Markets Recoup Most Early-Week Losses

For the week ending 23 January 2026

As of midday Friday, global equities were modestly lower on the week. The yield on the US 10-year Treasury note rose five basis points to 4.24% as concerns over fiscal policy in Japan pushed global yields higher this week. The price of a barrel of West Texas Intermediate crude oil rose $1.20 to $61.25 while volatility, as measured by the futures contracts on the Cboe Volatility Index (VIX), was unchanged at 18.15.

MACRO NEWS

Greenland has its week in the spotlight

Last weekend, US President Donald Trump ratcheted up the pressure on Greenland in order to take control of the arctic territory for national security purposes, threatening eight European countries with tariffs of 10% — which would ramp up to 25% on June 1 — while implicitly threatening to use military force, if necessary. That is until Trump arrived in Davos on Wednesday to address the World Economic Forum, where he explicitly ruled out the use of force. As a result, markets breathed a sigh of relief, and the S&P 500 recovered much of the ground lost Tuesday due to fears of another round of tit-for-tat tariffs. On Wednesday afternoon, after meeting with NATO Secretary General Mark Rutte, Trump announced that a framework for a deal had been agreed upon that will allow the US access to Greenland; Trump then dropped the tariff threat. According to reports, a major part of the deal is that the US will have sovereignty over all its military bases in the territory. The structure of the agreement is still being worked out, Trump said Thursday.  

Japanese yields rise on snap election

Japanese Prime Minister Sanae Takaichi dissolved the lower house of parliament on Friday and called a parliamentary election for February 8. Promises to cut consumption taxes on food and beverages helped spur a slide in Japanese government bonds this week, a move that spilled over into global bond markets. The yield on the 20-year JGB reached nearly 3.46% on Tuesday before subsiding to 3.27% on Friday morning after Japanese officials took pains to calm markets. Japanese Finance Minister Satsuki Katayama said the government will consider financing options for the tax-cut measure, including reducing redundant spending and reviewing tax exemptions, and that the measure would not require additional bond issuance. The Bank of Japan met on Friday and left policy unchanged, but it signaled it intends to continue gradually hiking interest rates.

QUICK HITS

Preliminary global purchasing managers’ indices were resilient in January, with the United Kingdom and Japan showing marked upticks.

Unemployment in the UK held steady in November at 5.1%.

China’s economy grew at a 4.5% annual rate in Q4 but reached the country’s 5% target for the full year.

Negotiators from Russia, Ukraine and the US are meeting today in Abu Dhabi for the first trilateral peace talks since start of the war.

US Treasury Secretary Scott Bessent met with China’s lead trade negotiator He Lifeng at Davos on Monday. Bessent urged China to increase their purchasing of US soybeans. On Thursday, Bessent told Politico that the US-China relationship has reached a “very good equilibrium” wherein disagreements are less likely to turn into full-scale conflict as they did last year. Trump and Chinese President Xi may meet as many as four times this year, Bessent said.

Analysts at Deutsche Bank this week declared the “AI honeymoon” over. Generative AI will be transformative, they said — but not right now.

UK retail sales, excluding fuel, rose a much-stronger-than-expected 3.1% year-over-year in December.

US lawmakers clinched a deal on the last set of spending bills to fund the government by the January 30 deadline. The House approved the package on Thursday, and it will now move to the Senate.

President Trump signed an executive order this week that stops well short of what had been touted as a ban on the purchase of single family homes by institutional investors. He called on Congress to codify a ban.

Despite frantic headlines of a “sell America” trade over the tumult regarding Greenland, Wednesday’s $13 billion US 20-year Treasury bond auction went off without a hitch amid solid demand for what is traditionally one of the least-loved maturities.

President Trump, speaking at Davos, repeated that he’s inclined to keep Kevin Hassett as a White House advisor while saying he wants to pick someone like Alan Greenspan to run the Fed. He added that former Fed governor Kevin Warch and BlackRock’s Rick Rieder would be good picks.

Q3 US GDP was revised higher on Thursday. The economy grew at a 4.4% annual pace, up from an initial 4.3% reading.

US weekly jobless claims hovered around 200,000 last week, displaying little sign of labor market stress.

In Davos, Canadian Prime Minister Mark Carney called on middle powers to band together to resist coercion from aggressive super powers.

US Commerce Secretary Howard Lutnick said he expects the US-Mexico-Canada Agreement to be renegotiated beginning in the middle of next summer.

Speaking at Davos, Ukrainian President Volodymir Zelensky called Europe “fragmented” and said that its leaders love to discuss the future but avoid action. He urged Europe to unify its armed forces and become a global force.

Despite heavy AI-related bond issuance, the spread over Treasuries on the Bloomberg US investment-grade corporate bond index tightened to 71 basis points — its lowest level since 1998.

During oral arguments on Wednesday, US Supreme Court justices appeared skeptical of the government’s arguments in the case against Federal Reserve Governor Lisa Cook. The Trump administration is seeking to remove Cook from the Fed board over discrepancies on mortgage documents. Observers expect the court to allow the case to proceed in lower courts, allowing Cook to remain on the board while the proceedings play out.  

On Monday, eurozone finance ministers selected Croatia’s Boris Vujčić as the successor to Spain’s Luis de Guindos, whose eight-year mandate as vice president of the European Central Bank expires in May.

President Trump reversed course on allowing US home buyers to tap their 401(k) accounts to fund downpayments, saying he now opposes the idea.

In November, Canadian retail sales rose 1.3% month-over-month.

EARNINGS NEWS

As Q4 earnings season ramps up, about 13% of the constituents of the S&P 500 Index have reported. Blended earnings per share (which combines reported data with estimates for those that have yet to report) rose 8.1% compared with the same quarter last year, according to data from FactSet. Blended sales have risen 7.8% year-over-year. 20% of the members of the index will report next week, including four members of the Magnificent 7.

THE WEEK AHEAD

Monday: US durable goods orders

Tuesday: US Case Shiller home price index, consumer confidence

Wednesday: US FOMC meeting; Bank of Canada meeting

Thursday: US factory orders; Canada trade balance

Friday: Japan retail sales, industrial production; eurozone GDP, unemployment; US PPI; Canada GDP

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.