Global tensions have been running high after United States President
Donald Trump
threatened eight European countries with
tariffs
— 10 per cent to start and 25 per cent later — if he didn’t get his way on
Greenland
.
Stock markets
plummeted around the world, while the VIX, known as Wall Street’s “fear index,” jumped like it did in the wake of Trump’s Liberation Day tariffs.
However, stocks bounced back after Trump recanted on taking Greenland by any means necessary and on the EU tariff threat, once again playing to the Trump Always Chickens Out (TACO) narrative,
David Rosenberg
, founder of Rosenberg Research & Associates Inc., said.
“The fact that Donald Trump has called off tariffs on Europe over Greenland, citing a ‘framework of a future deal’ that will involve mineral rights and missile defence, triggered a sharp bounce-back in the world equity markets,” he said in a note on Thursday.
Investor relief could be seen across a whole swath of metrics.
“Measures of implied volatility in Treasury, equity and foreign exchange markets are all coming down,” Karl Schamotta, chief market strategist at Corpay Inc., said in a note.
Investors reduced their protections against currencies such as the
Canadian dollar
and the Australian dollar, which he said are more sensitive to risks.
Prior to the latest TACO, yields on long-term U.S. Treasuries had risen, but Rosenberg said they have since pulled back. Rising long-term yields indicate that investors are pricing in more future risks.
Markets had more to celebrate than just diffused tensions over Greenland, Rosenberg and Schamotta said.
On Wednesday, the
U.S. Supreme Court
heard arguments over whether the government could temporarily fire U.S.
Federal Reserve
governor Lisa Cook while a separate court case against her goes on.
Washington has alleged that Cook falsified mortgage documents by listing different addresses as a principal residence, which it said was grounds for her immediate dismissal without giving her the chance to defend herself.
However, Schamotta said the tone of questioning from the
Supreme Court
justices suggests they took “a dim view of the Trump administration’s attempt to fire a sitting Fed governor,
lowering the threat level for a central bank that has historically been insulated against political interference.”
He pointed to the questioning of U.S. officials by Justice Brett Kavanaugh, a Trump appointee, who said letting a president pre-emptively fire a governor would “weaken or shatter” the independence of the Fed.
Rosenberg also interpreted the events at the court as hostile to the case against Cook.
“The body language narrative out of the Supreme Court strongly suggests that the president will end up losing the Lisa Cook case (and implications for any further such interference at the Fed) and has added to the positive investor tone,” he said.
Another threat overhanging the Fed is the U.S. Department of Justice’s probe against Fed chair
Jerome Powell
into the finances around the renovation of the central bank’s headquarters in Washington, D.C.
Markets and the economy depend on an independent Fed to maintain price stability and
inflation
, which it does by adjusting
interest rates
as needed.
Trump has been haranguing Powell to cut rates faster despite what the data is telling officials about inflation and the U.S. job market.
“It’s having a series of effects across financial markets: it’s helping to depress short-term yields, it’s pushing up long-term yields and it’s weighing on the U.S. dollar relative to all its major rivals,”
Schamotta said in an interview
with Financial Post’s Larysa Harapyn.
Derek Holt, vice president of capital market economics at Bank of Nova Scotia, said the markets have already tuned out the Cook case on the “assumption that the court will reject attempts to have her dismissed before her case has fully played out.”
With Greenland and Cook on the back burner, “it’s back to the fundamentals,” he said.
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Posthaste: Stock markets digest another TACO in high-wire week that leaves world breathing easier — for now
2026-01-23 13:00:37
