Group 1 - The announcement of a 10% tariff on goods from eight European countries, effective February 1, is expected to negatively impact risk sentiment in the market, particularly affecting European equities [2][3] - European leaders, including French President Emmanuel Macron, have responded by considering the activation of the EU's anti-coercion instrument and may halt the approval of a trade deal with the US that includes a 15% tariff on most EU goods [2] - The potential escalation of tariffs could lead to a risk-off market environment, benefiting government bonds and quality assets, while gold may see increased demand [3] Group 2 - The immediate impact of the tariff announcement is anticipated to be more pronounced on equities rather than bonds and currencies, especially given the thin market conditions due to the US holiday [4] - While the tariff threat may have a limited negative impact on European growth prospects, it could also serve as a catalyst for Europe to pursue greater strategic autonomy and form new alliances in the long term [5] - The tariff threat poses a risk to the recent rally in European equities, which have outperformed US equities, supported by increased fiscal spending in Germany, lower interest rates, and improving profit expectations [6]

Market Performance - U.S. stock indexes are on track for their strongest week since June, with the Nasdaq up 4.2%, the S&P 500 gaining 3.2%, and the Dow rising 2.6% [1] - The recent rebound follows a significant dip, indicating that some traders view the pullback as a buying opportunity, possibly in anticipation of year-end positioning or early signs of renewed liquidity and rate-cut optimism [2] Market Breadth Indicator - The Zweig Breadth Thrust (ZBT) indicator, which signals bullish reversals when advancing issues rise sharply, has come back into focus. Historically, when ZBT triggers, the market tends to rally significantly over the following 6-12 months [3] - The current rally is characterized by broad participation, leading some analysts to suggest it could mark the beginning of a new upward trend, although the ZBT is not infallible and macroeconomic headwinds and earnings risks remain [4] Cryptocurrency Market - The cryptocurrency market is showing signs of strength, with Bitcoin recovering some ground as risk sentiment improves, while Ethereum and other altcoins are stabilizing, despite elevated volatility [5] - If macroeconomic conditions remain favorable and liquidity supports the market, cryptocurrencies could benefit from renewed risk demand. However, unexpected hawkish moves, weak economic data, or renewed volatility could quickly erase gains [6]

Group 1 - Optimism regarding a potential US-China trade deal is leading investors to sell Treasuries, resulting in decreased demand for safe-haven assets [1][3] - Yields on 10-year US government bonds increased by four basis points to 4.04%, the highest level in over a week, following agreements on tariffs and export controls between the US and China [2] - The selloff in Treasuries is occurring at a critical time as markets anticipate central bank policy decisions and the outcome of a meeting between President Trump and President Xi Jinping [3] Group 2 - Investor sentiment will be further assessed through upcoming two- and five-year Treasury sales [4] - Concerns over inflation risks are growing as tariffs begin to impact the economy, despite soft CPI data and worries in sectors like housing and private credit [4] - A proxy for term premium on US 10-year debt rose by one basis point to 66 basis points, indicating a slight increase in perceived future risk [5]

Core Insights - The rebound in the dollar was short-lived due to renewed strains in U.S.-China trade relations, leading investors to seek safe havens like the yen and Swiss franc [1][4] - Despite a temporary conciliatory tone from U.S. President Trump regarding tariffs, tensions between the U.S. and China remain high, as indicated by recent developments [2][5] - Beijing's countermeasures against U.S.-linked subsidiaries and the introduction of additional port fees by both nations have escalated trade tensions [3][6] Currency Movements - The dollar experienced a broad decline, with the euro rising 0.14% to $1.1585 and sterling increasing 0.12% to $1.3351 [4] - The Australian dollar, a risk appetite proxy, fell 0.63% to $0.6475, while the New Zealand dollar decreased by 0.5% to $0.5697 [4] - Safe-haven currencies like the Swiss franc and yen gained against the dollar, with the Swiss franc up 0.2% to 0.8027 and the yen rising 0.3% to 151.86 [6][7] Geopolitical Context - The current U.S.-China relationship is characterized as a structural feature of new geoeconomic realities, indicating that tensions are unlikely to resolve easily [5][6] - China's commerce ministry has communicated with the U.S. regarding rare earth export controls, highlighting ongoing negotiations despite the tensions [6]