Kallas Urges Stronger European NATO Amid US Pivot

Isaac Bennett

Remarks of Officials

Political

Russia-Ukraine Conflict

Summary:

EU's Kallas urges Europe to bolster its NATO role amid US relationship shifts, contrasting with Rutte's warning against self-reliance.

The European Union's foreign policy chief, Kaja Kallas, has declared that Europe must fundamentally increase its role within the NATO alliance, citing a deep-seated shift in its relationship with Washington following Donald Trump's return to the White House.

Speaking at the European Defense Agency's annual conference, Kallas argued that Trump has "shaken the transatlantic relationship to its foundation." While European leaders had initially tried to maintain positive relations to preserve US support for Ukraine, a turning point came after Trump's threats to take Greenland from Denmark, a key NATO ally.

A Structural Shift in Transatlantic Relations

Kallas was direct about the changing geopolitical landscape, insisting that while strong ties with the US remain a goal, Europe must confront a new reality.

"Let me be clear: we want strong transatlantic ties. The US will remain Europe's partner and ally," she stated. "But Europe needs to adapt to the new realities. Europe is no longer Washington's primary center of gravity."

EU foreign policy chief Kaja Kallas argues for greater European self-reliance at the European Defense Agency's annual conference.

She emphasized that this change is not temporary but a long-term structural development. To ensure its own security, Kallas warned that Europe must take decisive action. "No great power in history has outsourced its survival and survived," she said, adding that for NATO to remain strong, it "needs to become more European."

Kallas, the former prime minister of Estonia and a long-standing advocate for a firm stance against Russia, warned that the world is seeing a return to "coercive power politics" where "might makes right." She insisted that Europe must accept this "tectonic shift is here to stay."

A Divided Alliance: Can Europe Stand Alone?

However, Kallas's call for greater European self-reliance is not universally shared. Her comments stand in contrast to a recent warning from NATO Secretary General Mark Rutte, who argued that Europe cannot defend itself from Russian aggression without American support.

Speaking in the European Parliament, Rutte made the case that if the bloc wanted to replace the US nuclear umbrella, it would have to double its current defense spending targets of 5%.

He further cautioned that any European move to build up its own forces independent of US support is a strategy that "Putin will love." Instead of pursuing full autonomy, Rutte called for European nations to focus on expanding their own defense industries within the existing alliance structure.

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Benjamin Carter

Central Bank

Remarks of Officials

Economic

Forex

Japan may be able to avoid direct currency intervention for now, thanks to a coordinated strategy with the United States that has successfully halted the yen's sharp decline. According to Atsushi Takeuchi, a former Bank of Japan official with experience in market operations, this joint effort has dramatically altered the landscape for yen traders.

Takeuchi highlighted that recent "rate checks" reportedly conducted by the New York Federal Reserve were an exceptionally rare move, signaling Washington's strong support for Tokyo's efforts to stabilize its currency.

"The presence of the U.S. made a huge difference as markets know they shouldn't fight the Fed," Takeuchi explained in a Wednesday interview.

US-Japan Cooperation Halts Yen's Slide

The primary objective for Japanese authorities was never to defend a specific currency level but to stop a "one-sided, sharp slide," said Takeuchi. The focus remains on the velocity of the yen's moves rather than its absolute value.

With the market now on high alert following the suspected rate checks, traders are more hesitant to push the yen lower. "Now with suspected rate checks keeping markets on edge and preventing yen bears from testing the currency's downside, Japan probably doesn't need to directly intervene," Takeuchi noted.

This strategic pressure was applied after the yen approached the psychologically critical 160 per dollar mark, a level widely seen as a trigger for intervention. In response to the joint signals, the yen surged over 1% on Tuesday to 152.10 per dollar, a three-month high.

The Risks of Direct Intervention

Stepping in to directly buy yen carries its own set of risks that Japanese officials are likely keen to avoid. Takeuchi pointed out that direct intervention could cause the currency to appreciate too quickly, which in turn could negatively impact stock prices.

This concern is particularly relevant as Prime Minister Sanae Takaichi approaches an election next month, making market stability a key priority.

A Successful Psychological Battle

Takeuchi views the recent spikes in the yen as a clear sign that Japanese authorities have won their psychological battle with the market. He believes the primary role of Japan's top currency diplomat is to maintain a credible threat of intervention, keeping traders constantly on guard.

"The biggest job of Japan's top currency diplomat is to heighten and keep alive market fears of intervention," he said. "So far, Japan has succeeded in doing so."

This approach marks a significant evolution in Japan's currency policy. Historically, Tokyo focused on preventing a strong yen from hurting its export-driven economy. Since 2022, however, the priority has shifted to defending the yen against excessive weakness, which drives up inflation and reduces consumer purchasing power.

Takeuchi, who is now chief research fellow at the Ricoh Institute of Sustainability and Business, was directly involved in several yen-selling interventions between 2010 and 2012.

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James Whitman

Stocks

Economic

● Stronger-than-expected fourth-quarter bookings on AI chip demand

● To lay off 1,700 jobs, 3.8% of staff, in Netherlands and US

● Raises 2026 sales outlook amid increased AI-related investments

Top computer chip equipment maker ASML (ASML.AS) logged record orders in the fourth quarter on Wednesday and boosted its 2026 outlook as demand surged from its AI-focused customers even as it trimmed 1,700 jobs.

The job cuts, a rare move and representing 3.8% of staff, would mostly impact leadership in R&D departments in the Netherlands and U.S., said Europe's largest company by market capitalisation, with the move needed for technical agility.

Fourth-quarter bookings, the most watched metric in the industry, leapt to a record 13.2 billion euros ($15.8 billion), from 7.1 billion euros a year ago. The orders well exceeded analyst expectations of 6.32 billion euros, according to researcher Visible Alpha.

Shares were up 4.2% in morning trading, after early jumping as much as 7.5% to a record high. The stock is up 38% this year so far.

'GOING OUT WITH A BANG,' AS QUARTERLY DATA TO BE DROPPED

"It will be the last time that ASML reports quarterly order intake and the company is going out with a bang," ING analyst Marc Hesselink said, referring to ASML's plans to discontinue revealing the bookings figure, arguing it causes unnecessary volatility in shares.

The company raised its 2026 sales guidance to 34 billion to 39 billion euros, beating analyst expectations of 35 billion euros, according to LSEG data. It previously forecast flat-to-higher sales than 32.7 billion euros in 2025.

Customers have in recent months been more optimistic "of the medium-term market situation, primarily based on more robust expectations of the sustainability of AI-related demand," ASML's Chief Executive Christophe Fouquet said in a statement.

Net profit in 2025 at the sole maker of the EUV lithography machines - used to print the world's most advanced chips - jumped 26.3% to 9.6 billion euros, from 7.6 billion euros a year earlier, on sales of 32.7 billion, up 15.5% from a year earlier.

ORDERS BEAT EXPECTATIONS AS AI CHIP DEMAND SURGES

The orders beat comes as ASML customers TSMC (2330.TW), Samsung (005930.KS), SK Hynix (000660.KS), and Micron (MU.O) boost investment plans amid demand for AI logic and memory chips needed by cloud computing giants such as Microsoft (MSFT.O), Amazon (AMZN.O), and Alphabet's Google (GOOGL.O).

South Korea's SK Hynix (000660.KS), also reported record quarterly earnings Wednesday amid the AI boom.

"Overall there is good fourth-quarter orders and 2026 outlook, driven by AI demand for EUV in both logic and DRAM," or memory chips, Mizuho analyst Kevin Wang said in an email.

ASML also said it would buy back 12 billion euros worth of shares through 2028.

JOB CUTS COME AFTER A LONG PERIOD OF EXPANSION

The cull in jobs was the largest at ASML in absolute numbers, following prolonged expansion in the 2010s and 2020s, CFO Roger Dassen said on a call with journalists.

"Job cuts amidst record bookings should make for fascinating talks with the labour unions," said analyst Michael Roeg of Degroof Petercam.

Analysts had expected the Dutch giant to benefit from stronger demand of top customer TSMC, which manufactures chips for Nvidia (NVDA.O), amid tight global supply of memory and AI-accelerator chips.

China is the world's largest buyer, of chipmaking equipment, and was ASML's single-largest market in 2025, representing 33% of sales, a figure that has dropped from 41% in 2024.

Dassen forecast that would fall further to 20% in 2026.

U.S.-led export restrictions prevent Chinese chipmakers from buying ASML's most advanced EUV tools and Nvidia's best chips.

ASML kept longer-term guidance to 2030 untouched, CEO Fouquet said, anticipating revenue of between 44 and 60 billion euros and a gross margin of 56% to 60% in 2030.

Source: Reuters

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Gerik

Economic

Commodity

A Frenzied Rally Outpaces Global Markets

China’s precious metals market has entered an increasingly volatile phase as investor enthusiasm drives local prices well beyond international levels. Gold surged above $5,300 per ounce globally, gaining more than 20 percent this year, supported by a weakening U.S. dollar and growing investor distrust of fiat currencies and sovereign bonds. Silver’s rally has been even more dramatic, rising roughly 60 percent in just four weeks, with sharp and erratic daily price swings.

Within China, prices have climbed even higher, surpassing global benchmarks despite the additional 13 percent value-added tax faced by local importers. This gap reflects intense domestic demand rather than supply constraints alone, highlighting how speculative behavior has amplified price moves beyond what international fundamentals would typically justify.

Shenzhen Protest Signals Stress In The System

The strain created by this speculative surge became visible in Shenzhen, China’s largest physical bullion trading hub. Authorities in the city’s Luohu district established a special task force to oversee a local gold-trading platform after investors reported difficulties withdrawing funds. Around 100 users reportedly gathered at the premises of Shenzhen Jiewo Rui, with social media videos showing clashes involving police, underscoring rising tensions among retail investors.

The platform reportedly allowed users to lock in future gold prices by posting margin equal to as little as one-fortieth of the spot price, implying leverage of up to 40 times. Such leverage creates a direct causal risk: as prices rise rapidly, platforms face mounting pressure to hedge exposure, maintain liquidity, and ensure physical delivery. When prices hit successive highs, even small disruptions can quickly escalate into systemic stress for smaller operators.

Structural Vulnerabilities In Local Gold Trading

Jiewo Rui is not an isolated case. Shenzhen hosts numerous small and mid-sized bullion trading platforms operating alongside its vast physical gold market. Local industry associations had already warned of rising risks last October, following regulatory action against several firms. Earlier this year, a major silver seller in the city’s Shuibei market reportedly defaulted on deliveries, leaving hundreds of investors awaiting compensation.

These incidents illustrate a broader pattern rather than isolated misconduct. High leverage, thin margins, and surging speculative demand are interacting in a way that magnifies operational risk. While rising prices attract investors, they simultaneously increase the probability of failure among intermediaries if hedging and inventory management fall short.

Funds Move To Cool Overheated Demand

Concerns about investor protection have also prompted action in the fund management sector. Several precious metals funds have halted subscriptions after overwhelming demand pushed market prices far above the value of their underlying assets. The UBS SDIC Silver Futures Fund LOF suspended new subscriptions and briefly halted trading after issuing frequent risk warnings since early December. Its premium over Shanghai Futures Exchange silver contracts remains elevated at about 36 percent, a level the fund manager has described as unsustainable.

Similarly, the E Fund Gold Theme Fund has stepped in to curb speculative inflows by suspending new subscriptions. These measures reflect an effort to manage correlation-driven exuberance, where rising prices attract more capital, which in turn pushes prices even higher, regardless of underlying value.

Rising Exposure As Volatility Accelerates

Strategists warn that while gold may still offer relative stability compared with silver, the broader precious metals frenzy has significantly increased downside risk for retail investors. Premiums far above intrinsic value imply that any sharp correction could translate into disproportionate losses, especially for leveraged positions.

The recent protests and trading halts highlight a critical transition point for China’s bullion market. What began as a defensive shift into hard assets amid currency weakness is increasingly showing signs of speculative excess. As regulators step in and funds restrict access, the next phase is likely to test how resilient investor confidence remains once momentum fades and volatility turns against crowded trades.

Source: Bloomberg

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Gerik

Economic

Forex

A Symbolic And Historical Threshold

The euro’s move past $1.20 against the U.S. dollar represents more than a routine currency fluctuation. Round numbers carry disproportionate weight in financial markets, and $1.20 has long been viewed as a benchmark that signals strength. The single currency surged roughly 13 percent last year, its strongest annual performance against the dollar since 2017, and is already up 2.1 percent so far in January.

This level also carries institutional significance. Last year, European Central Bank Vice President Luis de Guindos highlighted $1.20 as a potential pain threshold, where currency strength could begin to weigh meaningfully on the economy. Although the euro approached this level in September before retreating as the dollar rebounded, its renewed break higher suggests that the broader trend has regained momentum.

Historically, the move is notable but not extreme. Since the euro’s launch in 1999, its long-term average sits slightly below $1.20, while its all-time peak near $1.60 in 2008 remains far above current levels. This context suggests strength without yet implying historical excess.

Dollar Weakness As The Primary Driver

The euro’s appreciation has been driven less by sudden euro-area outperformance and more by a sustained deterioration in sentiment toward the dollar. U.S. President Donald Trump’s confrontational stance on trade, disputes with allies, comments about Greenland, and repeated criticism of the Federal Reserve have undermined confidence in U.S. policy stability.

Speculation about potential joint U.S.-Japanese intervention to support the yen has also weighed on the dollar more broadly, lifting major counterparts including the euro. Trump’s assertion this week that the dollar’s value was “great” was interpreted by markets as a lack of concern about depreciation, reinforcing selling pressure rather than arresting it.

At the same time, European fiscal stimulus, led by Germany, alongside efforts to strengthen regional security and long-term growth, has improved relative sentiment toward the euro. These factors have correlated with the currency’s rise, even if they are not the sole causal drivers.

Corporate Earnings And Export Competitiveness At Risk

A stronger euro inevitably raises questions about the impact on European corporates. Currency appreciation makes exports more expensive abroad, particularly in the U.S., which accounts for nearly half of overseas revenues for companies in the STOXX 600, according to estimates from Goldman Sachs. Overall, about 60 percent of STOXX 600 revenues are generated outside Europe, amplifying sensitivity to exchange rate moves.

So far, equity markets have largely looked past this risk, focusing instead on improving growth prospects. Yet European earnings are expected to have contracted last year, and Barclays estimates that roughly half of last year’s earnings-per-share downgrades can be attributed to the euro’s appreciation. This suggests that currency effects are already filtering through financial results, even if markets have not fully priced them in.

How Concerned Is The ECB

The European Central Bank typically focuses on the pace and magnitude of currency moves rather than any single exchange rate level. Still, the euro’s recent acceleration is likely to attract attention. The currency jumped about 2 percent last week, its largest weekly gain since April, when Trump’s sweeping tariffs triggered global market turmoil.

Compared with last spring’s sharp surge, the euro’s appreciation since last summer has been more gradual, which may temper immediate concern. However, further gains could put downward pressure on import prices at a time when the ECB already expects inflation to undershoot its 2 percent target this year and next. In that context, sustained euro strength complicates the path toward achieving price stability.

Reserve Currency Ambitions Remain Distant

Despite the euro’s strong performance, it remains far from challenging the dollar’s dominance as the world’s primary reserve currency. The dollar still accounts for just under 60 percent of global foreign exchange reserves, compared with roughly 20 percent for the euro. Deep U.S. capital markets and the dollar’s central role in global trade continue to anchor its status.

ECB President Christine Lagarde has argued that erratic U.S. economic policy could eventually give the euro a greater international role. Yet she has also stressed that this would require Europe to complete long-delayed reforms to its financial architecture, a process that remains slow and politically complex.

The euro’s break above $1.20 captures a moment when currency markets are reassessing relative stability, policy credibility, and growth prospects on both sides of the Atlantic. While the move reflects improving confidence in Europe, it is equally a signal of eroding faith in U.S. policy coherence. Whether the euro can sustain levels above this milestone will depend not only on European fundamentals, but also on how long dollar weakness persists and how policymakers respond to the economic consequences of a stronger single currency.

Source: Reuters

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Samantha Luan

Stocks

Economic

Kia Corp. said US tariffs cost it 3.3 trillion won ($2.3 billion) last year and the South Korean automaker will roll out incentives to boost sales as competition intensifies.

Tariffs totaled about 1 trillion won in the fourth quarter alone, Kia said Wednesday, driving a 32% slump in operating profit from a year earlier to 1.8 trillion won. That missed analyst estimates for 1.9 trillion won and came despite the company reporting its highest-ever fourth-quarter revenue on strong demand for electric and hybrid cars.

While South Korea and the US reached a deal to lower import duties to 15% from 25% from Nov. 1, Kia didn't reap the full benefit because it had already paid the higher rate on inventory sitting in the US, Chief Financial Officer Kim Seung Jun said during a conference call. Shares closed 2.5% lower.

Despite mounting pressure, Kia's global sales started to turn around after bottoming out in the third quarter, and the company will be able to recover its free cash flow to pre-tariff levels early this year, Kim said.

The global automotive sector has been whipsawed by US President Donald Trump's unpredictable trade policies, including tariffs on imports of vehicles and parts. General Motors Co. has warned the duties will likely cost the company $3 billion to $4 billion this year, while European automakers were roiled last week by Trump's threat to hike tariffs again in a standoff over Greenland.

South Korea's car manufacturers were also surprised this week after the US President said he'd increase tariffs to 25% again due to what he said was the failure of the country's legislature to codify the trade deal the two nations reached last year.

Industry watchers are set to get a further gauge of the sector's sentiment on Thursday when Kia's bigger affiliate, Hyundai Motor Co., releases earnings. It's previously said tariffs had caused a 1.8 trillion won hit in the third quarter.

Beyond tariffs, Kia is also facing an uncertain demand outlook as the EV transition slows in key markets like the US and competition heats up with Chinese rivals that can offer more affordable cars in places like Europe.

The company increased incentive spending in Europe 10% last year and plans a similar level this year to hit its target of 11% sales growth in the region, according to Kim. Kia's share of that market fell to 3.8% last year from 4.1%.

"There's a significant price gap with Chinese products, and in light of growing competition in Europe, we believe our growth strategy won't be effective without a coping mechanism," he said.

In the US, the new Telluride hybrid sports utility vehicle and Seltos compact SUV is expected to spur 5% sales growth, Kim said.

Source: Bloomberg Europe

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Justin

Stocks

Economic

Sales at LVMH's key fashion unit fell over the holiday season as Louis Vuitton's owner continued to suffer from sluggish demand, setting back hopes of a wider luxury rebound.

Organic sales at the fashion and leather goods division declined 3% in the fourth quarter, LVMH Moët Hennessy Louis Vuitton SE said in a statement on Tuesday. Analysts had expected a slightly smaller drop.

LVMH shares slumped as much as 6.2% in early trading on Wednesday in Paris, the most since April on an intraday basis. They were down about 21% over the past 12 months through Tuesday's close.

Luxury companies have struggled to bounce back from a slump that followed a post-pandemic boom, with cost-of-living pressures and geopolitical uncertainty weighing on spending. Brands have also suffered from a consumer backlash after steep price increases.

Chief executive officer Bernard Arnault told investors 2026 is unlikely to be straightforward, and that LVMH would limit spending this year as a result.

"The journey back to growth for the sector, and LVMH as its proxy, will remain bumpy in the coming quarters, highly dependent on the external backdrop," JPMorgan analyst Chiara Battistini said in a note.

Some companies have been more resilient, such as Cartier owner Richemont. In uncertain times, consumers see gold necklaces, bracelets and the like as better stores of value than trendy handbags.

Though LVMH has a smaller presence in watches and jewellery, that business performed better than expected in the latest quarter, helping the company eke out a slight gain in overall sales despite weakness in fashion and leather goods. Bulgari performed particularly strongly during the fourth quarter, LVMH said.

That was an outlier for LVMH, which otherwise did not enjoy a festive rebound, AIR Capital analyst Pierre-Olivier Essig told Bloomberg. The cautious management tone likely indicates a year of transition, he said.

LVMH paid €1 billion (US$1.2 billion or RM4.7 billion) to increase its stake in Loro Piana — the brand known for its cashmere sweaters — to 94% from 85% in the second half of last year, according to an LVMH representative.

Organic sales rose 1% in the fourth quarter in both the US and the region that includes China, ahead of analyst estimates. Drops of 2% in Europe and 5% in Japan were bigger than expected.

Full-year profit from recurring operations was €17.8 billion, LVMH said, a drop of 9.3% from a year earlier but better than analysts expected.

LVMH's wines and spirits division saw its third year of falling sales. It's weighed down in particular by a collapse in demand for Hennessy Cognac.

Arnault, the billionaire founder of LVMH, said his family's stake in the luxury conglomerate would surpass 50% in 2026.