Silver Prices Retreat as Trump Pauses Tariff Threat

Investors in Thailand’s bond market are signaling growing unease ahead of the country's general election, pushing the yields on long-term government debt significantly higher amid concerns over post-election fiscal stimulus.

The spread between Thailand's two-year and 10-year government bond yields has widened by approximately 50 basis points over the last four months, hitting its highest level since November 2023. This steepening yield curve reflects market expectations that the incoming government will ramp up debt issuance to fund new spending programs.

While shorter-dated bonds are finding support from the prospect of interest rate cuts, demand for long-term debt is cooling, setting the stage for continued underperformance.

Election Pledges Fuel Debt Concerns

The core issue driving the market is the anticipation of substantial, debt-funded stimulus packages, regardless of which party wins the election. Higher long-term yields make it more expensive for the government to borrow, potentially limiting the fiscal space needed to support Thailand's economy.

The nation's economy is already facing multiple headwinds, including:

• The impact of US reciprocal tariffs

• Severe flooding in its southern provinces

• Border clashes with Cambodia

• A strengthening baht that hurts key export and tourism revenues

"We could see a further steepening in the Thai sovereign bond curve, especially ahead of the elections, which may spell more debt-funded fiscal stimulus," said Kobsidthi Silpachai, head of capital market research at Kasikornbank Pcl.

He predicts the yield spread, currently around 58 basis points, could widen to as much as 80 basis points leading up to the Feb. 8 election.

Analysts Warn of Downgrade Risk

The potential for unchecked government spending has raised alarms about the country's fiscal health. "If fiscal deficit spending gets out of hand, there's a rising risk of a credit rating downgrade," Kobsidthi warned, also noting the possibility of a 25-basis point rate cut in February.

This sentiment is backed by recent auction results, which show waning investor appetite for longer-dated Thai bonds.

• A sale of 2045 securities on January 7 saw a bid-to-cover ratio of just 1.67 times, below the average of previous auctions for that tenor.

• A December 24 auction for bonds due in 2077 recorded the lowest demand since 2022.

Rate Cut Hopes Anchor Short-Term Bonds

While the long end of the curve faces pressure, shorter-term debt is benefiting from different dynamics. On Tuesday, Bank of Thailand Governor Vitai Ratanakorn stated that there was room to cut interest rates further. However, he cautioned that monetary policy has limitations in addressing the country's structural economic problems.

Even without the election, investors were already preparing for increased debt issuance.

"There is scope for additional steepening" of the yield curve, said Peerampa Janjumratsang, a fixed-income portfolio manager at M&G Investments. She pointed to a significant amount of longer-dated Thai bond issuance on the horizon.

Janjumratsang also suggested the finance ministry might bring its semi-annual bond switching exercise forward to the first quarter of 2026 to extend its debt maturity profile, adding another layer of complexity for bond investors.

Wholesale inflation in Japan slowed in December, driven by a decline in fuel costs that offered some relief to businesses facing pressure from rising labor and raw material expenses.

Corporate Price Growth Eases in December

Data from the Bank of Japan (BOJ) showed the corporate goods price index (CGPI) rose 2.4% in December from the previous year. The CGPI, which measures the prices companies charge one another, matched market forecasts and marked a deceleration from the 2.7% annual increase recorded in November.

This slowdown suggests that falling crude oil prices are beginning to ease cost burdens for Japanese firms.

Weak Yen Adds Pressure to Import Prices

Despite the overall cooling trend, a weaker yen created renewed upward pressure on the cost of imported goods.

An index tracking yen-based import prices was flat in December compared to the same month a year earlier. This followed a revised 1.7% drop in November, indicating that the benefits of lower global commodity prices are being partially offset by currency movements.

BOJ to Scrutinize Data at Upcoming Meeting

These inflation figures will be a key point of analysis for the Bank of Japan at its next policy meeting, scheduled for January 22-23. The central bank is expected to incorporate this data into its quarterly review of economic growth and inflation forecasts.

Iran's Foreign Minister, Abbas Araqchi, has publicly stated that the government has "no plan" to hang people involved in widespread anti-government protests sweeping the nation. Speaking to Fox News, Araqchi was unequivocal, stating, "Hanging is out of the question."

This official denial comes as Iran confronts its largest anti-government demonstrations in years, creating a severe test for the country's clerical leadership.

Figure 1: Demonstrators fill a street in Tehran during protests driven by economic hardship and opposition to the ruling establishment.

However, the Norway-based Iran Human Rights Society reports that hangings are a common practice within Iranian prisons, casting doubt on the minister's assurances.

US Threatens Action as Tensions Rise

The situation has drawn a sharp response from Washington. U.S. President Donald Trump has been closely monitoring the unrest and initially threatened "very strong action" if Iran began executing protesters. "If they hang them, you're going to see some things," Trump told CBS News.

More recently, the U.S. President noted he was informed that the killings in the government's crackdown were decreasing and that he did not believe there was a current plan for large-scale executions.

The diplomatic pressure from Trump is part of a broader strategy that has included threats of military action. The current crisis follows a tense year in which Iran engaged in a 12-day war with U.S. ally Israel, and its nuclear facilities were bombed by the U.S. military in June.

Protests Evolve into Existential Challenge

The ongoing demonstrations represent one of the most significant challenges to clerical rule since the 1979 Islamic Revolution. What began as public outcry over severe economic hardships has transformed into defiant calls for the downfall of the entire clerical establishment.

The human cost of the crackdown has been substantial. According to the U.S.-based HRANA rights group, the verified death toll includes:

• 2,403 protesters

• 147 government-affiliated individuals

HRANA has also reported that 18,137 people have been arrested in connection with the unrest.

In response, Iran's government has blamed its economic problems on foreign sanctions and accused its international adversaries of interfering in the country's domestic affairs.

Federal Reserve officials are publicly defending the central bank's independence following a Department of Justice (DOJ) investigation into a costly building renovation and Chair Jerome Powell's congressional testimony on the matter. The subpoenas issued by the DOJ have sparked a debate over political pressure on the Fed's monetary policy decisions.

Minneapolis Fed President Neel Kashkari became the first policymaker to explicitly support Powell's assertion that the probe is a pretext to influence interest rate policy. "The escalation over the course of the past year is really about monetary policy," Kashkari stated in an interview with the New York Times.

Speaking at a Wisconsin Bankers Association event, Kashkari expressed confidence that the Fed's independence would endure, even after President Donald Trump replaces Powell, whose term as chair concludes in May. He emphasized that the Fed's decisions are made by a committee where "the best argument wins" and each member has one vote. "I feel confident that the committee will continue to make the best decisions we can, based on data and analysis," he said.

Other top Fed officials echoed this sentiment. Chicago Fed President Austan Goolsbee, Atlanta's Raphael Bostic, and New York Fed President John Williams all highlighted the critical need for the central bank to set interest rates without political interference.

"The independence of the Fed couldn't be more important for the long-run inflation rate in this country," Goolsbee commented during an NPR interview on January 14.

A Dissenting View on the Investigation

However, Fed Governor Stephen Miran, who is on unpaid leave while serving as one of President Trump's top economic advisers, offered a sharply different perspective. When asked about the DOJ probe and its potential to undermine confidence in the Fed's commitment to controlling inflation, Miran dismissed the concerns as "just noise."

"I don't really buy that. I think that inflation is very much headed in the right direction," Miran said at an event in Athens. "Inflation's on the right trajectory. It's coming down."

Miran also criticized a statement from global central bank leaders expressing "full solidarity" with Powell against the investigation. "I don't think it's appropriate for central bankers to get involved in non-monetary policy issues in their own country, and I think it's even less appropriate in other countries," he stated.

Divisions Deepen on US Economic Outlook

The same group of policymakers, with the exception of Miran, signaled they are unlikely to vote for another interest rate cut at the Fed's meeting later in January.

The Case for Holding Rates Steady

Neel Kashkari was the most direct, stating in his New York Times interview that rates should stay unchanged at the January 27-28 meeting. He pointed to a resilient economy and persistent inflation as key reasons to delay further cuts, though he noted a cut could be possible later in 2026.

After cutting rates at the final three meetings of 2025, divisions within the Fed have grown. Most market participants now do not expect another rate reduction until June.

This patient stance is shared by others. Philadelphia Fed President Anna Paulson said she was "cautiously optimistic" that inflation would approach the Fed's 2% target by the end of 2026. "If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year," she told the Chamber of Commerce for Greater Philadelphia.

Raphael Bostic, speaking in Atlanta, argued that interest rates should remain at a restrictive level to combat inflation. "We haven't been to target for inflation for many, many years now. We still sit quite far from where we need to be," Bostic said.

The Push for Aggressive Cuts

In stark contrast, Stephen Miran has consistently advocated for aggressive rate cuts since his appointment in September. He reiterated his call for the central bank to lower its benchmark rate by one and a half percentage points in 2026. On January 14, he argued that the administration's deregulatory policies would likely boost economic growth without fueling price pressures, providing further justification for his position.

US-India Relations Hit a Wall

India’s defining challenge in 2025 was its relationship with the United States, which grew more precarious than at any point since 2001. Many in India had anticipated that Donald Trump’s return to the White House would revive the warm ties he previously shared with Prime Minister Narendra Modi. Instead, the partnership steadily deteriorated, prompting India to strengthen its relationships elsewhere.

Initial optimism surrounded Modi’s visit to Washington in February 2025. India hoped to secure an early trade deal, aiming to gain a tariff advantage over other Asian exporters. However, the negotiations stalled, hitting a wall over India's agricultural trade policies. When Trump unveiled his "reciprocal tariffs" in April, India was hit with a 25% rate—higher than most other countries.

The situation worsened in August when the Trump administration added another 25% tariff, citing India's significant purchases of Russian oil as the reason. India flatly rejected US demands to halt these purchases, labeling them hypocritical. Adding to the friction, a US crackdown on immigration, including tighter rules for student and H-1B work visas, disproportionately affected Indian professionals.

Economic Resilience Amid Trade Disputes

The impact of the US tariffs was uneven across different sectors. Two of India's largest exports to the United States, electronics and pharmaceuticals, were exempt. In fact, India became the top exporter of iPhones to the US. However, the tariffs severely curtailed exports in more labor-intensive industries, particularly textiles.

In response, India pivoted its economic strategy by diversifying its export markets, expanding free trade agreements, and implementing domestic reforms. Although negotiations for a major agreement with the European Union dragged on, these combined measures successfully boosted India's total exports by over 20% for the year.

Despite the trade headwinds, India’s economy continued to show strong GDP growth, projected to surpass 7% in 2025. Yet, this growth failed to prevent a steady decline in the Indian rupee and a mixed performance in the stock market. Lingering concerns persist that the official GDP data may be based on outdated statistical models. A revised series, expected in 2026, could offer a clearer picture of the economy's actual health.

The Pakistan Flashpoint

The relationship with the US was further strained by events in South Asia. A terrorist attack in Kashmir led to a clash between India and Pakistan in May 2025, marking the most dangerous military escalation between the nuclear-armed neighbors in decades.

President Trump claimed his personal intervention brought the hostilities to an end, an assertion India quickly denied. New Delhi also rejected his offer to mediate a permanent resolution to the conflict. The episode angered Trump and accelerated the decline in relations. From India's viewpoint, the situation was made worse by Pakistan’s improving ties with the US, partly driven by Islamabad's willingness to give Trump the credit he was seeking.

A Strategic Pivot to China and Russia

Feeling the pressure from Washington, India made deliberate public overtures toward China and Russia. In a significant move, Modi visited China for the first time in seven years to attend the Shanghai Cooperation Organisation (SCO) meeting alongside Chinese President Xi Jinping and Russian President Vladimir Putin. Later, in December, Putin made a state visit to India, where the two nations announced a series of new agreements.

These actions were as much about signaling as they were about substance. India remains cautious about fully alienating the United States. Modi strategically skipped the July 2025 BRICS summit in Brazil, sending External Affairs Minister Subrahmanyam Jaishankar in his place. New Delhi also continues to avoid discussions about replacing the dollar as a reserve currency, preferring to use bilateral currency swap arrangements to bypass it in trade.

Domestic Politics: Modi Strengthens His Grip

While facing external pressures, the Modi government consolidated its power at home. After a narrow victory in the 2024 general election, Modi's Bharatiya Janata Party (BJP) scored decisive wins in two key state elections in 2025—Delhi and Bihar—along with victories in local elections elsewhere.

The BJP's main competitors in these states were regional parties, as the once-dominant Indian National Congress (INC) continued its decline toward political irrelevance. The absence of a strong national opposition has raised concerns about the health of India's democracy. Even in the INC's lone bright spot—the local elections in Kerala—the BJP achieved its best-ever result in the state, primarily gaining ground at the expense of the Communist Party of India (Marxist).

Electoral Roll Controversy Brews

A major domestic controversy began to take shape ahead of the Bihar elections and is expected to intensify in 2026. India's Election Commission launched a "special intensive revision" of the electoral rolls, officially to remove deceased or ineligible voters, with a stated focus on illegal immigrants from Bangladesh.

Opposition parties allege the revision is a thinly veiled attempt to disenfranchise Indian Muslims, whom the Hindu nationalist BJP often views with suspicion. In West Bengal, an opposition-ruled state, nearly six million voters have already been removed from the draft rolls. Migrant workers also worry they could be excluded.

The Election Commission of India has historically been seen as an apolitical institution. The opposition's growing suspicion signals this is no longer a given, a worrying sign for democratic stability. With five state elections scheduled for 2026, including in three large opposition-ruled states, the potential for political confrontation is high.

A Year of Challenge and Resilience

The year 2025 severely tested Modi's foreign policy of "multi-alignment," exposing its risks and the potential for India to become isolated. At the same time, it highlighted the nation's resilience. Domestically, the perception of being under pressure from abroad could lead the public to rally behind the government, suggesting that Donald Trump might inadvertently become Modi's most effective political ally.

U.S. President Donald Trump signed a proclamation on Wednesday to address national security concerns with respect to imports of semiconductors, and imposed a 25% tariff on certain advanced computing chips, such as the Nvidia (NVDA.O), opens new tab H200 and AMD (AMD.O), opens new tab MI325X, according to a fact sheet released by the White House.

This 25% tariff will not apply to chips that are imported for the U.S. technology supply chain and for boosting domestic manufacturing capacity for derivatives of semiconductors, according to the White House document.Trump, in the near future, may also impose broader tariffs on imports of semiconductors and their derivative products to incentivize domestic manufacturing, according to the fact sheet.

Source: Reuters