Markets Surge as US-Europe Tariff Threat Ends; AI Stocks Continue Climb
Market Snapshot
- 📈 S&P 500: 6,876 (+1.16%)
- 📈 Dow Jones Industrial Average: 49,077 (+1.21%)
- 📈 NASDAQ Composite: 23,225 (+1.18%)
- 📉 FTSE 100: £10,170 (-0.36%)
- 📉 Oil (WTI): $60 (-1.64%)
- 📈 Gold: $4,837 (+1.58%)
- 📉 Silver: $93.20 (-1.61%)
- 📉 10-Year US Treasury Yield: 4.25% (-0.05%)
- 📈 Bitcoin (BTC): $90,098 (+2.01%)
- 📈 Ethereum (ETH): $3,028 (+3.18%)
- 📈 XRP: $1.98 (+4.58%)
Global Markets Rally as US-Europe Tariff Threat Averted
Global stock markets experienced a significant relief rally after the United States pulled back from imposing tariffs on European nations. The positive shift in sentiment came after President Trump announced a diplomatic breakthrough with NATO concerning Greenland.
The Greenland Agreement
President Trump confirmed that he and NATO Secretary General Mark Rutte had agreed on a “framework” or “concept” for a future deal involving Greenland. This understanding, described as involving collaboration on mineral rights and missile defence systems, was sufficient to halt the planned tariffs of 10% to 25% on European allies.
The market reaction was initially volatile. US indices saw a sharp sell-off earlier in the week amid the renewed threats, extending to a broader risk-off shift that dragged down overseas markets and saw investors move towards gold. However, following the de-escalation, a strong rebound occurred, with all three major US indexes closing up by over 1% and the small-cap focused Russell 2000 index surging to a new all-time high.
The 'TACO' Trade Returns
Some traders attributed the reversal to the reappearance of the “Trump Always Chickens Out” (TACO) trade, a theory suggesting the administration retreats from maximalist demands when markets react negatively. While this pattern held true, some analysts warn that relying on it is a risky strategy. Critics of this view argue that the consistent prevention of market sell-offs simply postpones volatility. They suggest this builds suppressed energy that could lead to a more severe correction later if authorities lose control over markets. Despite these warnings, the pattern held, and retail investors largely continued their trend of buying on market dips.
Bond yields fell as investors moved capital from safer government bonds back into equities, suggesting that the “geopolitical tax” weighing on stocks has been removed for now.
European Reaction
European leaders expressed palpable relief at the de-escalation. Danish Foreign Minister Lars Lokke Rasmussen noted that the day was “ending on a better note than it began,” while leaders from the Netherlands and Italy welcomed the news but urged continued cooperation. The European Council is set to hold an extraordinary meeting to discuss the developments further.
AI Sector Demonstrates Strong Growth and Investment
The artificial intelligence industry continues to show robust fundamental growth, with major companies reporting soaring revenues and seeking substantial new investment. This trend was a key topic at the World Economic Forum in Davos, where industry leaders defended the high levels of spending on AI infrastructure.
Surging Revenues and Funding
Recent figures highlight the sector's rapid monetisation. Anthropic’s revenue run rate has reportedly reached $9 billion, more than doubling in six months. Meanwhile, OpenAI is accelerating its enterprise services, with its annual revenue run rate hitting $20 billion. OpenAI is also reportedly in talks with Middle Eastern sovereign wealth funds for a new funding round that could total around $50 billion and has secured a $38 billion deal for Amazon Web Services (AWS) to supply its computing power.
Infrastructure and Supply Chain
At Davos, technology CEOs argued that the AI boom is a sustainable, multi-trillion dollar infrastructure shift rather than a speculative bubble. They pointed to real-world scarcity signals, such as the difficulty in renting Nvidia GPU capacity and a lack of sufficient data centre capacity at AWS to meet current demand.
However, a new bottleneck is emerging: energy. The immense power requirements for AI data centres are a growing concern. In a related development, Japan has restarted a reactor at the world's largest nuclear power plant for the first time since the Fukushima disaster, a move partly driven by the need to meet future energy demands from AI.
Physical AI and Robotics
The application of AI is expanding beyond software into the physical world. Globally, more than 4.7 million industrial robots were in operation in 2024, with China accounting for over half of new installations. Companies like Siemens report that AI-enabled robots can significantly cut automation costs, while Amazon now operates over one million robots in its fulfilment centres.
Content Moderation and AI
Beyond infrastructure, managing the output of AI is becoming a key priority. YouTube CEO Neal Mohan stated that the platform is focusing on reducing AI-generated low-quality content, or “AI slop,” and improving its detection of deepfakes. This highlights the growing challenge for technology platforms in discerning between authentic and AI-generated content as the technology becomes more accessible.
Alibaba's Chip Unit Spinoff
In a significant strategic move, Chinese technology giant Alibaba plans to restructure its specialised chipmaking unit, T-Head, into a standalone company. This is widely seen as a precursor to an Initial Public Offering (IPO). T-Head develops competitive processors that challenge established players like Nvidia, and the move comes as China seeks to grow its domestic semiconductor industry.
Economic Focus Shifts to Inflation and Central Bank Policy
With geopolitical tensions easing, investor focus is returning to fundamental economic data and the upcoming policy decisions from major central banks. Consumer behaviour and central bank independence are under particular scrutiny.
Bank of Japan Policy Decision Looms
The Bank of Japan's (BOJ) upcoming interest rate decision is a critical event for global liquidity. Markets are watching closely for any signal that the central bank may begin to tighten its ultra-loose monetary policy as early as April. The BOJ is contending with aggressive government spending that is putting pressure on the yen and pushing Japanese government bond yields to their highest levels in decades. A shift in policy could have significant implications for the global “yen carry trade,” where investors borrow yen at low rates to invest in higher-yielding assets elsewhere.
US Inflation and Consumer Data
The upcoming Personal Consumption Expenditures (PCE) report in the US is the final key data point before the Federal Reserve's next meeting. Economists expect core inflation to remain at 2.8%, still well above the Fed's 2% target. A reading in line with expectations is likely priced in, but a surprise to the downside could fuel a rally in growth stocks and crypto assets. Conversely, a higher-than-expected figure would reinforce the “higher for longer” interest rate narrative. Recent data showed US retail sales climbed 3.5% year-over-year in December, suggesting consumer spending remains resilient despite rising costs.
US Federal Reserve Independence Tested
The independence of the US central bank has become a focus point after the Supreme Court expressed scepticism over the administration's attempt to fire Federal Reserve board member Lisa Cook. Several justices, including Brett Kavanaugh and Samuel Alito, questioned the basis for removal and warned that such a move could weaken or even “shatter” the institution's insulation from political pressure, potentially leading markets to question the integrity of the Fed's monetary policy decisions.
US Consumer Credit Policy Debate
A new policy debate has emerged around consumer credit. President Trump has called on Congress to legislate a temporary 10% cap on credit card interest rates. However, the proposal met with strong opposition from the financial industry. At Davos, JPMorgan Chase CEO Jamie Dimon labelled the idea an “economic disaster,” highlighting a potential conflict between populist policies and established financial practices.
Potential Shifts in UK Economic Policy
At the Davos forum, Reform UK leader Nigel Farage outlined a potential major shift in the UK's economic policy should his party win the next election. He proposed scrapping the Bank of England’s practice of paying interest to commercial banks on their reserves held at the central bank.
Farage described the current system, costing around £20 billion annually, as a “subsidy” for banks and suggested the funds could be used for tax cuts. This policy would effectively act as a tax on the banking sector, which could impact profit margins and potentially lead to tighter credit conditions for consumers and businesses. The proposal signals a move away from institutional norms and could introduce a political risk premium for UK assets, such as the pound and government bonds, if the party's standing in polls remains strong.
Other Market-Moving News
Corporate Strategy and Earnings
- Amazon (AMZN): The company is making a major push into physical retail with plans for a 225,000 square-foot megastore in suburban Chicago, which would be significantly larger than average big-box retailers. This comes as the company seeks to reverse a period of stock underperformance relative to its peers. CEO Andy Jassy also confirmed that US tariffs are now beginning to affect prices on its online marketplace.
- Berkshire Hathaway / Kraft Heinz (KHC): Berkshire Hathaway has indicated it may sell all or part of its 27% stake in Kraft Heinz. The potential sale of the approximately $7 billion holding could place additional pressure on Kraft Heinz's stock price.
- Gap (GPS): The retailer is embarking on a new strategy dubbed “fashiontainment,” hiring a chief entertainment officer to build partnerships across media and culture. The company is also piloting a new beauty section in 150 Old Navy locations.
- Intel (INTC): After its stock surged 84% in 2025, investors are anticipating a continued turnaround ahead of the company's Q4 results. The stock rose over 11% in the previous session in anticipation of the report, with analysts expecting strong growth in its data centre division.
- Johnson & Johnson (JNJ): The healthcare giant forecast its 2026 profit above analyst expectations and narrowly beat earnings for the previous quarter. The stock initially slipped on the narrow beat but showed resilience based on the strong forward guidance.
- Procter & Gamble (PG): The consumer goods company reported earnings that modestly beat Wall Street expectations, but its revenue narrowly missed forecasts. Shares fell in premarket trading after the company also lowered its outlook for fiscal 2026, citing higher restructuring charges.
- United Airlines (UAL): The airline's stock rose after it beat fourth-quarter earnings estimates, driven by strong demand for premium travel. However, the CEO remains cautious about the outlook for 2026, citing concerns over supply chains and global tensions.
Real Estate
- President Trump signed an executive order intended to ban large institutional investors from purchasing single-family homes. While popular with voters, some experts believe the measure will have a limited impact on house prices, as these investors own less than 2% of US homes.
- In a potentially worrying sign for the housing market, data for December showed that pending home sales plummeted 9.3% from the previous month, dampening the outlook for 2026.
Cryptocurrencies
- Regulation and Adoption: President Trump stated he hopes to sign sweeping crypto market structure legislation “very soon,” signalling a push to establish the US as a global leader in the sector.
- BitGo IPO: Crypto company BitGo priced its Initial Public Offering at $18 per share, implying a valuation of around $2 billion. The company is set to begin trading on the Nasdaq, marking the first major crypto IPO of the year.
- Geopolitics: A report from Elliptic claimed that Iran's central bank purchased over $500 million of the stablecoin USDT to help stabilise its national currency and settle international trade.
- Bermuda: The government of Bermuda is partnering with Coinbase and Circle to move its economy “fully onchain,” aiming to establish the island nation as a hub for entrepreneurs in the digital asset space.
- MicroStrategy: The company continued its strategy of acquiring Bitcoin during price dips, making its largest purchase of the year at $2.1 billion. This brings the company's total holdings to 700,000 BTC.
NOTE: This content is for informational and educational purposes only and does not constitute financial advice. Always do your own research. Not financial advice (NFA).