Tariff Clouds Darken Global Markets as European Stocks Suffer Their Steepest Drop in Two Months

Market Overview

Tariff tensions once again dominated market sentiment yesterday, triggering a broad-based risk-off move across global markets. Pan-European equity indices fell more than 1%, marking their largest single-day decline in nearly two months. Trade-sensitive sectors bore the brunt of the sell-off. The technology sector plunged over 3%, with semiconductor heavyweight ASML sliding 4%. Luxury giants LVMH and Kering both dropped more than 4%, while the auto sector declined over 2%.

With U.S. cash markets closed for the holiday, the absence of spot-market guidance weighed on sentiment, pushing U.S. equity futures lower across the board.

Volatility intensified in foreign exchange and cryptocurrency markets. The U.S. dollar snapped a two-day winning streak, retreating from a six-week high. In contrast, the offshore Chinese yuan staged an unusually strong rally, surging more than 100 pips intraday and breaking below the 6.96 level for the first time in 20 months. Cryptocurrencies saw sharp intraday sell-offs, with Bitcoin briefly sliding toward the USD 92,000 level, while Ethereum underperformed, falling more than 5%.

Commodities delivered a dual narrative of safe-haven demand and technical rebound.

Precious metals surged, with both gold and silver hitting fresh intraday record highs. Spot gold climbed more than 2%, while silver posted an aggressive rally, with futures jumping nearly 7%.

Industrial metals also advanced, as LME copper rose over 1% and nickel surged 3%, together reclaiming more than half of last Fridays losses.

Energy markets remained volatile throughout the session. Brent crude settled lower during regular trading hours but rebounded in after-hours trading on renewed geopolitical headlines, with prices overall fluctuating within a wide range.

Key Themes to Watch● Japans Takaichi Announces Snap Election for February 8

Japanese Prime Minister Sanae Takaichi announced plans to dissolve the House of Representatives on January 23, with a general election scheduled for February 8. She framed the election as a referendum on the legitimacy of her leadership, stating that her position as prime minister hinges on whether the ruling coalition can retain a parliamentary majority.

Takaichi also signaled a potential shift in fiscal policy, pledging to move away from excessive austerity, increase strategic spending, and consider eliminating the consumption tax on food. Market reaction has so far been measured, with limited volatility in the yen. Investors remain focused on the election outcome and the direction of subsequent policy adjustments.

● AI-Driven Memory Chip Shortage Reaches “Unprecedented” Levels

Micron Technology warned that the shortage of high-end memory chips driven by artificial intelligence demand is “unprecedented.” Production capacity for high-bandwidth memory (HBM) has been heavily absorbed by AI accelerators, disrupting supply to traditional consumer electronics such as smartphones and PCs. As a result, several manufacturers have revised down their shipment targets for next year.

To secure supply for strategic customers including NVIDIA, Micron has halted production of consumer-branded memory products and accelerated capacity expansion plans.

Key Data to Monitor (GMT+8)

17:00 (US Time) – Eurozone November Seasonally Adjusted Current Account (EUR bn)

18:00 (US Time) – Eurozone January ZEW Economic Sentiment Index