U.S. stock index futures, cryptocurrencies, the U.S. dollar index, and U.S. Treasuries all experienced a broad sell-off this morning, creating an extremely unsettled atmosphere in external markets. U.S. stock index futures opened lower, with S&P 500 futures down 0.9% and Nasdaq 100 futures falling 1.3%. The cryptocurrency market also saw a widespread decline, with Bitcoin dropping over 3% at one point and Ethereum plummeting more than 5%. In the foreign exchange market, volatility in commodities increased significantly. So, what exactly happened? Analysts point to three key variables.
The first is a threat from Donald Trump on social media, warning that he would impose a 100% tariff on Canadian goods entering the U.S. if Canada "reaches an agreement" with certain countries. The second factor is the U.S. signaling potential intervention in the foreign exchange market. The New York Federal Reserve, acting on behalf of the Treasury Department, inquired with several banks about the cost of converting yen into U.S. dollars. This action significantly boosted the yen and put pressure on the dollar. The third variable is renewed tensions in the Middle East, with a U.S. aircraft carrier strike group having arrived in the region.
On the morning of January 26th, volatility in external markets intensified markedly. U.S. stock index futures opened with a broad sell-off, with Nasdaq futures falling over 1% at one point. Major European stock index futures also declined across the board. Concurrently, the U.S. dollar index experienced a rare sharp drop, briefly falling below the 97 mark. The USD/JPY pair fell 0.89% to 154.32, while the EUR/USD pair rose 0.4% to 1.1873. The yield on the 10-year U.S. Treasury note also began to climb.
The reaction in the cryptocurrency market was even more severe. Bitcoin's 24-hour decline exceeded 3%, while Ethereum fell more than 5%, approaching the $2,800 level, and Binance Coin also dropped nearly 3%. As the crypto market is a strong indicator of liquidity conditions, its broad-based plunge undoubtedly serves as a significant warning to investors in other markets.
Notably, prices of safe-haven assets surged substantially. In early trading, spot gold broke through the key psychological level of $5,000 per ounce. Spot silver surpassed $106 per ounce for the first time, rising nearly 3% on the day. Other commodities also moved higher collectively; influenced by winter storms, U.S. natural gas futures prices surged as much as 16%, while metals like copper and nickel saw gains exceeding 3% in the morning session.
On January 26th, Japan's Nikkei 225 index opened down 1.51%, with its losses quickly widening to nearly 2%. Among heavyweight stocks, ITOCHU Corp. fell 1.91%, Mitsubishi Heavy Industries dropped 1.56%, Recruit Holdings declined 1.47%, and Takeda Pharmaceutical was down 1.06%. In contrast, stock markets in South Korea and Australia opened relatively stronger, buoyed by rising prices for memory chips and commodities.
The market's performance is linked to three key variables. The first is the deterioration in U.S.-Canada relations. Last weekend, Trump threatened on social media to impose a 100% tariff on Canadian goods entering the U.S. if Canada "reaches an agreement" with certain countries. Simultaneously, Trump announced on the evening of the 22nd that he had withdrawn a previous invitation for Canadian Prime Minister Carney to join a "Peace Committee." According to reports, Carney stated in a video posted on his personal social media, "Given that our economy is facing threats from abroad, Canadians have made a choice: to focus on what we can control." Central Bancompany pointed out that while Carney did not directly mention the U.S., the nearly one-minute video concluded with his remarks: "We cannot control the actions of other countries. We can be our own best customer. We will buy Canadian products. We will build the country with Canadian products. Together, we will build a strong Canada."
The second factor involves Japan and the yen. Following its unusual movement last Friday, the yen surged again at the opening this morning. Correspondingly, the U.S. dollar index fell sharply. Besides the Bank of Japan, the protagonist behind this volatility may also include the New York Fed. According to The New York Times, the U.S. Treasury took preliminary steps towards foreign exchange intervention last Friday, with Treasury Secretary Bessent expressing concern this week that turmoil in Japanese markets could spill over to the U.S. Two informed sources revealed that the New York Fed, representing the Treasury, inquired with several banks about the cost of converting yen into dollars. Reportedly, the U.S. Treasury did not respond to inquiries about whether it had communicated with Japan on this matter. However, several analysts noted that it is uncommon for the U.S. to send signals on an issue typically seen as "Japan-led," making it more likely to trigger a market reassessment of potential coordination between U.S. and Japanese authorities. It was this unusual move that drove a significant rebound in the yen's exchange rate, as the New York Fed's inquiries signaled to traders that the Treasury might engage in large-scale yen purchases. Although intervention has not yet occurred, the possibility of substantial future yen buying pushed the yen to its largest single-day gain against the dollar in nearly six months on January 23rd. The rapid appreciation of the yen has also intensified concerns about a slowdown in carry trades.
The third factor is the Middle East. Over the weekend, Trump stated that the U.S. was moving significant forces towards Iran, with a large fleet heading towards the country. This morning, a CCTV report indicated that, according to Israeli sources on the 25th, the U.S. Navy's USS Abraham Lincoln aircraft carrier strike group has arrived in the Middle East and is operating within the U.S. Central Command's area of responsibility.