Geopolitics is hot and collectively pointing to growing fragmentation and risks – yet stocks keep going up. Shut your eyes and hope for the best, I guess.
Equity benchmarks in the US hit record highs yesterday, as they did in London and Frankfurt. Crude oil prices slipped as President Trump said Venezuela would turn over oil to the US, pushing the FTSE 100 lower on Wednesday after it notched a record high Tuesday, whilst miners were down as copper, silver and gold pulled back a touch, though iron ore rose for a fourth day.
Despite gains for the broader market on Wall Street yesterday we saw Chevron and Exxon Mobil fall as some of the initial optimism around their Venezuela premium was diluted. There was less of a pullback for Valero and SLB as it looks like refiners and oilfield services firms are going to be the first-round beneficiaries ahead of the upstream drillers.
Greenland – the US is not ruling out using the military to take the island, according to a statement from the White House yesterday…the bully boy tactics means it won’t have to. The US is in control of its future now. But just how likely is it that Greenland becomes part of the US and what impact does it have?
A lot depends on how it goes about it – a purchase (even with the implicit threat of force) would hardly mean the end of Nato. Either way the rearmament trade – defence stocks – is still the play, as is the rare earth minerals sector. Markets would not react well to any possible fracturing of Nato – but the price action at the moment seems to suggest that markets are a tad too complacent over Greenland and how far Trump will push it. Meanwhile we have talk of regime change in Iran amid the protests and Russian navy ships heading to an oil tanker that’s being pursued by the US. Who’s up for a naval confrontation in the Atlantic?
It was a thumping day for stocks in London yesterday. The FTSE 100 jumped over 1.5% before paring gains a touch to close at a record high, bolstered by big gains for pharma stocks AstraZeneca and GSK, while Lloyds surged past 100p to hit a 17-year high. It’s a real sign of revival in UK stocks and underlines why I’ve been so constructive on UK stocks for several months now.
The FTSE 100 trades a little lower in early trade Wednesday with some modest giveback of yesterday’s moves with oil majors Shell and BP down 2%, and miners Fresnillo and Antofagasta giving back 3%, to leave the blue chips in London lagging European stock markets as the Dax notched a fresh record high above 25,000 and the Stoxx 600 sits at a record high.
Wall Street closed up at record highs – it feels like it’s just a case of shut your eyes and buy stocks… the Dow Jones rose 1%, or 485 points, to close above 49,000 for the first time. The S&P 500 also notched a record close after gaining about 0.6%, while the Nasdaq rose roughly 0.7%. Apple made a new 3-month low and closed the gap to the Oct 24th close.
Microsoft closed below its 200-day moving average, while Tesla broke down at its 50-day line as it declined 4% for the session. We seem to be seeing a broadening out with 9 out of 11 S&P 500 sectors gaining though Mag7 was mixed. Memory storage plays seem to be the hottest ticket – Sandisk, Western Digital (last year’s standout) and Seagate among the biggest risers yesterday.
We saw some big moves in some of the popular high beta names – Rocket Lab and AST SpaceMobile from the ‘space economy’ sector while nuclear stocks extended gains on Tuesday after rocketing higher on Monday. Indeed one I flagged yesterday – Critical Metals Corp – jumped 25% for the day on growing speculation that Greenland is soon to become part of the US. Critical Metals owns the Tanbreez rare earths project in Greenland. Traders were also looking ahead to a House subcommittee meeting on nuclear energy today.
Disinflation: Australia November CPI was softer than expected on the headline at 3.4% YoY versus 3.6% expected and 3.6% in October, supporting the case for the RBA to hold and sending the Aussie to its highest in over a year. Germany’s inflation rate dropped to 1.8% in December 2025, below November’s 2.3% and forecasts of 2.0%. For what it’s worth I believe the UK is already in this disinflationary process and supports further rate cuts this year, but sterling has made a move against the euro which we are looking at as it approaches the 200-day moving average.
ADP and Jolts jobs reports are today – could be negative to expectations as we have had a couple of positive reports lately. ISM Services is also one to watch.
Finally, the US Supreme Court is set to rule Friday on the administration’s use of the International Emergency Economic Powers Act (IEEPA) for tariffs, which could hit about 70% of tariff revenue. It’s thought the Supreme Court is leaning towards rejecting Trump’s use of the act to impose tariffs, the central plank of his economic policy, as I looked at late last year:
“If the justices overturn the tariffs we would expect severe disruption in the event of repayments, delays and ongoing uncertainty about individual country/sector tariffs. The administration would need to swing behind more targeted tariffs that could create additional uncertainty around trade policy and increase volatility. Refunds would be a positive for some companies, such as Costco, which have filed lawsuits to ensure they get refunds from the government if IEEPA tariffs are thrown out by the Supreme Court.
“But companies and markets should make no mistake, tariffs are not going away. Trump has other levers to pull. Sections 301 and 232 can be used more prominently to impose sectoral tariffs relating to unfair trade practices and national security issues. The drawback to these is that they require lengthy investigations to be carried out first, which can take months. Other tools are as yet unused. Section 122, for example, doesn’t require lengthy investigations and could be applied almost immediately.
“But it has a 15% cap on the level of tariffs and a 150-day time limit, which can be extended with Congressional approval – which could be tricky after the Mid-term elections in November. Another is Section 338, which allows for tariffs of up to 50% based on discrimination against US commerce, but it’s not been tested recently.”
