the week as political tension between the US and Europe over Greenland triggered a broad selloff across US stocks and bonds. President Trump’s renewed tariff threats against European allies prompted a repeat of the “Sell America” trade, which emerged after last year’s “Liberation Day” tariff announcement in April. Traders are dumping American assets on fears of prolonged uncertainty and a potential retaliation. Trump warned that eight NATO members, namely Denmark, Norway, Sweden, Finland, Germany, the UK, France and the Netherlands, could face a 10% tariff beginning February 1, which could rise to 25% on June 1 unless a deal for Greenland is reached. European leaders condemned the remarks as unacceptable while weighing their options for possible retaliation. Focus is now turning to the World Economic Forum in Davos, where Trump is reportedly set to hold a meeting with other countries over Greenland.

Ahead of that, a potential Supreme Court ruling on the legality of Trump’s use of emergency powers to impose sweeping tariffs could come as well. On the corporate front, results from Netflix due after the bell on Tuesday and Intel on Thursday. As of January 16, 7% of S&P 500 companies have reported fourth quarter results, according to FactSet data. Wall Street analysts estimate an 8.2% increase in earnings per share for the fourth quarter. If that rate holds, it will represent the 10th consecutive quarter of annual earnings growth for the index.

CURRENCY FUTURES

US DOLLAR: The USD index is set for its largest daily fall in over a month as political tensions between Washington and Europe over Greenland weigh on the greenback. The extent to how long the selloff persists will likely be tied to events at this week’s meeting in Davos. Tariff threats have had a marginal effect on the dollar in previous events since the Trump administration gained power. However, a major escalation with NATO allies is likely to sting harder if no resolution or agreement is made. Looking ahead, PCE inflation figures for November will be released Thursday. PCE inflation is the Federal Reserve’s preferred measure of inflation and will be closely watched, particularly after recent jobs data showed an drop in the unemployment rate.

EURO: The euro is higher and heading for its biggest one-day rally as investors flocked away from the dollar following the escalating tensions between the US and major NATO allies over Greenland. President Trump threatened several European allies with 10% tariffs until a deal for Greenland is reached, while the EU is considering broad retaliatory measures, including tariffs of up to €93 billion on US goods. It is a relatively quiet week on the data front, so political headlines are likely to shape price movements for the euro. On the data front, Germany’s ZEW Economic Sentiment Index jumped to 59.6 in January, its highest since July 2021 and well above forecasts of 50, signaling optimism for a 2026 economic turnaround despite uncertainties surrounding US trade policy.

BRITISH POUND: The pound is higher as traders ditched the dollar. UK jobs data released earlier in the morning was seemingly weak at its headline figure as unemployment held near a five-year high as the number of workers on payroll dropped by the most in over five years. Payrolls fell by 43,000 in December, while November’s figure was revised to show a drop of 33,000. However, in a positive for officials at the Bank of England, the jobs report showed that redundancies fell, while vacancies and the unemployment rate stabilized, along with the inactivity rate falling. Wage growth, a key metric for the Bank of England, also slowed. Annual pay growth in the private sector excluding bonuses, a closely watched metric by the Bank of England, slowed to 3.6% in the three months to November, its slowest rise since November 2020, from 3.9% in the three months to October. The easing in wage growth is likely to assuage some fears over persistent inflationary pressures as the bank looks to cut rates again sometime in 2026. The BoE is expected to hold rates at 3.75% next month and inflation data due tomorrow could be a key indicator for when the bank next cuts rates. Annual inflation fell more than expected to 3.2% in November, signaling that inflation could be slowing. Forecasts are expecting inflation to edge back up to 3.3% in December, but BoE governor Andrew Bailey said he expects inflation to fall to 2% in April or May.

JAPANESE YEN: The yen gained against the dollar alongside a sharp rise in JGB yields. Prime Minister Sanae Takaichi has called snap elections for February 8 and has pledged a wave of measures to loosen fiscal policy, which has unnerved investors in Japanese sovereign bonds about the country’s fragile public finances. Traders are also focused on the Bank of Japan’s policy meeting this week, though rates are expected to stay on hold following a hike in December. Traders will watch for any hawkish signals from Governor Ueda as speculation rises that the next hike from the bank could come at its June meeting.

AUSTRALIAN DOLLAR: The Aussie is higher as the dollar broadly weakened amid the rising tensions between the US and major allies. Investors’ focus was also on the sale of a new 2037 Treasury bond by the Australian government, which will be priced on Wednesday. Investor demand has been strong, with the early order book topping A$42 billion, compared with previous sales of around A$15 billion. Further supporting the currency’s strength is rising expectations of higher interest rates as signs of re-accelerating inflation have appeared in recent data. The Reserve Bank of Australia is expected to remain patient, potentially delaying any policy moves until more data paints a clearer picture on prices. Recent data showed that Australia’s Monthly Inflation Gauge, compiled by the Melbourne Institute, rose 1% month-on-month in December 2025, the fastest pace since December 2023 and accelerating from the 0.3% gains recorded over the previous two months. However, the RBA prefers quarterly data over the monthly gauge, which will come later in the month.

INTEREST RATE MARKET FUTURES

Yields are higher across the curve as a wave of the “Sell America” trade grips markets following a rise in JGB yields and President Trump’s threats to impose tariffs on major US allies over Greenland. The 10-year yield jumped about 7bps to 4.29%, hitting highs last seen in August, as a global bond sell-off was initially triggered by heavy selling in Japan. Prime Minister Takaichi will dissolve parliament and call a snap election, campaigning on tax cuts for food, and investors grew concerned that it could further strain Japan’s fiscal position. In the US, Trump threatened a 10% tariff starting February on major allies unless a deal to buy Greenland is reached.

Attention is also focused on the Supreme Court, where a ruling on Trump’s use of emergency powers to implement tariffs could come, while the court is also set to hear arguments over whether or not the president can fire Governor Cook. No president had attempted to remove a Fed governor in the central bank’s 112-year history until Trump tried to fire Cook last August. Inflation data out Thursday will be important for interest rate expectations following December’s payrolls data, which reflected a stable labor market. Money markets currently price in a rate cut in July and are favorable of an earlier move in June

The spread between the two- and 10-year yields is 69.60 bps, while the two-year yield, which reflects short-term interest rate expectations, is 3.593%.

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