Joint US-Japan FX intervention looks like a legit possibility

EU Mid-Market Update: Joint US-Japan FX intervention looks like a legit possibility; Iran was quiet overnight as US heads for long weekend; S&P futures sit at 7,000.

Notes/observations

- European equities opened mixed before turning lower, with sentiment moderated by a quieter macro calendar and ongoing geopolitical noise. Tensions around Greenland remain elevated: France warned the US that any attempt to seize the territory risks endangering EU trade. White House clarified the US-Denmark working group’s role as exploring pathways for US control, firmly rejected by Denmark and Greenland.

- Yen in focus, Japan Fin Min confirmed FX intervention is included in the US-Japan agreement, raising speculation about joint action to support the yen. USD/JPY was steady initially ahead of a large $2.1B option expiry at ¥158, but firmed slightly after the Fin Min comments.

- South Korean Finance Minister Koo signaled that the planned $350 billion investment in the US will likely be delayed beyond the first half of 2026, stating that the current foreign exchange situation does not warrant such large capital outflows. The strategic ambiguity of the original accord is now laying bare its risks, as overlooked "stability clauses" metamorphose into convenient escape hatches that allow Seoul to transform a promised deluge of investment into a mere trickle.

- On data front, Germany’s final December CPI confirmed the prelim print (headline 1.8% y/y; harmonized 2.0% y/y), reinforcing the disinflation backdrop across the bloc.

- Peripheral spreads continue to tighten (Italian/German 10yr spreads hit 59bps, Spanish/German at 39bps, both the tightest since 2008) supported by improving fiscal dynamics and resilient flows. Strategists see continued convergence through 2026, with core economies like France/Germany facing more political and supply headwinds. UK gilts trade slightly higher despite expectations of further BoE easing later in 2026. Better-than-expected UK GDP yesterday trimmed the odds of near-term rate cuts, and upcoming inflation and jobs data next week will determine whether March cut expectations slip into April.

- The Trump administration and US governor's plan to direct grid operator PJM to hold an unprecedented emergency auction this Friday, requiring tech giants to bid on 15-year "take-or-pay" contracts to fund new electricity generation capacity. This one-time intervention aims to stabilize rising Mid-Atlantic power prices by forcing data center operators to shoulder grid expansion costs and guarantee revenue for new plants, ensuring ordinary consumers do not bear the financial burden of increased tech energy consumption.

- UK political backdrop remains lively: Reform UK gains traction following high-profile defector Jenrick; Statistics agency is considering delaying the new labor market survey by six months.

- For EU M&A, momentum is growing behind the potential Glencore-Rio Tinto mega-merger, with analysts citing copper’s rally, global resource scarcity concerns, and improving conditions in Argentina as drivers (deal would create world’s largest miner).

- Asia closed mixed with KOSPI outperforming +0.9%. EU indices -0.4% to +0.1%. US futures +0.1-0.4%. Gold -0.3%, DXY -0.1%; Commodity: Brent +0.8%, WTI +0.9%; Crypto: BTC -1.3%, ETH -1.8%.

Asia

- New Zealand Dec Manufacturing PMI: 56.1 v 51.7 prior.

- New Zealand Dec Food Prices M/M: -0.3% v -0.4% prior.

- Singapore Dec Non-oil Domestic Exports Y/Y: 6.1% v 10.1%e.

- BOJ said to see scope to raise rates sooner than the markets expected. Likely to raise its FY2026 economic and inflation forecasts when it releases the quarterly review next week [Jan 23rd].

- Japan Fin Min Katayama stated potential for joint US-Japan intervention on weak Yen.

- Japan PM Takaichi preparing to dissolve the lower house on Monday (**Note Elections taking place for the third time in two years).

- RBNZ Q4 Nowcast GDP estimate at a healthy +0.9% growth q/q.

Taiwan

- US and Taiwan agreed on quota system for chip tariffs; US would lower tariffs to 15% on imports from Taiwan in exchange for commitments of $250B each in chip investment and credit guarantees.

Global Conflict/tensions

- US military said to be moving air, land and sea assets to the Middle East; At least one aircraft carrier group is moving toward the region. Currently any military strike did not appear imminent at the moment. One press outlet cautioned that "everyone knew the president kept his finger over the button".

- Iran Dep UN Envoy stated that Iran sought neither escalation or confrontation; any act of aggression either direct/indirect would be met with a decisive, proportionate and lawful response.

Europe

- ECB's Lane (Ireland, chief economist) Reiterates ECB would act if it saw developments in either direction.

Americas

- US Nov Total Net TIC Flows: $212.0B v -$22.5B prior; Net Long-Term TIC Flows: $220.0B v $30.9B prior.

- Fed's Daly (non-voter): Projections for growth were solid; Fed's job was to serve the American people.

- Philadelphia Fed Pres Paulson (voter): Comfortable holding rates steady at next meeting. Neutral rate a little lower than current setting; Current rates at level that neither spur nor slow growth.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.11% at 613.92, FTSE -0.04% at 10,235.25, DAX -0.28% at 25,304.31, CAC-40 -0.41% at 8,278.69, IBEX-35 -0.20% at 17,608.20, FTSE MIB -0.32% at 45,703.50, SMI -0.45% at 13,433.70, S&P 500 Futures +0.26%].

Market Focal Points/Key Themes: European indices open generally lower and remained under pressure through the early part of the session; geopolitics in focus for traders with US-Taiwan trade deal and Iran tensions sending mixed signals; among better performing sectors are energy and health care; sectors leading to the downside include materials and telecom; focus on US industrial production figures coming lout later in the day; earnings expected in the upcoming Americas session include PNC Financial, State Street, Wipro and Regions Financial.

Equities

- Consumer discretionary: Johnson Service [JSG.UK] +2.5% (trading update).

- Consumer staples: Character Group [CCT.UK] +1.5% (trading update).

- Energy: Aker BP [AKERBP.NO] +1.0% (trading update).

- Industrials: Kloeckner [KCO.DE] +27.5% (Worthington Steel launches a voluntary public takeover offer for Kloeckner at €11/shr, for an enterprise value of €2.1B), Ferrari [RACE.IT] -2.0% (under new pact with shareholders, members of the Ferrari family can sell up to 5% of their stake in Ferrari without breaching the shareholder agreement).

Speakers

- Sweden Central Bank (Riksbank) Gov Thedeen noted that with inflation close to target and real wages rising it brought favorable conditions for increasing purchasing power and consumption.

- Poland Central Bank (NBP) Member Wnorowski: Logic for next rate cut pointed to March but Feb move not ruled out.

- Sweden Fin Min Svantesson stated that Sept general election will be a referendum on taxes.

- BOJ said to decide to execute guidelines for disposal of ETF and J-Reit. Likely to shortly begin execution of such sales.

- Japan Fin Min Katayama noted that her dialogue with BOJ Gov Ueda had been very good. US-Japan agreement allows Japan to intervene in forex market to stop excessive moves.

- South Korea Fin Min Koo noted that planned $350B investment in US unlikely to begin in H1 2026; FX situation did not warrant large investment outflows.

- China Foreign Ministry spokesperson: Always oppose countries having any diplomatic ties with Taiwan or agreements that imply sovereign ties.

Currencies/fixed income

- USD put in a mixed performance on Friday.

- USD/JPY probing the lower end of 158 area as Japan Fin Min ratched up the verbal intervention as she mentions the possibility of joint USD-Japan FX action to curb one-sided price moves. The pair was nearing a pivotal resistance/psychology area of 160. Recent yen weakness attributed to fiscal concerns. Dealers also noted of market concerns over BOJ after Ueda’s signature was conspicuously missing from a global letter supporting Fed Chair Powell. Focus next week turning to BOJ rate decision. BOJ is expected to keep policy steady in Jan. Markets looking for the next hike in late spring/early summer.
(**Note: last solo intervention was back in Apr 2024 while the last coordinated G7 intervention was back in Mar 2011).

- EUR/USD at 1.1610. Geopolitical jitters helping the USD overall on safe-haven flows.

- GBP/USD at 133.95. Cablke unable to benefit from recent UK data. Focus turns to upcoming UK inflation data.

- 10-year German Bund yield last at 2.83%, France 10-year Oat at 3.51% and 10-year Gilt yield at 4.40% 10-year Treasury yield: 4.17%; 10-year JGB: 2.17%.

Economic data

- (DE) Germany Dec Final CPI M/M: 0.0% v 0.0% prelim; Y/Y: 1.8% v 1.8% prelim.

- (DE) Germany Dec Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 2.0% v 2.0% prelim.

- (TR) Turkey Central Bank (TCMB) Jan Inflation Expectation Survey:12-month Inflation Expectations: 22.2% v 23.4% prior.

- (CN) Weekly Shanghai Copper Inventories (SHFE): 213.5K v 180.5K tons prior.

- (TH) Thailand May Foreign Reserves w/e Jan 9th: $283.3B v $281.8B prior.

- (RU) Russia Narrow Money Supply w/e Dec 26th (RUB):19.83T T v 19.53T prior.

- (IT) Italy Dec Final CPI M/M: 0.2% v 0.2% prelim; Y/Y: 1.2% v 1.2% prelim.

- (IT) Italy Dec Final CPI EU Harmonized M/M: 0.2% v 0.2% prelim; Y/Y: 1.2% v 1.2% prelim; CPI Index (ex-tobacco): 121.5 v 121.3 prior.

Fixed income issuance

- (IN) India sold INR310B vs. INR310B indicated in 2040 and 2065 bonds.

- (ZA) South Africa sold total ZAR225M vs. ZAR1.0B indicated in 2033, 2043 and 2058 I/L bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 06:00 (BR) Brazil Jan FGV Inflation IGP-10 M/M: 0.3%e v 0.0% prior; Y/Y: No est v -0.8% prior.

- 06:00 (UK) DMO to sell £4.5B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.0B respectively).

- 06:30 (IN) India Forex Reserve w/e Jan 9th: No est v $686.8B prior.

- 07:00 (BR) Brazil Nov Economic Activity Index (Monthly GDP) M/M: +0.4%e v -0.3% prior; Y/Y: 0.7%e v 0.4% prior.

- 08:00 (PL) Poland Dec Core CPI M/M: 0.0%e v -0.1% prior; Y/Y: 2.8%e v 2.7% prior.

- 08:00 (PL) Poland Central Bank (NBP) Dec Minutes (2 decisions ago:.

- 08:00 (RU) Russia Dec Official Reserve Assets: No est v $734.6B prior.

- 08:00 (RU) Russia Gold and Forex Reserve w/e Jan 2nd: No est v $763.9B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (IN) India announces upcoming bill issuance (held on Wed).

- 08:15 (CA) Canada Dec Annualized Housing Starts: 260.0Ke v 254.1K prior.

- 08:30 (US) New York Fed Services Business: No est v -20.0 prior.

- 08:30 (CA) Canada Nov Int'l Securities Transactions (CAD): No est v 46.6B prior.

- 09:15 (US) Dec Industrial Production M/M: 0.1%e v 0.2% prior; Manufacturing Production: -0.1%e v 0.0% prior; Industrial Capacity Utilization: 76.0%e v 75.9% prior.

- 10:00 (US) Jan NAHB Housing Market Index: 40e v 39 prior.

- 11:00 (RU) Russia Dec CPI M/M: 0.5%e v 0.4% prior; Y/Y: 5.8%e v 6.4% prior.

- 11:00 (RU) Russia Dec Core CPI M/M: No est v 0.3% prior; Y/Y: No est v 6.1% prior.

- 11:00 (EU) Potential sovereign ratings after European close (Moody’s on Latvia; Fitch on Netherlands; DBRS on Poland, EFSF, ESM; Scope on EFSF and ESM).

- 13:00 (US) Weekly Baker Hughes Rig Count data.

- 15:30 (US) Fed’s Jefferson.