Dow, S&P 500, Nasdaq Slide to cap Volatile Week and Month, Metals Sink After Trump Taps Warsh for Fed

Moody's has upgraded Israel's credit outlook to stable from negative, signaling renewed confidence in the nation's financial stability. The ratings agency affirmed Israel's sovereign rating at Baa1, citing a significant reduction in geopolitical risk as the primary driver for the improved forecast.

The Rationale Behind the Upgrade

The decision follows a series of key developments that have eased regional tensions. Moody's pointed to the end of military conflict with Iran in June 2025 and the establishment of ceasefires with Hamas in Gaza (2025) and Hezbollah in Lebanon (2024).

While the agency notes that Israel's geopolitical environment will likely remain fragile, it assesses that the risk of resuming large-scale ground operations has receded. This reduction in immediate conflict risk was central to the outlook revision.

Economic Resilience and Future Projections

Israel's economy and public finances demonstrated notable resilience during the recent conflicts and are now positioned for a rebound. Moody's projects the economy will expand by 5.0% in 2026, followed by steady growth of 3.0-3.5% in the years after.

On the fiscal front, government deficits are expected to shrink from the highs recorded in 2024 and 2025. This should allow the country's debt-to-GDP ratio to stabilize at around 68%.

Balancing Strengths Against Lingering Risks

The affirmation of the Baa1 rating balances the positive outlook with the lingering financial costs of past conflicts. Compared to forecasts made before October 7, 2023, Moody's expects government debt to be approximately 18 percentage points higher over the medium term.

However, Israel's fundamental credit strengths remain intact, providing a strong buffer. These include:

• A track record of robust GDP growth.

• Continued investment in its vital technology sector.

• Strong access to capital markets, which helps limit borrowing costs and mitigate fiscal pressure.

The country's local and foreign-currency ceilings remain at Aa3, four notches above the sovereign rating, reflecting this balance between elevated geopolitical risks and a diversified, stable economy.

Potential Triggers for Future Rating Changes

Looking ahead, Moody's outlined specific conditions that could lead to further rating actions.

A durable reduction in geopolitical risk, paired with a faster-than-expected fiscal consolidation, could create upward pressure on the rating. Conversely, a renewed escalation in regional tensions or a weakening of Israel's economic and fiscal prospects could lead to downward pressure.

Gold and silver just capped off a historic month with a spectacular selloff. The numbers are staggering: gold plummeted 13%, while silver endured a brutal 38% plunge.

While these moves are extreme, they aren't entirely surprising. The precious metals market had become incredibly stretched after a period of intense excitement. It was always unlikely that a stable asset like gold could surge over 20% in a single month without hitting severe turbulence. Silver, known for its volatility, had rocketed more than 60% in January alone. In finance, as in physics, gravity eventually reasserts itself.

A Healthy Correction, Not a Trend Reversal

Remarkably, the sharp downturn hasn't shaken the confidence of many market analysts. The consensus view is that this is a "healthy correction"—a necessary release of pressure after an unsustainable run. Across the board, experts are stopping short of calling an end to the bull market.

Their reasoning hinges on a simple question for investors: setting aside the recent price action, what has fundamentally changed in the global economy to derail gold's long-term upward trend?

While momentum trading and irrational exuberance clearly played a role in the recent volatility, the core drivers supporting gold's safe-haven status remain firmly in place.

Unchanged Risks in the Global Economy

The fundamental picture for gold is still compelling. Geopolitical tensions, though they may have eased momentarily, have not disappeared. With figures like President Donald Trump acting as agents of chaos, the world remains just one social media post away from a renewed crisis.

Meanwhile, government debt continues to accumulate globally at an unsustainable rate. This shifting economic landscape is forcing investors to rethink the old rules that once governed assets like gold and silver.

The New Logic of Bond Yields and Gold

The relationship between gold and the bond market is a prime example of this paradigm shift. Traditionally, rising bond yields were considered a negative for gold. Higher yields increase the opportunity cost of holding a non-yielding asset like gold and historically signaled growing confidence in the economy.

That narrative is changing. Today, rising yields are increasingly interpreted as a warning sign—an indication that investors are losing faith in the established monetary system. Persistent inflation and ballooning government debt are eroding the purchasing power of fiat currencies. This pushes investors toward defensive assets that can protect them from equity market risks, especially with stock valuations near record highs.

Gold's Role as an Anchor Asset

In an environment defined by escalating economic and geopolitical uncertainty, gold has evolved from a luxury to a necessity. Its unique advantage is that it carries no third-party or political risk.

Joseph Cavatoni, Senior Market Strategist at the World Gold Council, recently told Kitco News that gold has become a vital "anchor asset" in modern investment portfolios. "And once something is anchored, the discussion changes," he explained.

Even after its 13% correction, many analysts believe gold has significant upside potential. Some forecasts suggest prices could reach $6,000 an ounce by the end of the year.

The selloff has been overwhelming, but gold's fundamental role in the global financial system is unchanged. After a week of wild volatility, it’s time to reset and prepare for what comes next. The precious metals market may just be getting started.

Russia's Ambassador to the UN, Vassily Nebenzia, has declared that a repeat of the Venezuelan political scenario will not be permitted in Cuba, warning that any US intervention would not be an "easy ride."

Nebenzia contrasted the two nations, noting that high-ranking officials in Venezuela had betrayed their president. "This scenario will not work in Cuba," he stated in a televised interview, adding that recent American rhetoric is unlikely to translate into a successful intervention.

US Intensifies Pressure with New Sanctions

The ambassador's comments follow a new executive order signed by President Trump which declares a national emergency concerning Cuba. The order establishes a tariff mechanism aimed at countries that supply oil to the island nation. This move has already severed Cuba's crucial oil supply from Venezuela.

President Trump expressed confidence in the policy's impact, telling reporters, "They got their oil from Venezuela. They're not getting that anymore." He predicted that Cuba "will be failing pretty soon."

However, Cuba has a long history of confronting US pressure, dating back to the Cold War, suggesting a higher level of preparation for intelligence and economic subterfuge.

An S-125 surface-to-air missile system. Russia's envoy highlighted Cuba's readiness to resist foreign intervention, with the nation historically maintaining and modernizing its military hardware.

China Joins Russia in Condemning US Policy

China has also voiced its opposition to the increased pressure on Cuba. On Friday, the Chinese Foreign Ministry stated its firm stance "against inhumane practices and moves that deprive the Cuban people of their rights to subsistence and development."

This places both Russia and China, two global powers with strong military and economic ties to nations like Venezuela, Cuba, and Iran, in alignment against recent US foreign policy actions.

Broader Warnings on Iran and NATO's Future

Ambassador Nebenzia extended his warnings to other geopolitical flashpoints, noting that any potential US action against Iran would trigger massive consequences. He described Tehran as being better prepared for a conflict now than it was in June 2025.

"The rhetoric of President Trump [about Iran] seems to have subsided after the protests that took place in Iran," Nebenzia said. "However, the situation is alarming. A strike may take place, but this time Iran is better prepared."

He also commented on the state of the North Atlantic Treaty Organization (NATO), suggesting the alliance has "really exhausted itself." While he does not expect the organization to disappear soon, he asserted that "the concept of Euro-Atlantic security has failed," a sentiment he noted was effectively confirmed by President Trump.

Despite Russia's strong relations with Iran, its current military engagement in Ukraine makes it unlikely to intervene directly in a potential US-Iran conflict.

S&P Global Ratings has upgraded its outlook on Italy to "positive" from "stable," signaling growing confidence in the country's economic trajectory. The agency affirmed Italy's sovereign credit ratings at 'BBB+/A-2'.

The change reflects a brighter view of Italy's capacity to navigate global economic challenges and manage its public finances.

Why S&P Is Bullish on Italy's Economy

The core of S&P's positive revision lies in the resilience of Italy's large and open economy. Despite ongoing uncertainty in global trade and tariffs, the nation has demonstrated notable strength.

Key drivers behind the improved outlook include:

• Consistent Trade Surpluses: Italy has consistently posted net current account surpluses, a sign that the country earns more from its international trade and investments than it spends.

• Growing Private Wealth: These surpluses have helped bolster private wealth within the country.

• Stronger External Position: Italy's net external creditor position has shown continuous improvement, strengthening its financial standing on the world stage.

S&P expects Italy's diversified private sector to continue driving these trends, which supports the nation's overall economic stability.

Tackling Debt: Italy's Path to Fiscal Stability

While Italy's government debt remains high, S&P noted gradual progress in the country's budgetary consolidation efforts.

The agency projects the headline budget deficit will fall below 3% of GDP by 2026. Furthermore, cash flow adjustments related to the "Superbonus" incentive program are also winding down, easing fiscal pressure.

Although government debt is forecast to be around 136% of GDP in 2025, S&P anticipates this figure will begin a downward trend starting in 2028.

What Could Trigger an Upgrade or Downgrade?

The positive outlook opens the door for a potential ratings upgrade, but S&P also outlined clear risks that could lead to a reversal.

The Path to a Higher Rating

S&P indicated that it could raise Italy's sovereign credit rating if the country achieves the following:

• Strengthens its external financial position further.

• Narrows its budget deficit on a cash basis.

• Puts government debt-to-GDP on a clear downward path.

Potential Downside Risks

Conversely, S&P would consider lowering the ratings if Italy's economic, external, or budgetary performance deteriorates significantly beyond current forecasts. Such a scenario could be triggered if prolonged international trade uncertainty erodes consumer and business confidence, ultimately weakening Italy's financial and fiscal standing.

Russia and Ukraine have paused attacks on each other's energy infrastructure in a temporary de-escalation, but the two sides have offered conflicting timelines for the agreement, casting doubt on the next steps in negotiations to end the nearly four-year war.

The move follows a request from U.S. President Donald Trump, which the Kremlin said it accepted. However, while Kyiv sees the moratorium lasting a week, Moscow has indicated it could end as soon as Sunday, February 1.

A Fragile Truce with Conflicting Timelines

On Friday, Ukrainian President Volodymyr Zelenskiy confirmed that Russia had conducted virtually no strikes on energy facilities in the past 24 hours. He stated the moratorium went into effect at midnight on Friday for a full week.

"In all our regions, there were indeed no strikes on energy facilities from Thursday night to Friday," Zelenskiy said. "Ukraine is ready in reciprocal terms to refrain from strikes and today we did not strike at Russian energy facilities."

The Kremlin's account differs. Spokesman Dmitry Peskov confirmed President Vladimir Putin agreed to Trump's personal request to halt the bombardment of Kyiv but suggested the measure would expire on Sunday. The stated goal was to create "favourable conditions" for peace talks. Both sides acknowledge this is not a formal ceasefire.

Kyiv Faces Deep Freeze as Infrastructure Reels

The temporary pause offers a critical reprieve for Kyiv's residents, who have endured weeks of Russian strikes that knocked out power and heating for hundreds of thousands of people as temperatures dropped below minus 15 degrees Celsius.

On Friday, 378 residential high-rise buildings remained without heating. The situation is set to become more severe, with weather forecasters predicting temperatures in the capital will plunge to as low as minus 26 degrees Celsius starting Sunday.

Figure 1: An emergency crew at a Kyiv apartment building damaged by recent Russian strikes, which have left hundreds of thousands without heat ahead of a severe cold snap.

Despite the halt in energy strikes, Ukrainian officials report that Moscow has merely shifted its strategy. Both Zelenskiy and Prime Minister Yulia Svyrydenko said Russia is now targeting logistical points, particularly railway junctions. Svyrydenko noted that Russia carried out seven drone attacks on railway facilities in the last 24 hours alone.

Diplomatic Deadlock Overshadows Talks

Diplomatic efforts to end the war remain stalled over fundamental disagreements. Two major unresolved issues stand in the way of progress:

• Territorial Control: Russia's demand that Ukraine cede all of the Donbass region.

• Nuclear Plant: Russia's control over the Zaporizhzhia nuclear power plant, the largest in Europe.

Zelenskiy has firmly ruled out surrendering territory. This impasse has left the diplomatic track without tangible results.

The next round of talks, originally scheduled for Sunday in the United Arab Emirates between Russian, Ukrainian, and U.S. negotiators, is now uncertain. Zelenskiy suggested a delay, citing external factors. "The date or the location may change – because, in our view, something is happening in the situation between the United States and Iran. And those developments could likely affect the timing," he said.

Meanwhile, two sources in Moscow told Reuters that Putin's special envoy, Kirill Dmitriev, would travel to Miami on Saturday for meetings with members of Trump's administration. Adding to the uncertainty, U.S. Secretary of State Marco Rubio said that Trump's top envoys, Steve Witkoff and Jared Kushner, would not participate in the scheduled Abu Dhabi meeting.

Ukraine's Strained Air Defenses and Public Skepticism

President Zelenskiy also revealed that Ukraine's air defenses have been depleted, blaming delayed payments from European allies under the U.S.-led PURL weapons purchase program. He said this delay meant U.S. Patriot air defense missiles did not arrive before heavy Russian airstrikes that crippled power across Kyiv this month.

On the streets of the capital, residents expressed doubt that the truce would last.

"I trust neither Putin nor Trump, so I think that even if he (Putin) complies now, he will stockpile missiles and will still keep firing," said Kostiantyn, a 61-year-old pensioner. "Putin's goal is the destruction of Ukraine, and all we can do is resist."

The grim reality of the ongoing conflict continues. The Ukrainian Air Force reported that in the latest overnight attacks, Russia launched one ballistic missile and 111 drones. Zelenskiy said the missile struck and damaged warehouses owned by the U.S. company Philip Morris in the northeastern Kharkiv region. All the while, Russian troops continue their grinding advance in the eastern Donetsk region.

Australia's latest inflation data has put policymakers and investors on high alert, with a key measure of underlying price pressure surging past the central bank's target range. Markets are now pricing in a high probability of a February interest rate hike, setting the stage for a sharp policy pivot just months after the Reserve Bank of Australia's last rate cut.

Core Inflation Breaks Through RBA's Target Range

The RBA's preferred gauge of inflation, the trimmed mean, rose to 3.4% year-on-year in the fourth quarter. This figure not only surpassed market expectations of 3.3% but also breached the upper limit of the RBA's 2–3% target band, signaling that underlying price pressures are more persistent than previously thought.

On a quarterly basis, core inflation registered a 0.9% increase, which was in line with forecasts. However, the acceleration in the annual rate suggests the path back to stable prices may be challenging.

Headline CPI Reveals Broad-Based Price Pressures

Headline inflation figures also point to mounting price pressures across the economy. The Consumer Price Index (CPI) rose to 3.8% year-on-year in December, an increase from 3.4% the previous month.

The primary drivers behind this increase include:

• Housing: +5.5%

• Recreation and Culture: +4.4%

• Food and Non-alcoholic Beverages: +3.4%

Figure 1: Australia's annual inflation rate surged to a peak near 8% in early 2023 before declining, but recent data shows a rebound that has pushed it back toward 4%.

A closer look at the data reveals particularly stubborn inflation in the services sector, which accelerated to 4.1% year-on-year from 3.6%. This typically indicates strong domestic demand and persistent wage pressures. Meanwhile, goods inflation stood at 3.4%, with a notable 21.5% surge in electricity prices adding further complexity for the RBA.

Strong Labor Market Fuels Policy Dilemma

Compounding the inflation challenge is Australia's tight labor market. With unemployment hovering around 4%, demand in the economy remains robust. This combination of high inflation and low unemployment significantly constrains the central bank's options and raises the risk of price pressures becoming entrenched.

This situation is particularly delicate for the RBA, which cut interest rates as recently as August. By December, the bank had already signaled that its next move could be a hike if inflation data proved troubling.

Markets Bet on an Imminent RBA Rate Hike

Financial markets have reacted swiftly to the latest data. Overnight Index Swaps (OIS) now indicate a roughly 76% probability of a rate hike at the RBA's meeting on February 2–3.

Major financial institutions are aligning with this view. Both Westpac Banking Corp. and ANZ Bank are forecasting a 25-basis-point rate hike, which would lift the cash rate to 3.85%. However, Westpac noted that such a move would not necessarily signal the start of a prolonged tightening cycle, leaving a "wait-and-see" approach on the table if inflation eases in the coming months.

Interestingly, three-year government bond yields fell to 4.28%, suggesting some investors may believe the inflation spike is temporary or that the RBA will only implement a single tightening move.

Australian Dollar Rallies on Hawkish Bets

The prospect of higher interest rates has provided a significant tailwind for the Australian dollar. The currency has appreciated by over 4% since the beginning of the year, making it the second-best performer among G10 currencies. This strength reflects both rising rate expectations and investor confidence in the Australian economy's relative resilience.

Figure 2: The AUD/USD daily chart shows a strong upward trend, breaking past previous resistance as the Relative Strength Index (RSI) moves firmly into overbought territory.

February Meeting: A Defining Moment for the RBA

The upcoming RBA meeting is more than just another rate decision. It represents a critical test of the central bank's credibility. Policymakers must decide whether to pivot decisively to combat rising inflation or to treat the latest data as a temporary blip. The decision made in early February will likely set the tone for Australian monetary policy for the rest of the year.