TACO trade back in the driver's seat?

In focus today

In Norway, we expect Norges Bank to keep the policy rate unchanged at 4.00% at the monetary policy meeting today. We also expect Norges Bank to signal that 'there is some time until the next rate cut', implying that the threshold for a cut in March is high. This would be in line with the signals given at the December meeting. Considering that unemployment has come in marginally below and inflation marginally above expectations from December, the risk is tilted towards a somewhat more hawkish message than in December. This is an interim meeting, without new economic projections but with a press release and a press conference.

In the euro area, focus turns to the minutes from the December ECB meeting and the flash consumer confidence indicator for January. We will give the ECB minutes an argus-eyed review for any signals about the next rate move. However, we expect a limited market reaction.

In Denmark, the January consumer sentiment indicator is due. We forecast a decline, driven by more negative perceptions of the economy, likely influenced by Trump's interest in Greenland. However, confidence should improve in 2026 as inflation eases, supported by the removal of the electricity tax.

Overnight, the Bank of Japan concludes a two-day policy meeting. With the December rate hike in mind and an upcoming election next month, Bank of Japan will stay on hold, even if a weaker yen continues to feed the inflation problem. Ahead of the decision, we will look for fresh inflation data as well as PMIs.

Economic and market news

What happened yesterday

In geopolitics, yesterday was a day of mixed signals. At the World Economic Forum in Davos, Trump dismissed military action but urged immediate negotiations to acquire Greenland, warning the US would "remember" if no deal was reached. The EU responded by freezing the ratification vote on the EU-US trade deal. Later, following talks with NATO Secretary Rutte, Trump announced a U-turn, stating that "a framework of a future deal" regarding Greenland and the entire Arctic Region had been reached. He also confirmed the cancellation of tariffs set for 1 February. VP Vance and Secretary of State Rubio, Special Envoy Witkoff among others will be responsible for the negotiations. The proposed deal reportedly grants the US access to Greenland's mineral rights, blocks Russian influence, integrates the Golden Dome defence system, and opens doors to US-backed infrastructure investments. Rutte confirmed Greenland's status within the Kingdom of Denmark was not discussed. According to New York times, officials have drawn comparisons between the potential sovereignty over small pockets of Greenland and the status of UK bases in Cyprus, which are classified as British territory. Today, EU leaders will meet at an emergency summit in Brussels to discuss their approach.

In the UK, headline CPI data came in at 3.4% y/y, slightly above consensus, while core CPI was 3.2% y/y, slightly below consensus. Service inflation remains elevated at 4.5% y/y. Two out of the last four prints have been soft, but further disinflationary signs are needed to trigger the next cut.

In the US, the Supreme Court heard oral arguments in the Lisa Cook case. Justices appeared sceptical about Trump's push to fire Cook over alleged mortgage fraud and disagreed with the administration's claim that the president has 'broad discretion' to remove Fed members, citing concerns over Fed independence. They were also frustrated with the administration for bypassing lower courts. While the court seems reluctant to support Cook's dismissal, it remains cautious about creating a precedent that could affect the removal of Fed officials in cases of misconduct.

Equities: Global equity markets staged an almost full reversal of Wednesday's moves yesterday. Cyclicals outperformed, led by the US, broadly in line, in direction and timing, with statements from the US President indicating that tariffs on selected European countries will not be implemented on 1 February, alongside confirmation of a framework agreement with NATO regarding Greenland.

What is at least as notable is where we did not see a reversal. Small caps and value continued to outperform. Small caps have now outperformed on all but one trading day so far this year, which fits well with the underlying fundamental backdrop. This is also a useful reminder that rather than attempting to anticipate the next political headline, markets continue to reward a focus on fundamentals. Asian equities are higher this morning, with the Korean KOSPI approaching a 20% year-to-date gain. European and US equity futures are also pointing higher.

FI and FX: Market sentiment improved substantially yesterday following Trump initially stating he would not take Greenland by force and subsequently when he on social media announced that the Greenland-related tariffs on Denmark and a handful of other European backers were cancelled. Seemingly a framework for a deal around Greenland including mineral rights, small pockets of land, US investments and security planning has been reached - but very little has been confirmed at this stage. EUR/USD has fallen back below the 1.170 on the news while the US curve has flattened on the short-end selling off, and the long-end delivering some slight performance.