Markets Tilt Risk-On as Equities Rise Despite Political and Geopolitical Noise

GLOBAL MOOD: Risk-On
Drivers: Fed Independence, Iran Sanctions

Global markets are in a guarded risk-on mode, with Asia-Pacific equities advancing and Japan leading gains after a holiday break. Investors have largely looked past geopolitical tensions in Iran and Venezuela and the criminal probe involving the Federal Reserve Chair.

Supportive US equity performance and stable macro expectations underpin sentiment, though rising US Treasury yields, firmer oil prices and currency intervention signals from Japan keep risk appetite cautious rather than outright bullish.

TODAY’S WATCHLIST
- US CPI Data
- US Fed Williams Speech

THE BIG STORY
The Trump administration’s decision to open a criminal investigation into Jerome Powell has triggered sharp backlash from former Federal Reserve officials and senior Republicans, raising fresh concerns over the independence of US monetary policy. Powell disclosed that the Fed had received subpoenas from the US Justice Department, calling the probe a “pretext” to exert political influence over interest rates. The investigation, reportedly approved by US Attorney Jeanine Pirro without the knowledge of senior Justice Department leadership, is centered on Powell’s testimony to Congress regarding cost overruns on a Fed building renovation. Markets reacted swiftly, with longer-dated Treasury yields rising as investors reassessed inflation risks under a potentially politicised central bank.

At the same time, Donald Trump stepped up pressure on Iran, announcing a blanket 25% tariff on any country doing business with Tehran, citing its violent crackdown on widespread anti-government protests. While Iran said it is keeping communication channels open with Washington, the threat adds to geopolitical uncertainty, even if its practical impact may be limited given existing sanctions. Together, the developments underscore a sharp escalation in political and geopolitical risk, with potential spillovers for global markets.

Data Spotlight
Japan’s current account surplus widened to 3,674.1 billion yen in November 2025, up from 3,338.9 billion yen a year earlier and above market expectations of 3,594 billion yen. The improvement was driven by a sharp recovery in the goods balance, which swung to a surplus of 625.3 billion yen from 119.1 billion yen last year, as exports rose 5.1% while imports declined 0.5%. The primary income surplus also edged higher to 3,380.9 billion yen, reflecting steady overseas investment income.

In the UK, retail sales rose 1% year on year on a like-for-like basis in December 2025, marking the weakest growth in seven months. While the figure exceeded expectations of a 0.6% increase, it was well below the 3.1% gain recorded in December 2024. Non-food sales fell 0.3% in the month, underperforming the 12-month average growth of 1.1%, while food sales increased 3.1%, largely reflecting higher prices rather than stronger volumes.

Takeaway:  Japan’s external position remains firm, supported by exports and income flows, while UK consumer demand continues to soften, highlighting ongoing pressure on household spending amid elevated living costs.

WHAT HAPPENED OVERNIGHT

• US stocks hit record highs as tech, Walmart gains outweigh policy noise
  • The S&P 500 and the Dow Jones finished at fresh record highs, with investors largely brushing aside concerns around the Justice Department’s criminal investigation into Fed Chair Jerome Powell.
  • Walmart shares jumped 3%, lifting the S&P 500 and Nasdaq, after the retailer shifted its primary listing from the NYSE and ahead of its inclusion in the Nasdaq-100 on January 20, a move expected to attract significant passive inflows.
  • Banks and consumer finance stocks fell after President Trump called for a one-year cap on credit card interest rates at 10% starting January 20.
  • Citigroup fell 3%, American Express slid 4.3%, Capital One dropped 6.4%, and Affirm Holdings declined 6.6%. 

• US Treasury yields rise as Fed independence concerns unsettle markets
  • The benchmark 10-year US Treasury yield rose 4.2%, its highest level since late August, while the 30-year yield rose more than 4 bps to 4.86%.
  • Yields moved higher after Jerome Powell confirmed the Department of Justice is conducting a criminal investigation linked to the $2.5 billion renovation of the Federal Reserve’s headquarters.
  • Powell warned that the “threat of criminal charges” reflects the Fed setting policy based on economic assessment rather than presidential preference, underscoring concerns over central bank independence.
  • Attention now turns to a busy US economic data calendar this week for further clarity on the Federal Reserve’s policy outlook.

• US Dollar slips as Fed independence concerns resurface
  • The dollar weakened after the US Department of Justice threatened to indict Jerome Powell, raising fresh concerns over the Federal Reserve’s independence.
  • Powell confirmed the Fed received subpoenas linked to his congressional testimony on cost overruns for a $2.5 billion headquarters renovation.
  • The dollar index fell 0.37% to 98.87, while the euro rose 0.29% to $1.1671.
  • Republican Senator Lisa Murkowski backed efforts to block President Trump’s Fed nominees amid the investigation, adding to institutional uncertainty around US monetary policy.

• Crude oil prices rise to seven-week highs on Iran supply fears
  • Brent crude prices climbed as concerns grew that Iran’s oil exports could fall amid a crackdown on anti-government protests.
  • Gains were capped by expectations of higher supplies from Venezuela, another sanctioned OPEC producer.
  • Brent settled up 0.8% at $63.87 per barrel, while WTI rose 0.6% to $59.50 a barrel.

Day’s Ledger

Economic Data

• US CPI Data
• India States Borrowing Auction 

Corporate Actions

• Oct-Dec Earnings: Bank of Maharashtra, ICICI Lombard,5Paisa Capital, Tata Elxsi, 
• Moneyboxx Finance to consider fund raising 

Policy Events

• US Fed Williams Speech
• US Fed Musalem Speech

Tickers to Watch

• TCS net profit falls 14% to ₹106.57 billion, revenue up 4.8%
• HCLTech net profit falls 11.2% to ₹40.76 billion; revenue up 13.3%
• Reliance says battery manufacturing plans on track, 2026 target unchanged
• Reliance halts cell-making plans after failing to secure China tech
• PFC plans to raise up to ₹50 billion crore through public issue of NCDs
• JP Morgan's India arm leases 2.7 lakh sq ft in Powai for ₹612 crore
• Bhumika Realty raises ₹1.70 billion to fund mixed-use project in Faridabad
• KPI Green Energy inks ₹40 billion pact with Gujarat govt for RE projects

Must Read

• Net direct tax kitty swells 9% to ₹18.4 trillion till January 11
• Banks need stronger operational discipline, data governance: RBI DG
• India gold ETF holdings surge to 95 tonnes, sixth highest globally
• India-Germany sign pacts to strengthen ties across defence, tech, energy
• Union Budget 2026-27 to be presented on Sunday, Feb 1: Lok Sabha Speaker
• Iran prez joins pro-government rallies as protests intensify
• Mobile phone production to reach $75 Billion by FY26-end: ICEA
  
  

See you tomorrow with another edition of The Morning Edge.

Have a great trading day

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