GGMA Morning Brief: Stocks rally despite tariff threat, Japan wage negotiations watch, UK store inflation hits highest level in nearly two years, Australian business conditions firm into year-end, US house prices, consumer confidence & ECB’s Lagarde in focus
Good morning,
I hope all is well.
Here are the main overnight news and market movers:
Markets: Stocks rally despite tariff threat
Despite the US tariff news, market sentiment is positive. Global markets have trended higher overnight, with U.S. equities closing higher on Monday and Asian markets posting gains. Investors are positioning for a pivotal week of Big Tech earnings and Federal Reserve policy updates, while gold prices have surged to record highs above $5,000. The Nikkei 225 Index climbed with technology shares leading the rebound. Gold has extended its rally, breaking above $5,000 per ounce, driven by what analysts are calling a "debasement trade" and safe-haven demand. In contrast, oil prices remain soft, with Brent crude falling. In Japan and Australia, bond yields rose. Bitcoin is only a little changed.
US natural gas prices hit a three-year high as a recent winter storm disrupted production and boosted heating demand.
Tensions between Tokyo and Beijing are raising the prices of minerals critical to the high-tech industry, pushing Japanese companies to diversify their sources as concerns grow that China may curb exports of "dual-use" resources with defence applications, according to the Nikkei.
The FT reports that a structural shift is underway in the US investment-grade corporate bond market, as "hyperscalers" (Alphabet, Amazon, Meta, Microsoft, Oracle) replace traditional borrowers such as banks and telecoms. This transition exposes the credit market to new risks associated with the AI investment boom.
Trump: Raising tariffs on South Korea imports after trade deal delays
President Donald Trump announced on Monday an increase in tariffs to 25% on South Korean imports to the United States, specifically targeting automobiles, lumber, and pharmaceuticals. He also criticised South Korea's legislature for failing to ratify a trade agreement with Washington. "South Korea's Legislature is not living up to its Deal with the United States," Trump wrote on social media. "Because the Korean Legislature hasn't enacted our Historic Trade Agreement, which is their prerogative, I am hereby increasing South Korean TARIFFS on Autos, Lumber, Pharma, and all other Reciprocal TARIFFS, from 15% to 25%." (RTRS)
Japan's bond market decline prompts speculation regarding potential changes to the GPIF portfolio
Investors anticipate that the Government Pension Investment Fund (GPIF) may stabilise Japan's volatile bond market by increasing its allocation to Japanese government bonds and reducing its target for foreign bond holdings. The fund, which holds approximately $400 billion in foreign bonds, could signal a shift towards Japanese repatriation by divesting from foreign bonds and reallocating to domestic government securities, according to Brent Donnelly. Any adjustment in the GPIF’s portfolio could have considerable implications for US Treasuries—given the fund's status as one of their largest investors—and may also bolster sentiment in Japan’s bond market while providing support for the yen. (BBG)
Meanwhile, Japan’s mid-sized life insurers are avoiding the nation’s super-long government debt, even as yields on Japan’s longest-dated securities have slid from record highs, Bloomberg reported. Expectations that yields will rise further as the government boosts spending to stimulate the economy have kept insurers away from bond buying, with some switching to bonds with shorter maturities. Insurers are cautious due to uncertainties about the Bank of Japan’s interest-rate path, the yen’s outlook, and a possible consumption tax cut, which could worsen the nation’s debt load. (BBG) The bond meltdown is also threatening to curb further fundraising by real estate investment trusts, which have already slowed due to rising financing costs, Bloomberg reports.
Japan business group warns tariffs may affect wage negotiations
The head of Japan's biggest business lobby, Keidanren, warned that the impact of US tariffs on the nation's industry needs to be carefully monitored at the micro level. Yoshinobu Tsutsui expects businesses to maintain wage-hike momentum to some extent during the talks, despite some tough factors. Japanese Trade Union Confederation (Rengo) is seeking a wage increase of at least 5%, while Keidanren is focusing more on base pay as annual wage negotiations get underway. (BBG) Note that strong wage growth is a necessary condition for the Bank of Japan to continue its path of interest rate hikes.
Tokyo condo prices reach record amid limited supply and rising construction costs
New condominium prices in the Tokyo metropolitan area surged to a record high in 2025, with the average price jumping 17% to ¥91.8 million ($596,000) and central Tokyo units climbing 22% to ¥136 million. This sharp increase was driven by soaring construction costs linked to labour shortages and a weak yen, alongside a 4.5% drop in supply to a 50-year low as developers prioritised high-end luxury projects. Despite the Bank of Japan's interest rate hikes, the market remains overheated, prompting government scrutiny over affordability and foreign speculation. (JT)
UK store inflation hits highest level in nearly two years, says BRC
Inflation at British shops reached its highest point in nearly two years, according to an industry survey. The British Retail Consortium reported that prices for popular products increased by 1.5% in January compared to the previous year, marking the fastest rise since February 2024. In December, the rate was 0.7%. Food prices rose 3.9%, the highest level since September. Helen Dickinson, chief executive at BRC, said: “Any suggestion that inflation has peaked is simply not borne out by these figures. Shop price inflation jumped this month due to high business energy costs and the hike to national insurance continuing to feed through to prices,” she said. (BBG) Note that the Bank of England expects inflation to have peaked at 3.8 per cent last year and to decline to around 3 per cent in the first quarter of 2026, slowing closer to its 2 per cent target from April.
Australian business conditions firm into year-end
Australian business activity ended 2025 on a positive note, with the NAB business conditions index rising 2 points to +9 in December, reaching its highest level since early 2024. The improvement was driven by stronger trading conditions (+16) and profitability (+7), although business confidence remained subdued, edging up just 1 point to +3. Despite official ABS data showing a jobs boom, the survey’s employment index held steady at +4, suggesting businesses remain cautious about hiring amidst a "gradual softening" of the labour market. Forward-looking indicators also signalled caution: forward orders slipped into negative territory (-1), and stock levels surged, reflecting uncertainty about future demand as consumer sentiment weakens. Inflationary pressures persisted, with labour costs (1.8%) and final product prices (0.9%) ticking higher to close out the year, according to Westpac.
Australia discontinues annual change in quarterly CPI and adopts monthly reporting
Australia will stop publishing year-on-year CPI in its quarterly report and switch to a monthly inflation framework to better align with international standards. (BBG)
Today’s Macro Roadmap: US house prices, consumer confidence & ECB’s Lagarde in focus
In the US, house prices for November will be released at 15:00 CET. Historically, house price trends have tended to lead the official CPI shelter components. Recent analyst commentary and communications from the Federal Reserve indicate that both market consensus and policymakers anticipate a further slowdown in house prices, and consequently, in rent inflation. Any data that contradicts this expected scenario could pose a risk to the projected path of the Fed Funds rate.
The US Conference Board will release its consumer confidence report at 16:00 CET. The consensus expects a slight improvement. Of particular interest will be the labour market differential, which has been trending higher recently, pointing to an increase in the unemployment rate.
Good luck today!