Relief, for how long?

The US President was in Davos yesterday, in case you missed it, and he gave a speech — a long one — in which he said plenty of things that didn’t appeal much to the elite audience in the room. But his much-awaited commentary on Greenland — awaited with fear and pessimism — was not that aggressive.

Donald Trrump said he still wants Greenland, but that he would not move into Greenland or take it over by military force. He also dropped the latest tariffs on eight European countries that opposed the idea of Greenland being bought by the US. Great News!

Markets rallied in relief.

Now yes, this may sound pathetic, but this is how markets have functioned since last year: sell the punch, buy the pullback.

Gold fell, but the price of an ounce remains above the $4’800 level. It was not smashed — a reminder that investors remain somewhat... sceptical. And it’s not just investors: central banks are replacing their US Treasury reserves with gold, a trend that is likely to continue as US international policies become blurrier and more unpredictable by the day, regardless of short-term ups and downs.

In FX, the US dollar rebounded on the de-escalation around Greenland, while US 10-year yields retreated — also helped by a rebound in Japanese bonds, which pulled long-dated JGB yields lower after early-week stress that bordered on a flash crash.

The S&P 500 rebounded more than 1% and the Nasdaq 100 gained 1.36%, with Nvidia jumping nearly 3% after CEO Jensen Huang said scaling AI infrastructure would require trillions of dollars in investment. Disco Corp — a supplier of high-precision semiconductor processing machines used by TSMC, which manufactures Nvidia’s chips — jumped 17%. SK Hynix and Samsung, key memory-chip suppliers, extended their rally, pushing the Kospi to a fresh record high. The Korean index is now up around 20% year-to-date.

Optimism is further fuelled by reports that OpenAI is looking to bring in additional investors from the Middle East.

Interestingly, not everyone in the broader OpenAI ecosystem was reacting positively yesterday. The reactions were significantly different. Oracle fell 3%, Microsoft declined more than 2%, while Intel jumped more than 11% — a notable move for a company about to report another decline in earnings and revenue amid AI delays and ongoing pressure in the PC market. We’ll see how the earnings update goes tonight.

Zooming out, overall market mood has improved. European futures are looking bullish this morning, with Euro Stoxx futures up more than 1.2% at the time of writing, seemingly eager to benefit from TACO Trade v2.0. Nasdaq futures are leading gains among major US indices.

That said, this season of TACO gains could prove less impressive than last year’s. First, there is still no clarity on Greenland — although the fact that Europeans appear willing to draw a red line is a constructive development. Second, there has been no major market stress so far; losses were relatively modest, which also limits the size of the rebound.

What’s next? Markets will continue to react emotionally to US headlines — that won’t change. Uncertainty and sudden volatility spikes will remain on the menu this year. But as a former French prime minister said in reaction to the US president’s Davos speech, people should not react to words — and there are a lot of them coming out of the White House — but to actions. He meant it politically and geopolitically, but the logic applies just as well to markets. That, ultimately, is what the TACO trade is about: stripping out the noise and cutting the grease from overreaction.

Which brings us back to South Korea and the importance of hedging currency risk when diversifying away from the US. The Kospi’s stellar performance does not reflect the broader economy. The grass is not greener there. South Korea’s economy contracted 0.3% in Q4 last year, missing expectations for 0.1% growth due to weak domestic demand and declining exports outside semiconductors.

In short, technology is driving Korean equities higher — much like in China, where tech rallies mask weak domestic demand, the property crisis, deflation and an ageing population. As a result, the Korean won has been weakening, meaning part of the Kospi’s gains comes from currency effects. Investors should therefore hedge FX exposure when venturing into Asia.

Even US dollar exposure has been increasingly hedged by European investors since last year, on the assumption that the dollar may not offer protection if a global sell-off is triggered by US policy itself.