Market Movers: Speed Bumps

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Key Highlights

Chart of the Day

WEEKLY SCORED FLOW IN GLOBAL SOVEREIGN DEBT – EUROPE CONTINUES TO LEAD DEBT DEMAND

Source: BNY

One of the big surprises at the beginning of the year in asset allocation has been the strong showing in European debt issuance. Earlier this month we highlighted that such interest has also been captured in iFlow, even though it would be a sign of secondary market demand. Two weeks into the year, the strength of flows into developed European fixed income is becoming increasingly clear, as the region outperforms all others. Furthermore, the individual performance of each region tells of the idiosyncrasies of current monetary and fiscal conditions. For example, EM Americas ranks second to DM EMEA, in a sign that real rates remain strong in the region, and the strength of the global metals/commodity market is supporting terms of trade in the process. DM Americas, led by the U.S., indicates general stability in the U.S. Treasury market, emphasizing the view that the “sell U.S.” story is not present. DM APAC supports the view of further tightening or steepening in Japan and Australia. EM EMEA and EM APAC are the main markets facing sales: the former continues to struggle with fiscal dominance risk, while the latter is still a funding currency story, even though pressure is now growing on their currencies to appreciate. The strength of DM EMEA supports our view that hopes of a year-end pivot toward inflation risk across developed Europe has failed to materialize, and markets are now once again looking to add easing into their pricing.

What's Changed?

Friday reveals a speed bump for the uptrend in industrial metals, resulting in less momentum buying across markets. The copper-to-equity correlation is nearing its historic highs. Global shares are mixed, with APAC up and EMEA down, while U.S. futures have extended their bounce, led by tech and small caps. Commodities are negotiating a speed bump as China curbs high-frequency trading, but oil is higher on news that the U.S. is sending an aircraft carrier to the Middle East. USD has moved lower on risk of joint intervention in JPY, while in EM the focus is on a weaker INR because of foreign selling linked to bonds. Yields are higher on government and corporate supply and a focus on central banks holding their rate policy unchanged for a long time.

·       Central bankers and shock proofing. The ongoing defense of independence is producing further “shock proofing” pushes for governments. Mark Carney’s visit to Xi Jinping in China is one example; Philip Lane of the ECB calling for growth acceleration is another. The U.S. focus on Federal Reserve Chairman Jerome Powell has the WSJ suggesting a battle in the Senate over loyalists.

·       Metals, energy and electricity mood constraints. Beyond China’s efforts to curb silver and gold speculation and now industrial metals, other headlines are slowing momentum. U.S. markets will be watching an emergency wholesale electricity auction, monitoring what it costs for technology companies to fund new power plants. The 20% spike in natural gas in Europe is also adding to worries, with repercussions for the EU industrial recovery.

·       FX and intervention. Japanese Finance Minister Satsuki Katayama has said she “won’t rule out any options” to counter the yen’s weakness, including potential coordinated intervention with Washington. This helped send USD lower in Asia, but has had less effect elsewhere. The risk for U.S. investors is in the potential unwind of hedging that has helped add to Japan asset returns.

Bottom line: Today brings with it more Q4 earnings, U.S. industrial production numbers, more housing market data, more Fedspeakers and the usual worry about what could change, as we head into a long holiday weekend with a keen focus on Iranian protests, Venezuelan oil and Greenland talks. Next week will also bring a greater focus on Japan – from snap elections to BoJ policy – on earnings and on the U.S. president, who will be speaking at the World Economic Forum in Davos WEF, with high expectations of a larger reveal on housing affordability. The supreme court rulings on tariffs and hearings on Lisa Cook will also attract plenty of attention. This leaves ample event risk, even as the opening bell seems set to ring up risk-taking across markets; however, the dissonance of metal prices’ correlation to shares could be the warning signal that matters.

What You Need to Know

Japan’s Finance Minister Satsuki Katayama has reiterated that all options, including direct currency intervention, remain available to address recent yen weakness, saying moves have been excessive and disconnected from fundamentals. She said she and U.S. Treasury Secretary Scott Bessent shared that assessment during talks in Washington and argued that last year’s bilateral foreign exchange statement gives Japan a free hand to act. Katayama downplayed suggestions that the U.S. prefers BoJ policy adjustments over intervention. Her remarks briefly strengthened the yen to 157.98 per dollar from around 158.40. A subsequent U.S. Treasury statement stressed the undesirability of excess volatility and the importance of sound monetary policy communication. Japan spent about $100bn supporting the yen in 2024 and has not intervened since. Nikkei -0.322% to 53936.17, USDJPY -0.322% to 158.12, 10y JGB +2.7bp to 2.19%

The U.S. and Taiwan have struck a trade agreement cutting U.S. tariffs on most Taiwanese goods to 15% in exchange for a $250bn investment commitment tied to the semiconductor supply chain. Under the deal, Taiwanese chip and technology companies will invest $250bn in U.S. manufacturing, with Taipei providing matching credit guarantees, while selected goods such as generic drugs and aerospace parts will be exempted from tariffs. The agreement establishes quotas for tariff-free chip imports, benefiting Taiwan Semiconductor Manufacturing Co, and marks a breakthrough after Washington threatened steep levies on foreign-made chips last year. Taiwan said the deal levels the playing field with Japan and South Korea, though parliamentary approval is still required and analysts are continuing to assess the implications for TSMC’s long-term investment strategy. TAIEX +1.941% to 31408.7, USDTWD -0.057% to 31.563, 10y TGB -0.1bp to 1.39%

Canada and China have reached some accommodation on trade after a meeting between Prime Minister Mark Carney and President Xi Jinping. In a joint statement, the countries agreed to reaffirm their commitment to multilateralism and to strengthen high-level dialogue and cooperation across macroeconomic policy, trade, energy, finance and agriculture. That includes restarting the China-Canada economic and financial strategic dialogue and launching a ministerial energy dialogue. Carney announced that Canada will allow 49,000 Chinese EVs at a 6.1% tariff rate, and China is expected to cut canola duties to 15% by March 1. TSX 60 future +0.166% to 1929.8, USDCAD +0.022% to 1.3894, 10y CGB -0.5bp to 3.353%.

The U.S. has begun selling Venezuelan crude oil at significantly higher prices after seizing control of exports following the capture of former president Nicolás Maduro, according to Energy Secretary Chris Wright. Washington has completed an initial sale worth about $500mn and is securing prices roughly 30% higher than those achieved by Venezuela weeks earlier, with further sales expected on an ongoing basis. President Trump said Venezuela would hand over up to 50 million barrels currently under U.S. sanctions, with proceeds overseen by his administration. He also announced at least $100bn of planned investment by oil companies to rebuild Venezuela’s energy sector, despite industry concerns over political risk, underinvestment and unresolved expropriation claims. IBVC -5.879% to 5242.02, USDVES +1.97% to 341.118610y VGIB +0.2bp to 41.487%.

Metals prices fell as China moved to curb high-frequency trading, cooling sentiment after a surge driven by heavy speculative activity in mainland futures markets. Regulators ordered exchanges including the Shanghai Futures Exchange to remove high-speed trading servers from their data centers. This prompted falls in copper, zinc and aluminum in Shanghai and on the London Metal Exchange. The measures are expected to reduce intraday volumes and volatility but not alter underlying fundamentals, according to market participants. The sell-off followed a week of record highs for copper and tin amid strong investor appetite for real assets. However, elevated prices are already dampening physical demand in China, while uncertainty over potential U.S. copper tariffs later this year adds downside risks. Aluminum (LME) -1.12% to 3169.65, iron ore (SGX) -0.85% to 106.15, copper (CMX) -1.569% to 589.75.

What We're Watching

U.S. December industrial production is forecast up 0.1% m/m from 0.2% in November, with manufacturing production expected at -0.1% from 0% in November. Capacity utilization is forecast to be unchanged at 76%.

U.S. January NAHB housing market index is expected at 40 from 39 in December.

Central bank speakers: Fed Vice Chair for Supervision Michelle Bowman speaks to the Massachusetts Bankers Association on the economic outlook and monetary policy; Fed Vice Chair Philip Jefferson gives a keynote address at the American Institute for Economic Research conference.

What iFlow is Showing Us

Mood: iFlow Mood surged to 0.167 with substantially reduced selling pressure in equities, while outflows in core sovereign bonds picked up.

FX: Mixed flows, with CZK, AUD, BRL dominating outflows while SGD, HKD and PLN posted the most inflows. Elsewhere, USD, JPY and EUR posted light inflows, against outflows in GBP and AUD.

FI: Broad buying in the G10 complex, led by Australian government bonds. Peruvian, Polish, Chinese and Indonesian government bonds posted strong inflows. Israeli government bonds posted the most outflows, followed by South Korea.

Equities: The U.S. and South Korea posted the most selling, while strong buying was observed in Peruvian, Indonesian and Swedish equities. 

Quotes of the Day

“It’s your job to make sure that a speed bump doesn’t become a roadblock.” – Derek Jeter

“Speed and efficiency do not always increase the quality of life.” – Robert Fulghum

Economic Details

Italy’s December 2025 consumer price index rose by 0.2% m/m and 1.2% y/y (from 1.1% y/y in November), confirming the flash estimate. Average annual inflation for 2025 was 1.5% y/y (1.0% in 2024), with core inflation at 1.9% y/y (2.0% in 2024). Annual increases were driven by transport services (+2.6% y/y), unprocessed food (+2.3% y/y) and miscellaneous services (+2.2% y/y), while non-durable goods (+0.6% y/y) and regulated energy (-5.2% y/y) declined. Monthly rises were led by transport services (+3.1% m/m) and unprocessed food (+0.4% m/m). The HICP rose 0.2% m/m and 1.2% y/y, with 2025 average inflation at 1.7% (1.1% in 2024). FTSE MIB -0.238% to 45740.72, EURUSD +0.035% to 1.1613, 10y BTP +1.2bp to 3.456%.

Germany’s December CPI rose 1.8% y/y and was flat m/m, confirming preliminary results, while the annual average inflation rate in 2025 stood at 2.2% y/y, unchanged from 2024. The harmonized CPI increased by 2.0% y/y and 0.2% m/m in December, with the 2025 average at 2.3% y/y. Core inflation, excluding food and energy, averaged 2.8% y/y in 2025, down from 3.0% in 2024. Services prices increased by3.5% y/y over the year, led by passenger transport, social services and insurance. Goods prices rose 1.0% y/y, with food prices up 2.0% and energy prices down 2.4%, while December energy inflation fell to -1.3% y/y. DAX -0.106% to 25325.49, EURUSD +0.035% to 1.1613, 10y Bund +0.9bp to 2.828%.

Türkiye’s January Survey of Market Participants showed inflation expectations remaining elevated across horizons, with 12-month-ahead CPI inflation seen at 22.2% and 24-month-ahead inflation at 16.9%. End-2026 inflation expectations were placed at 17.8%, while the implied inflation path showed a gradual but slow disinflation profile. Monthly inflation expectations stood at 3.76% for the current month and 1.84% two months ahead. Participants forecast GDP growth at 3.9% in 2026 and 4.3% in 2027. The current account balance was seen at a deficit of $25.6bn in 2026 and $29.5bn in 2027. The CBRT policy rate was expected at 28.0% by end-2026 and 21.1% by end-2027. BI 100 +0.672% to 12540.36, USDTRY +0.117% to 43.276, 10y TGB +8bp to 29.97%.

New Zealand December PMI manufacturing surged to 56.1 from an upwardly revised 51.7 – the highest figure since December 2021. All five sub-indices expanded, led by new orders (59.8) and production (57.4), while employment improved to 53.8. Positive sentiment rose to 57.1% from 54.4% in November, driven by seasonal Christmas demand and stronger domestic sales, exports and new business. The data signal strong Q4 GDP momentum, with upside risks to near-term manufacturing and GDP growth forecasts. NZX 50 +0.427% to 13718.1, NZDUSD +0.174% to 0.5761, 10y NZGB +4.2bp to 4.438%.

New Zealand food prices rose 4.0% y/y in December 2025, down from 4.4% in November. Key contributors included grocery food (+4.6% y/y) and meat, poultry and fish (+7.4% y/y). Notable price increases were milk (+15.8% y/y), beef steak (+21.7% y/y) and white bread (+58.3% y/y). A fall in olive oil prices was the biggest offsetting factor. Monthly food prices decreased by 0.3% m/m in December, led by falls for non-alcoholic beverages (-2.1% m/m) and meat (-0.9% m/m), while fruit and vegetables rose 1.8% m/m. Electricity and gas prices increased by 1.5% and 1.9% m/m, and 12.2% and 17.5% y/y, respectively.

Malaysia’s advance GDP estimates for Q4 2025 grew 5.7% y/y, up from 5.2% in Q3 2025, supported by strong services, manufacturing, construction and agriculture sectors. Services grew 5.4% y/y (Q3: 5.0%), led by wholesale and retail trade, transportation and storage, and food and beverages. Manufacturing increased to 6.0% y/y (Q3: 4.1%), driven by electronics and food processing. Agriculture surged to 5.1% (Q3: 0.4%), led by an oil palm recovery. Mining slowed to 1.1% (Q3: 9.7%), affected by moderating crude oil prices and a contraction for natural gas. Construction grew 11.9% (Q3: 11.8%). Full-year 2025 GDP eased to 4.9% from 5.1% in 2024. KLCI -0.326% to 1709.57, USDMYR +0.008% to 4.0557, 10y MGB -0.4bp to 3.539%.

Singapore non-oil domestic exports (NODX) grew by 6.1% y/y in December 2025, down from 11.5% y/y in November 2025. Growth was led primarily by non-monetary gold and supported by electronic products such as ICs and disk media products. Non-oil re-exports (NORX) expanded by 15.0% y/y in December 2025, extending the 14.5% y/y rise in November 2025; electronics increased while non-electronics fell. Singapore total trade expanded by 12.3% in December 2025, following the 8.7% increase in November 2025; both exports and imports rose. STI +0.238% to 4844.84, USDSGD -0.039% to 1.2875, 10y SGB +0.5bp to 2.185%.

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Bob Savage
Head of Markets Macro Strategy
robert.savage@bny.com

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