Risk Appetite Stays Cautious as Yen Volatility and Shutdown Fears Resurface

Market conditions remain unfavourable for excessive risk-taking. Currency volatility, record moves in precious metals and an increasingly tense political backdrop are keeping investors defensive as markets consolidate near record levels.

FX Volatility Raises Carry Trade Concerns

The Japanese yen strengthened sharply against the U.S. dollar amid speculation over potential coordinated actions by U.S. and Japanese authorities to support the currency. The move has revived concerns around the unwinding of carry trade positions — a dynamic that historically triggers capital outflows from risk assets.

While no formal intervention has been confirmed, the speed of the yen’s appreciation alone has been enough to raise volatility expectations across global markets.

Precious Metals Extend Historic Rally

Volatility is also intensifying in metals. Gold surged above $5,000 per ounce for the first time on record, while silver broke through the $100 level. The moves reflect a combination of safe-haven demand, geopolitical uncertainty and continued concerns over fiscal sustainability.

The breakout in precious metals is adding another layer of complexity to portfolio positioning, particularly as equity markets hover near all-time highs.

Political Risks Add to Market Tension

The political backdrop in the United States remains fragile. According to market-based expectations, the probability of a government shutdown by January 31 has risen to approximately 80%. Budget negotiations have become more complicated following recent tragic events in Minneapolis, further straining the legislative process.

Adding to the uncertainty, former President Donald Trump has threatened higher tariffs on Canada, citing concerns that its trade relationship with China could be used to circumvent U.S. restrictions. That said, investor expectations of immediate implementation remain sceptical.

Equity Indexes Consolidate Near Highs

U.S. equity futures are trading modestly lower, reflecting a neutral risk balance rather than outright risk aversion. The S&P 500 remains in a consolidation phase, with a near-term range between 6,860 and 6,960.

During the previous session, the S&P 500 closed essentially flat, holding above the 6,900 level. The Nasdaq finished slightly higher near 25,600, approaching resistance around 25,800.

Today, S&P 500 futures continue to trade above 6,900, with initial support near 6,850. Nasdaq futures are balancing near the lower boundary of a medium-term ascending channel around 25,700, with key support at 25,500.

Key Catalysts This Week

Markets are now turning their attention to several critical catalysts:

• The Federal Reserve’s interest rate decision, with expectations for rates to remain in the 3.50%–3.75% range
• Fourth-quarter earnings reports from major Big Tech companies
• U.S. durable goods orders data for November
• A U.S. Treasury auction of 2-year notes

Investors are looking for clarity on earnings growth trajectories and any forward-looking signals from the Fed.

Sector Performance Snapshot

Cyclical sectors showed mixed performance. Materials and energy led gains, while financials and retail lagged. Growth-oriented sectors were also mixed, with strength in solar and cannabis-related names, offset by weakness in biotech and semiconductors.

Defensive sectors underperformed overall, with healthcare leading declines, while consumer staples managed to close modestly higher.

Cross-Asset Overview

Crude oil continues to trade within a local ascending channel near the $60 level. Treasury yields are pulling back toward 4.2% after a sharp upward move, forming a short-term downward channel.

The VIX remains within a rising channel, with a potential gap forming toward the 17 level. Meanwhile, gold has decisively broken above the upper boundary of its long-term uptrend, extending its record-setting rally beyond 5,100.

Overall, the balance of risks remains neutral. Volatility is contained but prone to sudden spikes, particularly as markets approach key macro and earnings-driven inflection points.