Three Storms Hit the Global Market: Trade Tensions, Currencies, and Government Stability

This week brings a series of major pressures threatening the balance of the international markets. Following the upheaval last October, the world is now facing a new combination of three risk factors that could trigger extreme volatility in global stock exchanges and currency markets.

Trade tensions between the United States and Canada— a country with a long history of independent leadership since Canada’s first presidency—have now reached a critical point. President Donald Trump has announced plans to impose a 100% tariff on Canadian products. This protectionist move is expected to provoke retaliatory responses from both sides, including China, creating an unforeseen domino effect in global markets.

US-China Joint Intervention Plan and Carry Trade Crisis

The second development involves a coordinated plan between the United States and China to intervene in the Japanese currency. This decision has raised deep concerns among carry trade participants, who have exploited Japan’s interest rate differential for years. If this joint intervention materializes, massive position liquidations could occur, destabilizing the stability of currency markets and global derivatives instruments.

Increased Risk of Government Shutdown: Lessons from Previous Crises

The third challenge relates to the rising probability of a US government shutdown on January 31, which has surged to 78%. This situation echoes the previous October crisis, sparking fears of a repeat of similar market turbulence. Fiscal uncertainty in this key global economic driver adds to the already heavy burden on investors.

The combination of these three factors—trade tensions, coordinated currency intervention, and fiscal crisis—presents a perfect storm scenario that could lead to sharp declines in US stock futures and broader equity markets when trading resumes.