Market Update
So, you thought we were done with tariffs… Last week, markets were focused on rising geopolitical risk, initially driven by speculation around potential U.S. military pressure over Greenland. On Tuesday, President Trump threatened new tariffs on European countries that expressed support for Greenland, and later over the weekend extended similar warnings to Canada should it pursue a deal with China. Although the proposed tariffs on Europe were ultimately withdrawn after a framework agreement was reached, one thing became clear: the U.S. is willing to use trade threats as a negotiating tool to advance President Trump’s policy objectives. These developments drove a volatile week on Wall Street, with equities, bonds, credit, and crypto selling off sharply on Tuesday before rebounding into the end of the week. Beyond the geopolitical headlines, the economic backdrop remained supportive resulting in the broadening of equity performance, with international equities, SMID caps and S&P 500 equal weight all outperforming the S&P 500. The third estimate of 3Q real GDP was revised higher to a strong 4.4%. Meanwhile, real consumer spending rose 0.3% in both October and November, keeping 4Q consumption on track to grow at roughly a 3% annualized pace. Strength in the U.S. consumer, alongside a labor market that remains stable, continues to support a Goldilocks environment for the Fed. This was reinforced in the latest FOMC minutes, which showed policymakers see little urgency to resume rate cuts. Looking ahead, earnings from Apple and Microsoft will be key tests for the Magnificent Seven narrative, while the FOMC meets on Wednesday.
Jobless Claims
Initial jobless claims came in lower than estimates, only up 1k from the previous week to 200k. Initial claims have been trending lower for the past month, hinting that labor market conditions might be improving. The latest continuing claims numbers have been encouraging as well and are off their recent highs, with continuing claims falling by 26k to 1.85 million. Although hiring levels remain low, the latest claims data suggest some stability in unemployment and possibly the beginning of some improvement in overall labor market conditions.
Dollar Under Increasing Pressure
The US dollar recorded its steepest weekly decline in nine months last week amid the administration’s aggressive push to acquire Greenland. With European investors holding roughly $8 trillion in US equities and bonds, nearly double the holdings of the rest of the world combined, the EU possesses clear economic leverage for potential retaliation. Early signs of friction are already emerging, as a Danish pension fund recently announced plans to divest its entire $100 million US Treasury portfolio. While the fund cited concerns about US fiscal health, the decision also serves as a warning that escalating geopolitical tensions could trigger a broader “Sell America” trend among European allies. Besides geopolitics, investor concerns that the Fed’s independence is under threat continue to weigh on the dollar's stability, with the DOJ launching a criminal investigation into Powell and the Supreme Court soon to rule on whether the President can fire Lisa Cook. Together, these developments have eroded institutional trust, potentially leading investors to reassess the US dollar as a safe-haven and raising the risk that inflation remains stubbornly elevated if the dollar continues to weaken. The administration, however, believes that its current policies of lowering taxes and loosening regulations will successfully stimulate economic growth, thereby attracting foreign capital to the US and strengthening the US dollar.
Sources:
https://markets.jpmorgan.com/jpmm/research.article_page?action=open&doc=GPS-5185126-0
https://www.dol.gov/ui/data.pdf
https://www.cnbc.com/2026/01/20/akademikerpension-us-treasury-greenland-trump.html
