Core Viewpoint - The article discusses the global asset performance in January 2026, highlighting that commodities outperformed global stocks, bonds, and currencies, with commodities at 9.06%, global stocks at 3.02%, global bonds at 0.94%, the Renminbi at 0.46%, and the US dollar at -1.35% [2]. Group 1: Global Asset Overview - Kevin Walsh's nomination by Trump as Fed Chair may indicate a significant policy shift, advocating for a restructuring of the Fed's $6.6 trillion balance sheet and a new agreement with the Treasury to reduce the Fed's market influence [4][11]. - The US dollar index rebounded after hitting a low on January 27, driven by expectations of tighter monetary policy, while US stocks and gold experienced volatility due to these tightening expectations [4][11]. - The implied volatility skew of US Treasury options has been rising since mid-October 2025, indicating that bond investors perceive inflation risks to be greater than recession risks, leading them to pay higher premiums for hedging against rising interest rates [5][17]. Group 2: Market Sentiment and Trends - Global fund manager sentiment reached its highest level since July 2021, with the sentiment composite indicator rising from 7.3 to 8.1, and cash levels among fund managers dropping to a new low of 3.2% [6][22]. - The 40-year Japanese government bond yield hit 4.0% in January 2026, raising concerns about Japan's debt amid fears that a large economic stimulus plan would worsen inflation and debt burdens [7][25]. - Growth stocks are showing excess returns correlated with overall market trends, suggesting that as the market maintains an optimistic outlook, funds may shift from defensive to growth sectors [8][26]. Group 3: Global Market Vulnerabilities - The liquidity in the Japanese government bond market has deteriorated significantly, with the Bloomberg liquidity index for Japanese bonds reaching 9.36, indicating a fragile link in the global interest rate system [9][29]. - The copper-to-oil ratio is rising, which may indicate improving industrial activity in China, potentially benefiting the CSI 300 index as it leads the index by about six months [10][32]. - Concerns over geopolitical tensions have emerged as a significant tail risk, with a notable percentage of fund managers identifying it as a primary concern in early 2026 [11][50]. Group 4: Currency and Precious Metals - Trump's interest in Greenland has accelerated the rise in gold and other precious metal prices, with gold prices increasing over 35% from November 2025 to January 28, 2026, despite a recent pullback due to Walsh's nomination [12][36]. - The Renminbi is experiencing upward pressure, with the USD/CNY exchange rate falling by 0.58% in January 2026, reflecting a shift in market sentiment towards Chinese assets [13][40].

Group 1: Global Asset Performance - In January 2026, global asset performance ranked as follows: commodities (9.06%) > global stocks (3.02%) > global bonds (0.94%) > RMB (0.46%) > 0% > USD (-1.35%) [2] - The global fund manager sentiment index rose from 7.3 to 8.1, marking the highest level since July 2021, with cash levels dropping to a new low of 3.2% [5] - The 40-year Japanese government bond yield reached 4.0%, raising concerns about Japan's debt amid a proposed ¥25 trillion supplementary budget [6] Group 2: Market Reactions and Trends - Kevin Warsh's nomination as Fed Chair led to significant market volatility, with the dollar index rebounding after hitting a low on January 27, 2026 [3] - The implied volatility skew of U.S. Treasury options has been rising since mid-October 2025, indicating that investors are more concerned about inflation risks than economic recession [4] - The copper-to-oil ratio has been increasing, suggesting a potential rise in the profitability of the CSI 300 index, reflecting stronger industrial activity in China [8] Group 3: Investment Strategies and Risks - The divergence between the dollar OIS and the performance of cyclical versus defensive sectors in U.S. stocks indicates a "Goldilocks" environment, but high valuations in cyclical stocks may face correction risks if OIS rates rise [5] - The sentiment among global fund managers indicates a shift in preference, with geopolitical conflicts now seen as the largest tail risk, as opposed to previous concerns about AI bubbles and bond yield volatility [11] - The expectation of RMB appreciation has led to the shadow variable of the counter-cyclical factor exceeding 500 basis points, reflecting a shift in market sentiment towards Chinese assets [10]

Group 1: Macro Trends - In January 2026, global asset performance ranked as follows: commodities (9.06%) > global stocks (3.02%) > global bonds (0.94%) > RMB (0.46%) > 0% > USD (-1.35%) [2] - Kevin Warsh's nomination as Fed Chair suggests a significant policy shift, advocating for a restructuring of the $6.6 trillion asset portfolio, which may support the USD and tighten monetary policy [3] - The US Treasury bond market shows rising implied volatility skew, indicating investors are more concerned about inflation risks than recession risks, leading to higher premiums for hedging against rising rates [4] Group 2: Market Sentiment and Performance - Global fund manager sentiment reached its highest level since July 2021, with the sentiment index rising from 7.3 to 8.1, while cash levels fell to a record low of 3.2% [5] - The 40-year Japanese government bond yield hit 4.0%, raising concerns about Japan's debt amid a proposed ¥25 trillion supplementary budget, which could worsen inflation and debt burdens [6] - The copper-to-oil ratio has been rising, indicating stronger industrial activity in China, which may positively impact the CSI 300 index [8] Group 3: Investment Strategies and Risks - The divergence between the USD OIS and US cyclical sectors suggests a "Goldilocks" environment, but if OIS rates rise due to inflation data, cyclical stocks may face significant correction risks [5] - Gold prices surged over 35% from November 2025 to January 28, 2026, driven by geopolitical concerns and Fed rate cut expectations, despite a recent pullback due to Warsh's nomination [9] - The shadow variable of the counter-cyclical factor has surpassed 500 basis points, reflecting a shift in market sentiment towards RMB appreciation amid resilient economic data [10]

Core Viewpoint - The recent turmoil in the Japanese bond market, characterized by a significant sell-off, has raised concerns about fiscal sustainability and its potential ripple effects on global bond markets [1][2][3]. Group 1: Japanese Bond Market Dynamics - Major Japanese financial institutions, including Sumitomo Mitsui Trust Holdings, have signaled intentions to double their Japanese government bond holdings, providing some confidence to the market [1]. - The yield on Japan's 10-year government bonds fell to 2.92% from a previous high of 2.33%, while the 20-year and 30-year yields remained elevated at 3.251% and 3.73%, respectively [1]. - The sell-off began on January 19, coinciding with political sensitivities surrounding early elections, leading to heightened investor concerns about Japan's economic outlook [1][2]. Group 2: Causes of the Sell-off - The sell-off was triggered by Prime Minister Fumio Kishida's announcement of a large-scale tax cut and spending plan, raising fears of increased fiscal deficits and the need for more bond issuance [5][6]. - The recent poor auction results for 20-year bonds, with a bid-to-cover ratio of only 3.19, have exacerbated market fears, indicating a potential cycle of selling and increasing anxiety [6]. - Concerns about Japan's fiscal discipline have intensified, with the government debt-to-GDP ratio reaching 240%, and the proposed budget for FY2026 significantly exceeding that of FY2025 [5][6]. Group 3: Global Impact - The turmoil in the Japanese bond market has led to rising yields in the U.S., Australia, Germany, and New Zealand, indicating a spillover effect on global bond markets [2][14]. - Investors are increasingly wary of fiscal sustainability, which could lead to a reallocation of funds back to Japan from foreign bonds, raising global borrowing costs [15][16]. - The situation reflects a broader trend of rising interest rates and debt levels across developed economies, with Japan's unique position as a major creditor nation amplifying the potential for systemic risk [14][16].

Core Viewpoint - The recent sell-off of Japanese government bonds has eased due to signals from major financial institutions to increase holdings and calls from political figures for market stability, which has injected confidence into the bond market [1]. Group 1: Market Reactions - Mitsui Sumitomo Financial Group announced plans to double its Japanese government bond portfolio from 10.6 trillion yen (approximately 67 billion USD), providing reassurance amid recent market volatility [1]. - The yield on Japan's 10-year government bonds fell to 2.92% from a previous high of 2.33%, while the 20-year yield was reported at 3.251% [1]. - The sell-off began on January 19, coinciding with Japan's politically sensitive period leading up to early elections, raising investor concerns about the economic outlook [1]. Group 2: Global Impact - The turmoil in the Japanese bond market has had spillover effects, with U.S. 10-year yields rising by 6.76 basis points to 4.2906% [2]. - Other countries, including Australia, Germany, and New Zealand, also saw increases in bond yields, indicating a global response to the Japanese bond market's instability [2]. - The sell-off has raised concerns about the impact of fiscal policies on cross-border capital flows, suggesting significant implications for major economies [2]. Group 3: Fiscal Concerns - Prime Minister Fumio Kishida's announcement of a large-scale tax cut and spending plan has heightened fears of increasing fiscal deficits, leading to expectations of more government bond issuance [3]. - Japan's public finance situation is deteriorating, with the proposed budget for fiscal year 2026 reaching 122.3 trillion yen, significantly higher than the previous year's budget [3]. - The debt-to-GDP ratio in Japan has reached 240%, raising alarms about fiscal sustainability [3]. Group 4: Auction Performance - The recent auction for 20-year Japanese government bonds saw a bid-to-cover ratio of only 3.19, below the previous auction's 4.1 and the 12-month average of 3.34, indicating weak demand [4]. - This pattern of poor auction performance has contributed to a cycle of selling and increasing market anxiety [4]. Group 5: Monetary Policy Challenges - The Bank of Japan faces a dilemma: intervening to stabilize long-term rates could hinder the normalization of monetary policy, while not acting could lead to economic destruction [8]. - The central bank's balance sheet has ballooned to 700 trillion yen, complicating its ability to respond effectively to market pressures [8]. - There are concerns that if the Bank of Japan is forced to delay its planned reduction of bond holdings, it could undermine its credibility and exacerbate inflation risks [9]. Group 6: Broader Economic Implications - The rise in bond yields is impacting household finances in Japan, particularly through increased mortgage rates, as approximately 70% of home loans are tied to floating rates [7]. - The depreciation of the yen is contributing to rising import costs, further straining consumer purchasing power [7]. - The ongoing bond market turmoil is expected to have a cascading effect on the financial stability of Japanese households and institutions [6].

Core Viewpoint - Japan may face further depreciation of the yen and rising government bond yields due to market concerns over the government's expansionary fiscal policy [1][2] Group 1: Monetary Policy and Currency - The Bank of Japan raised interest rates to 0.75%, the highest in 30 years, yet the yen continues to decline [1][2] - Market interpretations of Bank of Japan Governor Kazuo Ueda's comments suggest that the central bank is not in a hurry to raise rates further [1][2] - The depreciation of the yen is attributed to market skepticism regarding Japan's ability to maintain fiscal order [1][2][3] Group 2: Government Debt and Fiscal Policy - Japan's public debt is expected to increase further, supported by Prime Minister Fumio Kishida's expansionary fiscal policies [4] - The upcoming fiscal year's budget may exceed 122 trillion yen (approximately $781 billion), requiring new bond issuance higher than the previous year's 28.6 trillion yen [4] - An economic stimulus plan of 21.3 trillion yen will be introduced to alleviate the impact of rising living costs on households [4] Group 3: Bond Market and Economic Risks - The 10-year Japanese government bond yield reached a 27-year high of 2.1%, reflecting expectations of further rate hikes and large-scale bond issuance [3][4] - If the bond market continues to sell off, the Bank of Japan may need to reassess its bond reduction plans or create a framework to assist small banks suffering from significant losses due to bond holdings [4] - Rising bond yields are identified as the biggest risk facing Japan's economy in the coming year [4]

Core Insights - The report discusses a fundamental shift in the global asset pricing paradigm from a "monetary-dominated" phase to a "fiscal-dominated" phase, characterized by significant "K-shaped divergence" among various asset classes [1][2][6] - The report highlights that U.S. equities continue to reach new highs despite ongoing employment data declines, indicating a desensitization to recession pricing [1][2] - Gold has broken free from the suppression of high real interest rates, exhibiting an independent market trend, while the relationship between copper prices and inflation expectations has weakened [1][2] Group 1: K-shaped Divergence - The K-shaped divergence is evident as U.S. stocks show a significant deviation from employment data, with a divergence degree of approximately 140%-170% for U.S. stocks and interest rates, and over 400% for gold [1][2][6] - The core driver of this divergence is the embedded "fiscal risk premium" in asset prices, which has become a critical variable since 2022 [1][2][6] Group 2: Quantitative Analysis - Quantitative assessments reveal that the divergence between nominal interest rates and implied rates for gold and copper has reached a maximum of 660 basis points since 2022 [1][2][6] - The initial phase of the fiscal risk premium has been primarily priced through extreme increases in gold, rather than directly impacting nominal interest rates [1][2][6] Group 3: Future Scenarios - Three potential macro paths for the evolution of K-shaped divergence are outlined: 1. A mild recovery scenario where the market remains in the gold coordinate system, awaiting a correction in copper prices and inflation expectations [2][6] 2. An inflation runaway scenario leading to political shocks and visible fiscal risks, resulting in soaring interest rates and a depreciation of the dollar [2][6] 3. A scenario of economic contraction where worsening employment may trigger liquidity pressures, although the safe-haven attributes of U.S. Treasuries may limit their downside [2][6] Group 4: Dollar Dynamics - The dollar's performance is significantly influenced by "relative fiscal risk," with non-U.S. economies facing earlier fiscal pressures, thereby supporting the structural strength of the dollar [2][6]

Core Viewpoint - The current market is in a dangerous and divided phase driven by "fiscal dominance," where traditional macroeconomic logic has failed, leading to a significant divergence in asset pricing, particularly between U.S. stocks and gold, which are now tools for hedging fiat currency credit risk [1][2]. Group 1: Market Dynamics - Since 2023, global asset pricing has entered a new "fiscal dominance" phase, with traditional macroeconomic transmission mechanisms largely ineffective [2]. - The market exhibits a pronounced "K-shaped divergence," where U.S. stocks continue to rise despite declining employment signals, while gold reaches new highs in a high real interest rate environment [2][3]. - The core risk stems not from the economic cycle itself but from hidden fiscal pressures, with a current implied interest rate gap of up to 600 basis points [2][10]. Group 2: Asset Pricing Changes - The traditional macro anchors have failed, leading to a decoupling of U.S. stocks from economic fundamentals, as evidenced by the S&P 500 reaching new highs despite declining job openings [3]. - Gold has completely ignored the pressures of high real interest rates, showing an independent trend that diverges from TIPS (Treasury Inflation-Protected Securities) [6]. - Copper's price movements are no longer closely tied to traditional inflation logic, indicating a broader shift in asset pricing dynamics [7]. Group 3: Quantitative Analysis - The deviation of U.S. stocks and interest rates from traditional models is significant, with a divergence of approximately 140%-170% [11]. - Gold exhibits the most extreme "decoupling" characteristics, with a deviation exceeding 400% [13]. - Copper shows a relatively moderate deviation of about 44% [16]. Group 4: Future Pathways - The implied fiscal risk premium will not disappear but will shift between different assets, with three potential macro pathways outlined: a rational return of U.S. stocks, a dual consistency between stocks and gold, and a mutual understanding between stocks and bonds [19][21]. - A mild recovery is likely in the short term, with the market remaining in a "golden coordinate system" illusion, while inflation expectations are suppressed [21]. - If inflation becomes uncontrollable due to political pressures, fiscal risks will become more apparent, leading to rising interest rates and a potential decline in risk assets [22].

Group 1 - The report discusses a significant shift in the pricing paradigm of major assets, characterized by a "K-shaped divergence" where traditional macroeconomic anchors have failed, leading to a decoupling of asset prices from economic fundamentals [4][10][37] - The report quantifies the extent of K-shaped divergence, revealing that the S&P 500 has deviated by approximately 141% from employment data, while gold has shown an extreme deviation of over 400%, indicating a fundamental shift from a "monetary-dominated" phase to a "fiscal-dominated" phase [4][20][37] - The analysis highlights the relationship between interest rates, copper, and gold, noting that since 2022, the nominal interest rates have diverged significantly from implied rates derived from copper and gold, with a maximum gap of 660 basis points [4][38][41] Group 2 - The report introduces a unique "gold coordinate system" perspective, suggesting that in this framework, the S&P 500 aligns more closely with employment data, indicating that the stock market has transformed into a "gold-like" asset that hedges against currency depreciation [4][42][46] - The analysis of various asset models shows that the extreme divergence of the S&P 500 and gold reflects a deep-seated fiscal risk premium embedded in asset prices, with a notable 600 basis point gap between actual interest rates and implied equilibrium rates [4][59][54] - The report outlines potential macro paths for the future evolution of K-shaped divergence, including scenarios of moderate recovery, inflationary pressures leading to political shocks, and recessionary pathways, emphasizing the need for vigilance regarding mid-term recession risks [4][61][69]

Core Viewpoint - The Japanese government bond market is experiencing significant sell-offs, with yields across various maturities rising sharply, particularly the 10-year bond yield reaching 1.765%, the highest since June 2008 [1][3]. Group 1: Market Dynamics - The sell-off in the bond market is primarily driven by investor concerns regarding the potential for a large-scale fiscal stimulus plan from Prime Minister Fumio Kishida's government [2][6]. - The 20-year bond yield has reached 2.815%, the highest since 1999, while the 40-year bond yield has hit a historical peak of 3.695% [3]. Group 2: Auction Impact - The market's pessimism has affected the latest auction of Japanese government bonds, with the subscription ratio for the 20-year bond auction falling to 3.28 from the previous 3.56 [5]. - Analysts suggest that the government's potential issuance of long-term bonds to fund its spending plans is a significant concern for investors [5]. Group 3: Fiscal Risks - Goldman Sachs indicates that as investors worry about the scale of the proposed stimulus exceeding expectations, Japan's fiscal risk premium is returning, putting pressure on long-term bonds and the yen [6]. - The market anticipates that the yields on Japanese government bonds may continue to fluctuate at high levels in the short term, closely monitoring the government's final decisions on fiscal stimulus and the central bank's monetary policy stance [6].