Trump Pivots to Economy with US Tour for Midterms

UK Business and Trade Secretary Peter Kyle has ignited a debate over Britain's post-Brexit trade policy, suggesting the country should consider a new customs union with the European Union—a stance that directly challenges the Labour Party's official platform.

"We need to be having these conversations as a country about where is the best anchor, what is the best opportunity for Britain's economy post-Brexit," Kyle said in an interview with CNBC in Davos. "It would be crazy not to engage with the prospect of a customs union."

His remarks have raised eyebrows as they appear to contradict a core promise in Labour's election manifesto.

The Official Party Line: No Return to EU Structures

The Labour government's position on EU integration has been firm and frequently repeated. The party's manifesto explicitly states, "there will be no return to the single market, the customs union, or freedom of movement."

This policy has been consistently reinforced by Prime Minister Keir Starmer and Chancellor of the Exchequer Rachel Reeves. Speaking to Bloomberg just a day before Kyle's comments, Reeves confirmed that Britain would not rejoin the EU's single market or customs union.

"It was very clear in our manifesto," Reeves stated. "I don't think we need to return to the customs union to seize greater benefits of free and fair trade."

What a Customs Union Would Mean for the UK

Joining an EU customs union would involve significant policy shifts for the United Kingdom. The move would require Britain to align its tariff policies with the EU, allowing British goods to move freely within the bloc without origin checks.

However, this would also force the UK to dismantle the independent post-Brexit trade agreements it has already secured with countries like the United States, India, and New Zealand.

Prime Minister Starmer has previously outlined his specific concerns. In December, he told the House of Commons that a new customs union could pose risks to the UK's pharmaceuticals industry and major car manufacturers like Jaguar Land Rover.

This month, he told the BBC he favored closer alignment with the EU's single market over a customs union.

"Having now done significant trade deals with other countries, including the US and India, which are hugely important to the JLR workforce and on pharma, it is not now sensible to unravel what is effectively the best deal with the US that any country has got," Starmer said in Parliament last month.

When asked about Kyle's comments, the Prime Minister's press secretary avoided direct criticism and pointed to Starmer's previous statements on the matter.

A Growing Debate Within Government

Kyle's remarks highlight a growing internal discussion within the Labour government about deepening trade ties with the EU. He is not the only senior figure to signal an interest in exploring a customs union. Both Justice Secretary David Lammy and Health Secretary Wes Streeting have previously indicated support for the idea, even as Starmer and Reeves have dismissed it.

Kyle's Nuanced Position

Despite his call to "engage with the prospect," Kyle's stance is more complex than a simple call to rejoin. He told CNBC that joining a customs union would be a lengthy process and therefore not a quick fix for boosting UK economic growth.

In an interview with the Financial Times earlier this week, he made similar points, calling the pursuit of a new customs union "foolish" and an embrace of "simple solutions." His comments suggest a focus on opening a long-term conversation rather than demanding an immediate policy change.

Speaking at the World Economic Forum in Davos, Switzerland, U.S. President Donald Trump championed what he called "historic" trade deals and renewed his administration's push to acquire Greenland from Denmark. In his speech, Trump outlined achievements since his return to the White House one year ago and renewed his criticism of the former Joe Biden administration.

President Donald Trump addresses the Annual Meeting of the World Economic Forum in Davos, Switzerland.

Trump Touts "Historic" Trade Pacts

Trump emphasized the scale of recent trade agreements, stating his administration has secured deals with partners that cover 40% of all U.S. trade. He identified these partners as including European nations, Japan, and South Korea.

"They've gone into massive deals with us, especially on oil and gas," Trump said. He claimed these agreements have stimulated economic growth and caused stock markets to boom, not just in the United States but also in partner countries. "When the United States goes up, you follow," he added.

Renewed Ambitions for Greenland

The President also dedicated part of his speech to his interest in the U.S. acquiring Greenland, an Arctic territory belonging to Denmark, a NATO ally. He argued that the United States is uniquely positioned to manage the territory's security.

"The fact is no nation or group of nations is in any position to be able to secure Greenland other than the U.S.," he stated. To underscore American strength, Trump referenced a recent military operation that captured Venezuelan leader Nicolas Maduro, noting, "We are a great power, much greater than people even understand. I think they found that out two weeks ago in Venezuela."

Military Action Ruled Out

Despite the reference to military might, Trump clarified that force is not part of his plan to acquire the Danish island.

"People thought I would use force, but I don't have to use force. I don't want to use force. I won't use force," he said.

This statement appears to walk back previous indications from the White House. Press Secretary Karoline Leavitt had noted that the administration was considering a range of options for Greenland based on national security, with the use of the military being one possibility for the commander-in-chief.

Trump framed the request as historically justified, stating, "All the U.S. is asking for is a place called Greenland, where we already had it as a trustee, but respectfully returned it back to Denmark not long ago, after we defeated the Germans, the Japanese, the Italians and others in World War II."

Global shares rebounded on Wednesday following a selloff in prior session after President Donald Trump toned down his rhetoric in his threats to acquire Greenland while speaking in Davos.

Trump called for immediate negotiations toward a deal to acquire Greenland, but added that he would not use force in his campaign for the northern island. That was a softer tone from the U.S. president, who had said there was "no going back" on his goal to control the island, and had refused to rule out taking it by force. He had also threatened tariffs on Europe, rekindling fears of a global trade war.

On Wall Street, the Dow Jones Industrial Average rose 1%, the S&P 500 gained 1% and the Nasdaq Composite added 1.1%.

Fears of foreign selling of U.S. assets - the so-called "Sell America" trade that emerged after last year's "Liberation Day" tariff announcements in April - had gripped markets, causing Wall Street's main indexes to notch their biggest daily loss since October 10 in the previous session.

"The market bounced when he said we wouldn't use force," said Mark Hackett, chief market strategist at Nationwide in Boston. "Following the events of last April, investors are catching on that his negotiating style is very different than past administrations, so uncertainty is a natural outcome."

MSCI's All-World index EURONEXT:IACWI was up 0.61% after losing ground in the last session, while Europe's STOXX 600 index , rose 0.17%. The FTSE index CURRENCYCOM:UK100 was up 0.31%.

The VIX index , which measures demand for protection against big swings in the S&P 500, dropped more than 11% to 17.81, a day after jumping to its highest since November. The index is often used as a proxy for investor nervousness and for many, 20 is the point above which market volatility can suddenly explode.

"It wasn't so much what president said that mattered as what he didn't say," said Brian Jacobsen, chief market strategist at Annex Wealth Management in Wisconsin. "He didn't reiterate his tariff threat against Europe. He didn't say the government would use force to get Greenland."

The European Parliament decided to suspend its work on a trade deal between the 27-member bloc and the U.S., a parliament member said, following Trump's repeated requests to take control over Greenland. The European Union will convene an emergency summit in Brussels on Thursday to discuss the matter, with the long-standing U.S.-EU alliance at risk.

BONDS ATTEMPT RECOVERY

The global bond market was still reeling from a brutal selloff, having been caught up in a perfect storm of worries over exposure to U.S. assets and a surge in Japanese government borrowing costs.

At the epicentre were long-dated Japanese sovereign bonds, which endured their most aggressive selloff in nearly 25 years on Tuesday, as fears grew over increased government spending under Japanese Prime Minister Sanae Takaichi.

U.S. 30-year Treasury yields (US30YT=RR) neared the 5% threshold for the first time since September, while German government bond yields also rose sharply (DE30YT=RR).

By Wednesday, Japanese bond prices rallied as buyers returned, almost entirely reversing the previous day's rise in yields. A similar dynamic played out across U.S. Treasuries, where 30-year bond yields were steady at 4.905%. The yield on benchmark U.S. 10-year notes eased to 4.2767%.

In currency markets, the dollar index , which tracks the U.S. currency's performance against that of six others, rebounded from earlier losses and was up 0.11%. The euro pared earlier gains and was down 0.16% to $1.170825, while the Swiss franc fell, leaving the dollar up 0.42% at 0.79330 francs.

The yen was slightly weaker against the dollar at 158.23 per dollar ahead of a Bank of Japan policy meeting on Friday. No rate hike is expected this time, though policymakers could signal an increase may be coming as soon as April.

Oil prices fell, as pressure from geopolitical tensions and an expected build-up in U.S. crude inventories was offset by a temporary halt in output at two large fields in Kazakhstan. Brent crude futures was down 0.32% at $64.71 a barrel. Spot gold was up 1.59%.

Source: TradingView

The global oil market is on track for a deep surplus of 4.25 million barrels per day (bpd) in the first quarter of 2026, according to the International Energy Agency (IEA). In its latest monthly report, the agency that advises industrialized nations highlighted that a glut of supply is currently offsetting geopolitical risks that would typically drive prices higher.

This projected surplus represents about 4% of total world demand and is larger than many other market predictions. Despite the oversupply forecast, oil prices have risen approximately 6% since the beginning of the year, with global benchmark Brent trading at $65.02 as of Wednesday morning.

Geopolitical Risks Masking a Bloated Market

Recent events have injected significant uncertainty into the market, though their impact has so far been muted by the sheer volume of available oil. Key geopolitical flashpoints include:

• Venezuela: The capture of President Nicolas Maduro by the U.S. at the start of the month has disrupted the country's short-term supplies. The U.S. has called for investment to boost Venezuelan production, but the immediate effect has been a reduction in exports. The IEA noted the U.S. blockade on Venezuelan shipments lowered exports by 580,000 bpd from December to early January.

• Iran: The prospect of reduced supplies has been heightened by threats of potential U.S. military strikes.

• Kazakhstan: The country's output has been curtailed by drone attacks and technical problems.

Despite these disruptions, the IEA stated that "bloated balances provide some comfort to market participants and have kept prices in check." The agency concluded that barring any major new supply disruptions, "a significant surplus is likely to re-emerge in the first quarter of 2026."

Production Hikes Fuel the Supply Glut

The growing imbalance between supply and demand is primarily driven by production increases from OPEC+ (the Organization of the Petroleum Exporting Countries and its allies, including Russia), which began boosting output in April 2025 after a long period of cuts.

However, OPEC+ is not the only source of new supply. Producers outside the alliance, including the United States, Guyana, and Brazil, have also ramped up their production. In response to the growing surplus, OPEC+ has paused its output hikes for the first quarter of 2026.

Looking at the full year, the IEA revised its forecast for global supply growth higher, now expecting an increase of 2.5 million bpd, up from its December estimate of 2.4 million bpd. The agency projects that 52% of this growth will come from countries outside the OPEC+ group.

IEA Adjusts Demand Amid Economic Shifts

While supply is surging, the IEA has also adjusted its demand-side projections. The agency now sees global oil demand growing by 930,000 bpd, an upward revision of 70,000 bpd from its previous report. This adjustment is attributed to a normalization of economic conditions following last year's tariff turmoil and oil prices that are lower than a year ago.

Even with the stronger demand forecast, the IEA's figures still point to an implied market surplus of 3.69 million bpd for the full year.

This outlook contrasts with that of OPEC, which expects faster demand growth of 1.38 million bpd this year. Based on OPEC's data, the market is projected to be nearly balanced in 2026, rather than facing a significant surplus.

Refinery Maintenance to Worsen Q1 Oversupply

The surplus is expected to be particularly acute in the first quarter due to seasonal factors. Global oil refineries are scheduled to conduct planned maintenance shutdowns during this period, which temporarily reduces their demand for crude oil.

"With seasonal refinery maintenance about to commence, reducing demand for crude, further reductions in crude production will be needed," the Paris-based IEA warned. This seasonal dip in demand is set to amplify the effects of the already high production levels, further contributing to the projected glut.

A sudden selloff in long-dated Japanese government bonds rattled global markets this week, creating a ripple effect that briefly spooked U.S. Treasuries and exposed growing strains in sovereign debt.

A Six-Standard-Deviation Shock in Tokyo

The turmoil began on Wednesday, January 21, when yields on 30-year and 40-year Japanese government bonds (JGBs) surged by more than 25 basis points in a single session. Market participants described the dramatic move as a six-standard-deviation event, highlighting its extreme rarity and severity.

This volatility didn't stay contained. It quickly spilled across borders, pushing the U.S. 10-year Treasury yield to its highest level since August as investors were forced to reassess risk in government bond markets worldwide.

Why Japan's Bond Market Suddenly Spiked

The pressure on JGBs stems from a mix of domestic factors that are challenging investor confidence after years of ultra-loose monetary policy. Key drivers include:

• Rising Interest Rates: Japan is facing the prospect of higher domestic interest rates.

• Political Uncertainty: Election-related risks are contributing to market anxiety.

• Central Bank Policy: There are growing expectations that the Bank of Japan may have to deploy unconventional bond-buying measures.

These persistent issues suggest that simple verbal interventions from policymakers may not be enough to calm the market and prevent further volatility.

From Liquidity Shock to a Test of Credibility

According to an analyst from Bitfinex, this episode was more than just a market tremor. It functioned as a liquidity shock that effectively put the credibility of global financial policy to a stress test.

For cryptocurrency markets, the event carries both immediate and long-term implications. In the short term, widespread stress across bonds and other risk assets tends to dampen enthusiasm for speculative investments, potentially limiting price gains for digital assets.

Bitcoin's Long-Term Narrative Gains Ground

While the immediate outlook may be challenging, repeated disruptions in traditional safe-haven assets like government bonds could bolster the long-term investment case for Bitcoin.

As concerns mount over political influence on monetary policy and the overall stability of sovereign debt, investors may increasingly turn to non-sovereign alternatives like Bitcoin. If interest rate instability and currency pressures continue to plague the global financial system, crypto assets could see their strategic role in diversified portfolios re-evaluated, especially as confidence in conventional "risk-free" assets is repeatedly called into question.

President Donald Trump announced he expects to sign new cryptocurrency market structure legislation "very soon," positioning the initiative as a key move to prevent China from dominating the digital asset sector.

Speaking at the World Economic Forum, Trump confirmed that Congress is developing a new bill for crypto and Bitcoin, building on the GENIUS Act passed last year.

Securing US Leadership in Digital Assets

Trump argued that the upcoming legislation is crucial for national strategy, not just ideology. He stated the bill would "unlock new pathways for Americans to reach financial freedom" while securing U.S. leadership in the crypto space.

According to Trump, allowing China to capture emerging technology markets would make it incredibly difficult for the United States to regain its competitive footing. He also noted a shift in domestic politics, claiming that voter pushback against the Biden administration's previous stance on crypto has made the issue politically popular.

Linking Crypto Policy to Economic Growth

Trump tied the push for crypto regulation to what he described as a strong economic performance since his return to office. He presented several key economic indicators to support this claim:

• Inflation: Core inflation over the last three months was 1.6%.

• GDP Growth: The economy is projected to grow at a rate of 5.4% in the fourth quarter.

• Stock Market: U.S. markets have hit 52 all-time highs since the election, adding approximately $9 trillion to savings and retirement accounts.

• Social Programs: Over 1.2 million people have transitioned off food assistance programs.

• Investment: The administration has secured commitments for $18 trillion in new investment, with the final amount potentially reaching $20 trillion.

He contrasted these figures with the less than $1 trillion in investment commitments made during the previous four years, declaring the U.S. economy "the hottest country anywhere in the world."

Foreign Policy and NATO Alliances

In his remarks, Trump also addressed foreign policy, emphasizing that he does not plan to use military force to achieve U.S. objectives. He asserted that American strength serves as its own deterrent, negating the need for escalating conflicts.

He raised questions about the NATO alliance, expressing doubt that member nations would support the U.S. in a crisis despite America's defense commitments. Citing recent tensions over Greenland that caused minor market volatility, Trump described his approach as transactional, insisting that U.S. security guarantees must be met with reciprocal support from allies. He argued that the United States has shouldered an unfair share of the costs without certainty of equal backing in return.

US Economy as a Global Engine

Trump concluded by framing America's economic expansion as a benefit to the entire world, calling the United States the "economic engine of the planet." He noted that current growth projections have already surpassed earlier estimates from the International Monetary Fund and suggested his trade and tariff policies could accelerate that growth even further.