Key Highlights

• President Trump’s trip to Davos delayed due to an electrical fault on Air Force One.
• Bank Indonesia holds rates at 4.75%, noting future cuts are “data-dependent.”
• European Commission President Ursula von der Leyen warns the EU is ready to retaliate over Greenland.

Chart of the Day

Scored holdings and flows, cross-border basis in APAC over the past month

^{Source: BNY}

BI’s decision overnight reaffirmed the authorities’ intent to stabilize the country’s exchange rate. For many EM economies, realizing inflation guidance is crucial in maintaining real rates and currency stability, even with developed market currencies under pressure and facing downside risk in interest rates. Looking at the setup in APAC FX over the past month, we continue to see a renewed push to acquire savings-heavy economies rather than yield. Like counterparts in Latin America and EMEA emerging markets, INR and IDR remain overheld but flow momentum is weak. IDR is only just about managing inflows, whereas INR is currently the worst-performing APAC name. In contrast, almost every single economy in the region with a strong current account surplus is seeing net inflows, led by TWD, which has benefited the most from AI/semiconductor-driven export growth. KRW is now facing outflows again, but from a very strong holdings level, indicating that cross-border hedge reduction is largely complete. The market is also slowly acknowledging China’s support for a stronger CNY, even though this will be done on a gradual, managed basis. We do not see INR and IDR benefiting materially from the safety push into APAC, but their economies can take advantage of a structural reallocation into the region, pending a more compelling growth and policy narrative, especially regarding fiscal sustainability.

What's Changed?

The fiery mx of higher bond yields, lower share prices and a lower USD has burned out. Investors remain calm, as they consider buying dips, and yet are cold to any new uncertainty. President Trump’s Davos speech will be the next key event, with many expecting de-escalations over Greenland. The biggest mover isn’t rates or stocks, but cold weather, with natural gas in the U.S. up 50% in two days. JGBs have rallied, clawing back about yesterday’s losses. Chinese stock markets have rallied after a strong bond auction. EU markets have extended their losses, while bonds have picked up again. USD is in a holding pattern, while EM has rallied and gold has set yet another new record high.

• Japan: Buy-the-dip trading in bonds showed up overnight, as banks vowed to increase domestic debt holdings. However, the damage from increasing volatility has spilled over to global bonds. Risk parity programs clearly suffered yesterday and will likely remain under pressure. The effect of markets on the election has brought opposition calls to act decisively, while Finance Minister Satsuki Katayama is not ruling out FX intervention. For investors, JGB yields remain a key risk barometer, with 2.25% a pivotal yield point.
• Central bankers: ECB President Christine Lagarde has stated the obvious: that uncertainty had returned to markets after the latest round of tariff threats, with long term worries about rewiring global alliances, speeding up EU integration. Former SNB Chairman Philipp Hildebrand has warned that determining AI bubble risks is key to understanding inflation ahead along with politics. BoK Governor Rhee Chang Yong has said that KRW weakness is not just a South Korean problem and sees the currency recovering to 1400 in the next few months. Further risks of intervention in KRW and JPY are adding to the focus in APAC on joint action with the U.S.
• Trump and Davos: Investors are waiting to hear from the U.S. president today, although the three-hour plane delay may alter the schedule. Before Trump left, he signed another executive order banning institutional investors from buying single-family homes. He also floated the idea that tariff revenues would suffice to end national income taxes.

Bottom line: The noise generated by the WEF remains key, but macro events will compete with micro news today, as Q4 earnings roll on and investors’ underwhelming response to earnings projections being beaten stands out. The role of CEO guidance on demand is holding much more weight. The lack of enthusiasm for stocks and the keen focus on economic growth matter to all markets. The flows in and holdings of equities over bonds represent another problem, as the iFlow Mood index remains positive despite the last two days of selling. The focus on politics, geopolitics and policy may miss the more subtle shifts in thinking about Q1 outlooks and risk. 

What You Need to Know

European Commission President Ursula von der Leyen has warned that the EU is ready to retaliate against President Trump over tariff threats linked to his push to acquire Greenland, signaling a tougher stance toward Washington. Speaking to the European Parliament, von der Leyen said the EU preferred dialogue but was “fully prepared” to act with unity and speed if necessary, arguing that the transatlantic order built with U.S. cooperation had fundamentally changed. Her comments come ahead of Trump’s Davos appearance and after his announcement of phased tariffs on goods from eight European countries unless Denmark agrees to sell Greenland. EU leaders are preparing potential countermeasures, delaying trade talks, boosting investment in Greenland and reassessing Europe’s broader security strategy. Euro Stoxx 50 -0.359% to 5870.92, EURUSD -0.154% to 1.1707, BBG AGG Euro Government High Grade EUR +1bp to 2.973%.

Bank Indonesia held its policy rate at 4.75% at its January meeting, alongside the deposit facility at 3.75% and the lending facility at 5.50%, reflecting a continued focus on rupiah stability amid elevated global uncertainty. The central bank reiterated its commitment to safeguarding the inflation target of 2.5±1% for 2026-2027 while supporting economic growth through strengthened monetary, macroprudential and payment system policies. Measures include intensified foreign exchange intervention, pro-market monetary operations and enhanced macroprudential liquidity incentives to support credit growth. Bank Indonesia also highlighted resilient domestic growth, contained inflation at 2.92% y/y in December, adequate foreign reserves of $156.5bn and a stable financial system, while remaining vigilant regarding global risks. JCI -1.362% to 9010.33, USDIDR -0.089% to 16935, 10y IDGB +1.3bp to 6.334%.

U.S. Treasury Secretary Scott Bessent has warned European allies against escalating military activity in Greenland, criticizing recent deployments by Denmark and other NATO members and opposing France’s proposal for a NATO exercise on the island. Speaking ahead of President Trump’s arrival at Davos, Bessent questioned the signal sent by what he described as largely symbolic troop movements and rebuked French President Emmanuel Macron, arguing Paris should prioritize domestic fiscal challenges. His remarks underline intensifying transatlantic tensions as Trump renews demands that Denmark relinquish Greenland on national security grounds and threatens tariffs on allied countries. Bessent also dismissed speculation that Europe could retaliate by selling U.S. Treasurys, calling such concerns a false narrative. S&P Mini +0.282% to 6848.75, DXY -0.018% to 98.624, 10y UST -2.2bp to 4.271%.

Pentagon officials say they have not been instructed to plan for an invasion of Greenland or manage its aftermath, despite President Trump repeatedly raising the possibility of using military force to seize the Danish territory. While the U.S. military routinely prepares for a wide range of contingencies, defense officials have privately expressed unease that Trump continues to publicly hold out the option of attacking a NATO ally. Military analysts note that a takeover would be relatively straightforward given Greenland’s sparse population and existing U.S. presence, but senior commanders warn that even planning for such an operation would carry profound political and alliance risks. European troop deployments to Greenland have further heightened concern within the Pentagon about potential damage to NATO cohesion.

What We're Watching

U.S. October construction spending forecast to rise 0.1% m/m vs. 0.2% in August.

U.S December pending home sales are expected to come in flat m/m vs. 3.3% in November.

U.S. Treasury sells $69bn in 17-week bills and $13bn in a 20y bond reopening.

What iFlow is Showing Us

Mood: iFlow Mood continues to surge, surpassing its December 2024 high to reach 0.322, led by increasing demand for equities and an acceleration in the pace of core sovereign bond selling.

FX: AUD, CZK and ILS posted the most outflows, while PLN, COP and JPY recorded the most inflows.

FI: Broad demand for G10, LatAm and Chinese government bonds, against selling in EMEA, above all in Israeli government bonds.

Equities: APAC and EMEA equities were better bid, led by Indonesia and China, against mixed flows in G10 and LatAm equities. U.S. and Mexican equities were sold, against buying in Japan, Australia, Brazil and Peru.

Quotes of the Day

“What good is the warmth of summer, without the cold of winter to give it sweetness.” – John Steinbeck

“Man dies of cold, not of darkness.” – Miguel de Unamuno 

Economic Details

France’s December retail sales volumes fell 1.8% m/m, reversing a 1.6% rise in November, reflecting declines in both food and manufactured goods. Food sales slipped 0.9% m/m after a 1.0% increase, while manufactured goods fell 2.5% m/m following several months of gains. Within manufactured goods, new car sales dropped 6.6% m/m after a strong rebound, with sharp falls in jewelry and watches at 8.9% m/m and household appliances at 7.0% m/m. By contrast, cycles and motorcycles rose 2.1% m/m and pharmacy sales increased by 0.4% m/m. Sales decreased across all distribution channels. Over the quarter, retail volumes rose 0.6% compared with the previous three months. CAC 40 -0.124% to 8052.59, EURUSD -0.154% to 1.1707, 10y OAT -1.7bp to 3.51%.

The U.K.’s CPIH rose 3.6% y/y in December, accelerating from 3.5% in November, while the m/m increase was 0.4%, compared with 0.3% the previous December. CPI inflation also firmed up, rising 3.4% y/y from 3.2% previously, with a matching 0.4% m/m increase. Alcohol and tobacco, and transport, made the largest upward contributions to the change in both CPIH and CPI annual rates. Core CPIH was unchanged at 3.5% y/y, as goods inflation edged up to 2.2% from 2.1% and services inflation remained at 4.5%. Core CPI was steady at 3.2% y/y, with goods inflation rising to 2.2% and services inflation increasing to 4.5%. FTSE 100 +0.026% to 10129.39, GBPUSD -0.134% to 1.3421, 10y Gilt -2.8bp to 4.43%.

U.K. producer prices showed easing upstream cost pressures in December, while factory gate inflation was steady. Producer input prices rose 0.8% y/y, down from 1.1% in November, and fell 0.2% m/m. Producer output (factory gate) prices increased 3.4% y/y, unchanged November’s y/y figure, and were flat m/m. Import price pressures remained positive, with the import price index up 1.3% y/y in December. In the services sector, producer prices accelerated, rising 2.9% y/y in Q4 (October-December), up from a revised 2.0% in Q3, while services producer prices increased by 0.7% q/q in Q4.

U.K. private rents rose 4.0% y/y in December to £1,368, easing from 4.4% in November. English rents increased by 3.9% y/y to £1,424, while Wales and Scotland recorded growth of 5.7% to £822 and 2.8% to £1,018, respectively. Rents in Northern Ireland were up 5.7% y/y to £873 in October. Within England, annual rent inflation ranged from 7.9% in the North East to 2.1% in London. U.K. house prices rose 2.5% y/y to £271,000 in November, accelerating from 1.9% the previous month. Prices in England increased by 2.2% y/y to £293,000, Wales rose 0.7% to £209,000 and Scotland climbed 4.5% to £193,000. Both series are provisional estimates.

South Africa’s December CPI rose 3.6% y/y, up from 3.5% in November, while prices increased by 0.2% m/m. The acceleration in annual inflation was driven mainly by housing and utilities, which rose 4.9% y/y and contributed 1.2 percentage points, alongside food and non-alcoholic beverages at 4.4% y/y contributing 0.8 percentage points, and insurance and financial services at 7.0% y/y contributing 0.7 percentage points. Goods inflation increased to 3.0% y/y from 2.9%, while services inflation rose to 4.2% y/y from 4.1%. Housing and utilities and transport were the main contributors to the 0.2% m/m increase. JSE TOP 40 +0.495% to 113248.2, USDZAR -0.548% to 16.3349, 10y SAGB -6.4bp to 8.374%

Australia’s December Westpac-Melbourne Institute Leading Index showed the six-month annualized growth rate edging up to 0.42%, from 0.20% in November, pointing to modest above-trend momentum three to nine months ahead. The rise is consistent with the economic recovery seen in 2025 extending into 2026, though momentum remains weak and well short of levels associated with a strong growth pulse. Since mid-2025, the growth rate has climbed by 0.38 percentage points, driven mainly by higher AUD-denominated commodity prices and a recovery in dwelling approvals. Other components were broadly neutral. Westpac expects GDP growth of around 2.4% this year, near trend, and sees scope for the RBA to keep rates on hold in February. ASX +0.067% to 5460.33, AUDUSD +0.208% to 0.6751, 10y ACGB -0.1bp to 4.781%.

Non-resident bond holdings of New Zealand government bonds dropped to 59% of the total in December, falling to $111.18bn in nominal bonds. Total government bonds outstanding rose to $227.9bn in December, up from $226.7bn in November, continuing the steady increase seen through the second half of the year. Nominal bonds accounted for the bulk of issuance, rising by $1.1bn m/m. Non-resident holdings edged lower m/m but remained significantly higher than a year earlier, underscoring the strong foreign presence in the market. Domestic holdings were led by financial corporations at $74.7bn, followed by households at $0.8bn, while central government holdings increased marginally to $11.2bn. NZX 50 -1.155% to 13417.17, NZDUSD +0.223% to 0.5845, 10y NZGB +4.5bp to 4.56%

South Korea’s January trade data (first 20 days of January) showed exports of $36.4bn, rising 14.9% y/y, while imports totaled $37.0bn, up 4.2% y/y. The stronger export performance contrasted with more moderate import growth, pointing to a firmer external demand backdrop at the start of the year. By comparison, the previous full-year period saw exports rise 3.8% y/y, while imports were flat, highlighting a clear acceleration in export momentum relative to last year. We remain on watch for additional action on KRW, on either a unilateral or a coordinated basis, though we doubt this will have much of an impact on export volumes for now. KOSPI +0.495% to 4909.93, USDKRW -0.549% to 1469.45, 10y KTB +8.1bp to 3.646%.