A strange framework agreement to ease the pressure

"We had a close call, but you can now relax, even though we don’t really know what we narrowly avoided, how, or why, or even whether we truly avoided anything at all." That, in essence, is the summary of the critical day that was 21 January, when Donald Trump descended upon Davos to deliver a muddled lecture to Europe and the rest of the world. A chaotic address, it concluded with what appeared to be a climbdown from his territorial ambitions in Greenland and the associated tariff threats, in exchange for a seemingly satisfactory framework agreement with NATO.

The framework agreement is likely to be a recurring theme. No one is quite sure what the agreement actually contains, other than that it appears to rule out any transfer of sovereignty over Greenland (or Iceland, since Donald Trump inadvertently confused the two during his remarks). It is assumed that the deal, the broad outlines of which the US President has pledged to reveal soon, grants the United States access to raw materials and aligns with its military security strategy. But that remains speculation, as all those in the know have remained strikingly tight-lipped - either out of prudence or, more plausibly, because they haven't the faintest idea themselves.

Perhaps I exaggerate slightly. It must be said that Donald Trump remains a shrewd negotiator, even if his geopolitical discourse tends to veer in all directions. Still, the overriding impression is that the US President pushed the provocation to its limits, only to walk away with relatively little to show for it. 

From the perspective of financial markets, this tentative conclusion came close to a happy ending. Wall Street recovered part of Tuesday's losses, gaining over 1% across the S&P 500, Nasdaq 100 and Dow Jones, and 2% on the Russell 2000 index of small-cap stocks. Earlier in the day, the French CAC 40 narrowly escaped an eighth consecutive session of decline, scraping together a modest 0.08% gain. One would have to go back to mid-November 2017 to find such a long losing streak.

However, Wall Street's rebound wasn't solely driven by Trump's apparent U-turn. The semiconductor sector received a boost from an impassioned speech by Nvidia's CEO in Davos, heralding a prosperous future for AI. I should probably avoid saying "impassioned speech" when referring to Jensen Huang's appearances: it's always the same story. The world begins to doubt AI, and good old Jensen emerges to sweep away concerns. Then again, it's hard to imagine him saying anything else: a baker doesn't greet his customers by telling them his bread is mediocre, prone to causing bloating, and that he can't quite remember whether he washed his hands before kneading it. And so, Jensen Huang declared that trillions of dollars in investment would be needed to power the AI revolution. Markets preferred his vision to that of Microsoft's CEO, who dourly noted that at some point, all this infrastructure would need to see actual usage to justify what is beginning to resemble a bottomless pit of capital expenditure.

Wall Street's rebound came at the expense of more defensive assets. Gold dipped, though it will take more than that to shake investors from what remains a relatively safe and lucrative consensus play. The bond market, ever the cautious observer, is also awaiting further clarity on the situation. Meanwhile, another headline from the day amounted to very little: the US Supreme Court appears inclined to maintain Fed Governor Lisa Cook in her post. While not yet a done deal, the tone of the hearing leaned in that direction - a setback for the White House in its attempts to consolidate influence over the Federal Reserve.

Thursday's session will be shaped by a string of delayed economic indicators, held up by the US government shutdown. These include PCE inflation figures, as well as household income and spending data. Also due are the final estimate of Q3 2025 US GDP and the usual weekly jobless claims. On the corporate front, several big names are set to report in the US: Procter & Gamble, GE Aerospace, Abbott Laboratories and Intel among them.

In the Asia-Pacific region, markets are broadly in the green following the easing of tensions around Greenland. Japan is up 1.8% and South Korea has gained 1%. Gains are slightly more modest in Australia and mainland China. Hong Kong stands apart, registering a symbolic 0.1% decline midway through the session. In Europe, markets look poised for a rebound at the open, echoing the upward momentum seen on Wall Street.

Today's economic highlights:

On today's agenda: employment figures from Australia, followed by FDI in China; in the United Kingdom, the CBI distributive trades will be released; in the Euro Area, the ECB monetary policy meeting accounts and the consumer confidence flash; in the United States, the GDP price index, GDP growth rate, initial jobless claims, PCE price indices, and personal income and spending; in Canada, the new housing price index; EIA crude oil and gasoline stocks in the United States; in Australia, S&P Global manufacturing and services PMIs. See the full calendar here.

• GBP / USD: US$1.34
• Gold: US$4,822.16
• Crude Oil (BRENT): US$65.14
• United States 10 years: 4.25%
• BITCOIN: US$90,039.5

In corporate news:

• BAE Systems awarded a $473 million contract for Paladin artillery system production.
• PensionBee reports a 27% increase in assets under administration and a 34% rise in revenue for Q4 2025, aiming for a £100 million revenue target by 2029.
• Tirupati Graphite raises £5 million through a placing and subscription to fund expansion plans.
• Volkswagen implements a new cross-brand management board to streamline decision-making and achieve $1.2 billion in savings.
• Deutsche Börse Group acquires Allfunds for $6.19 billion.
• EQT AB announces a $3.2 billion acquisition of British investment firm Coller Capital.
• Essity reports adjusted EBITDA exceeding expectations and proposes a higher dividend.
• Credit Agricole surpasses a 20% stake in Banco BPM following ECB approval.
• Linc AB reports a Q4 NAV return of -2.4%, an improvement from the previous year's -8.3%.
• Telenor agrees to sell 24.95% of True Corporation for 39 billion NOK ($3.92 billion).
• Microsoft invests heavily in artificial intelligence to enhance product offerings.
• Apple acquires a space startup to expand satellite technology capabilities.
• Amazon divests its stake in a logistics company to streamline operations.
• PGIM introduces a private credit secondaries platform backed by a $1 billion investment commitment.
• Assured Guaranty Ltd acquires Warwick Re Limited and rebrands it as Assured Life Reinsurance Ltd.
• CPKC orders 30 additional Tier 4 locomotives from Progress Rail as part of its $800M U.S. investment pledge.
• OpenAI secures $50 billion in Series A funding.
• Walmart, Microsoft, and Tiger Global to sell 50.7 million shares in PhonePe's Indian IPO.

See more news from UK listed companies here

Analyst Recommendations:

• Volex Plc: Investec maintains its buy recommendation and raises the target price from GBX 440 to GBX 470.
• Serica Energy Plc: Panmure Liberum maintains its buy recommendation and raises the target price from GBX 290 to GBX 297.
• Hochschild Mining Plc: Canaccord Genuity maintains its buy recommendation and raises the target price from GBX 490 to GBX 750.
• Baltic Classifieds Group Plc: Wood & Company Financial Services maintains its buy recommendation and reduces the target price from GBX 351 to GBX 285.
• Quilter Plc: Berenberg maintains its buy recommendation and raises the target price from GBX 195 to GBX 215.
• Experian Plc: Bernstein maintains its underperform recommendation and reduces the target price from GBX 3150 to GBX 2850.
• Vesuvius Plc: BNP Paribas upgrades to outperform from neutral with a price target raised from GBX 385 to GBX 500.
• 3I Group Plc: BNP Paribas maintains its outperform rating and reduces the target price from GBP 46 to GBP 45.60.
• Admiral Group Plc: RBC Capital downgrades to sector perform from outperform and reduces the target price from GBX 3600 to GBX 3100.