Weekend Update #262
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Major equity indices ended the week slightly lower amid heightened transatlantic tensions after President Trump pressed Denmark and NATO allies to negotiate the acquisition of Greenland, warning that U.S. support for NATO could depend on Europe’s response. Denmark rejected the demand, Greenland prepared for a remote but possible invasion, and the standoff rattled markets, prompting U.S. stock declines, European consideration of retaliatory tariffs on €93 billion of U.S. goods, and an indefinite postponement of U.S.-EU trade deal ratification. Tensions eased somewhat after Trump announced a largely verbal “framework” deal with Denmark and Greenland to enhance Arctic security and grant the U.S. broad military access, pausing threatened tariffs, though Danish and Greenlandic leaders emphasized that sovereignty and control of the island remain non-negotiable. Amid the uncertainty, investors sought safe-haven assets, pushing gold toward $5,000 and silver above $100 per ounce while the dollar had its worst week since May.
Central banks also drew market attention, with the Bank of Japan holding rates at 0.75% while signaling a hawkish stance. The yen staged its largest one-day surge in nearly six months on speculation that Japanese authorities might quietly intervene to halt the currency’s slide, after officials highlighted inflation risks from a weak yen and indicated further hikes as wage growth pushed firms to raise prices. While the decision initially weakened the yen, sharp swings near the 160-per-dollar level underscored market sensitivity to BOJ guidance and FX signals; hawkish commentary has helped stabilize the currency for now, though analysts still expect another rate hike later in 2026.
Economic data underscored growing domestic fragility in the U.S., as pending sales of existing homes plunged 9.3% in December—the steepest drop since the onset of the pandemic—reflecting ongoing strain in the housing market. Together with the geopolitical standoff, these indicators amplified concerns about heightened uncertainty for both U.S. and global markets.
Consumer sentiment, however, rebounded in late January to 56.4, supported by broad-based improvements in current conditions and expectations, while year-ahead and long-term inflation expectations eased to 4.0% and 3.3%. The data suggest that sentiment may be forming a bottom as perceptions of income and business conditions improve, though confidence in the labor market remains at recession-like lows, limiting a fuller recovery.
Inflation pressures remained persistent, with the latest Personal Consumption Expenditures (PCE) report showing headline inflation at 2.8% year-over-year in November 2025, up from 2.7% in October, and core PCE also at 2.8%, above the Federal Reserve’s 2% target. The report, which combined delayed October and November data due to a government shutdown, showed monthly price increases of 0.2% in both months alongside continued solid consumer spending, though real disposable income growth was modest and savings rates remained low.
In corporate news, Intel shares fell 17% on Friday after the company issued a disappointing outlook, citing manufacturing and CPU supply constraints that weighed on first-quarter revenue, earnings, and gross margin guidance despite better-than-expected Q4 results. Analysts noted encouraging demand in data centers and AI and early signs of a turnaround, but investor focus remains on when supply bottlenecks ease, margins recover in the second half, and the foundry business demonstrates tangible customer traction.
Next week, investors will navigate a packed calendar, with ongoing fourth-quarter earnings—especially from tech and select Mag 7 companies—alongside key U.S. economic releases, including durable goods orders, consumer confidence, jobs reports, and the Producer Price Index. The Federal Reserve’s policy meeting will be closely watched for signals on interest rates and inflation, while speculation is rising that President Trump could announce his choice for the next Fed Chair, with BlackRock’s Rick Reider emerging as the front-runner in prediction markets.
Friday’s Close (Weekly Performance)
S&P 500 6,915.61 (-0.42%)
Nasdaq 23,501.24 (-0.12%)
Dow Jones 49,098.71 (-0.71%)
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