South Korea acts swiftly after Trump tariff threat

In focus today

In the US, Conference Board's January consumer confidence survey will be released in the afternoon. University of Michigan's flash survey suggested earlier that consumers have been feeling slightly more optimistic at the beginning of the new year.

In Hungary, we expect the central bank to keep the policy rate unchanged at 6.50% at today's meeting.

Economic and market news

What happened over night

In South Korea, the ruling Democratic Party announced plans to pass a special act on the US trade deal by the end of February, following President Trump's threat to impose higher tariffs on South Korean exports. In a post on Truth Social, Trump stated that tariffs on South Korean autos, pharmaceuticals, lumber, and 'reciprocal' tariffs would rise to 25% from 15%, blaming the delay in the South Korean legislature's approval of the agreement. Shares of Hyundai and Kia initially dropped sharply but later recovered some of the losses.

What happened yesterday

In Germany, the IFO indicator was slightly disappointing in January. The current situation assessment rose modestly to 85.7 (cons: 86.0, prior: 85.6) while expectations edged lower to 89.5 (cons: 90.3, prior: 89.7). This contrasts with Friday's PMI data, which exceeded forecasts, with the composite index improving to 52.5. Based on a combination of these indicators, we estimate that the German economy maintained its growth momentum of 0.2% q/q from Q4 2025 in January. We expect an acceleration in growth as various tax cuts, increased subsidies, and the rollout of the infrastructure package, effective from 1 January, begin to support economic activity.

In commodities, gold prices reached record highs, surpassing USD 5,100/oz, while silver approached near all-time highs, signalling a strong shift toward safe-haven assets. This trend reflects heightened investor caution amid ongoing geopolitical tensions, a weaker US dollar, and increasing uncertainty around policy direction in major economies, amplified by President Trump's disruptive policy moves at the start of 2026.

In geopolitics, the deployment of a US aircraft carrier strike group closer to Iran signals increased military readiness and heightens the risk of further escalation in the Middle East.

Equities: Global equities were moderately higher on Monday, driven by the US. European markets started the day lower but rose when US markets opened. S&P 500 up 0.5% and Stoxx 600 0.2%. While the start of the year was all about the S&P495, the last trading sessions have seen renewed preference for US big tech. This continued yesterday, with communication and tech among the best performing sectors. Global large caps even beat small caps - for the first time this year, in fact. Positioning ahead of tech earnings starting Wednesday could be one trigger for the recent shift. Another could be the dollar weakening, which continued to slide -0.6%, resulting in preference towards the export-oriented US large caps that gain advantage from FX.

FI and FX: After an initial surge in volatility to start the week, the FX market calmed down a bit yesterday afternoon. EUR/USD briefly tested the waters above 1.19 before settling at high-1.18's. USD/JPY remains under scrutiny and scandies lost some ground as EUR/NOK and EUR/SEK both rose 5-6 figures each. European yields traded lower yesterday, whereas in the US the curve bull-flattened slightly. Trump's latest threats to raise tariffs on South Korea has seemingly only had a limited market impact thus far, and equities remain in green in Asia.