US
Markets steadied following yesterday’s shake-out. Japanese government bonds rebounded, dragging other sovereigns up, while the slide in stocks and the dollar paused. One outlier is gold, which continues to hit fresh record highs underpinned in large part by ongoing geopolitical uncertainty
The world is shifting from a unipolar to a multipolar world making global politics more contested and crisis prone. Interestingly, Canadian Prime Minister Mark Carney highlighted yesterday that the rules-based international order is undergoing a “rupture, not a transition” where “great powers have begun using economic integration as weapons. Tariffs as leverage. Financial infrastructure as coercion. Supply chains as vulnerabilities to be exploited.” Gold benefits in this new world order as it’s free from direct links to the economic policy of any country, resistant to crises, and retains its real value in the long term.
Yesterday, Danish pension fund AkademikerPension said it would sell off its holding of US Treasuries, worth about $100 million by month-end because of “the poor US government finances.” The signaling effect from that news overshadows the benign underlying economic impact. As a whole, Denmark’s holding of US long-term Treasuries accounts for 0.10% of total foreign holdings and 0.03% of total Treasury securities outstanding.
As we argued in yesterday’s daily strategy note, the idea that the Eurozone can weaponize its Treasury holdings if trade tensions with the US escalate is completely overblown and not credible. Nevertheless, over the longer term, loss of confidence in US trade and security policies, combined with political interference with the Fed’s independence threaten to accelerate the dollar’s declining role as the primary reserve currency. That’s a structural drag on USD.
President Donald Trump is set to address the World Economic Forum today (1:30pm London, 8:30am New York). The US Supreme Court (SCOTUS) will also hear arguments today related to President Trump’s efforts to fire Fed Governor Lisa Cook. If the court finds in Cook’s favor, she could be allowed to serve until her term expires in 2038. A ruling against her can further threaten the Fed’s independence. Fed Chair Jay Powell plans to attend the arguments in Cook's case.
US October construction spending is due today (3:00pm London, 10:00am New York). The data is not policy relevant but will offer good insight on the AI-driven data center construction boom. The contribution of data center investment to GDP growth surged to 0.15pts in Q2 2025, well above its long-run average of 0.04pts, before returning to normal at 0.03pts in Q3. Data center construction is one part of how AI-related investment is showing up in GDP.
The other three components that capture the infrastructure behind AI adoption are: Investments in Information Processing Equipment, Investments in Software, and Investments in R&D. Together the four categories helped prevent a sharper contraction in real GDP in Q1 and accounted for 30% and 11% of real GDP growth in Q2 and Q3, respectively. Check out this note from the St-Louis Fed for more details.
AI-related categories are poised to remain key growth drivers as AI adoption rates are rising. That bodes well for silver, platinum, palladium, and gold. Precious metals are critical input for the AI data center building boom. Every new server and power system requires large amounts of silver, gold, platinum, and palladium for high performance chips, wiring, and energy infrastructure.
UK
GBP is trading on the defensive against USD and EUR. UK December CPI inflation was mixed. Headline CPI rose to 3.4% y/y vs. 3.2% in November, which was one tick higher than consensus (3.3%) but one tick less than the BOE’s forecast (3.5%). Core CPI unexpectedly printed at 3.2% y/y (consensus: 3.3%) for a second consecutive month while services CPI increased less than expected to 4.5% y/y (consensus: 4.6%) vs. 4.4% in November.
Overall, persistently above target UK inflation suggests the Bank of England (BOE) can afford to wait before resuming easing. The swaps curve price-in over 80% odds the BOE delivers a total of 50bps of rate cuts to 3.25% over the next twelve months which is a headwind for GBP.
EUROZONE
EUR/USD is down, trading closer to 1.1700 after hitting a high near 1.1768 yesterday. ECB President Christine Lagarde reiterated that monetary policy settings remain in a “good place” and noted that the short-term effect of the latest US tariff threat “would be minimal.” Bottom line: the ECB is done easing and we expect EUR/USD to continue trading within a 1.1500-1.1800 range over the next few months.
