After regular trading hours today, NVIDIA disclosed that its H20 chip—designed specifically to dodge prior U.S. export restrictions—has now been swept into new licensing requirements from the U.S. government. This isn’t about tariffs. It’s not about trade fairness. It’s a direct enforcement move against contravention of U.S. national security policy. And it came with a hammer: NVDA expects up to $5.5 billion in charges this quarter linked to H20 inventory and purchase commitments.

The market reacted fast. NVIDIA dropped 7% in aftermarket trading. Given its oversized weight in the S&P 500, that dragged index futures down 70bps on the Asia reopen. This wasn’t just a chip headline—it was a macro event.

We’ve said it before: 2025’s drawdown has felt vibes-driven, not data-driven. But we warned that the data would come. This is it. NVDA is the first big provisions-led tape bomb of this cycle. It won’t be the last.

Second-Order Effects

(1) The Whole AI Supply Chain Is in the Blast Radius

If H20 is no longer safe, what about other “compliant” SKUs? Look for potential collateral damage across AMD, Broadcom (custom silicon exposure), and TSMC (contract fab risk). Even ASML could wobble if enforcement extends into equipment supply.

(2) China Demand Risk Repricing

This isn’t just about chips. U.S. policy is now aiming to kill demand inside China, not just restrict what gets sent there. Cloud and hyperscale buildouts from firms like Alibaba, Baidu, Tencent—all dependent on H20—could slow dramatically. That puts Chinese tech ETFs and the Hang Seng Tech Index at risk of further derating.

(3) Inventory Risk Across the Board

NVDA just guided for $5.5B in related charges. Who else is sitting on suddenly-useless inventory built for restricted geographies? Watch for earnings bombs from OEMs, board-makers, and hyperscalers exposed to China-based capex plans.

Third-Order Effects

S&P 500 Concentration Cuts Both Ways

NVDA’s fall illustrates the risk of an index so top-heavy. If tape bombs keep hitting the megacaps, passive flows will amplify downside. Expect volatility in QQQ and SPX even if rate or inflation narratives remain benign.

Washington Will Keep Moving the Goalposts

H20 was supposed to be safe. It’s not. Expect markets to reassess the durability of all workarounds—whether in chips, EVs, batteries, or renewables. This undermines confidence in any corporate guidance tied to policy interpretation. It’s a new regulatory risk regime.

The Mood Has Shifted

We’ve gone from speculative rally to earnings downgrades. Investors who were happy to buy dips on vibes now have to reckon with tangible hits to earnings and cash flow. Risk premia are adjusting accordingly.

Bottom Line

This isn’t an isolated event. NVDA just taught us what the next leg of this market looks like: tape bombs, inventory write-downs, geopolitical enforcement, and a grinding revaluation process. We remain in a bear market. And now, the data is finally catching up to the mood.

Stay sharp, trade your edge.

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• Tariffs and Inflation: Waller acknowledged that new tariffs could push up prices in the near term. However, he emphasized that if the inflationary effects of tariffs are transitory, the Federal Open Market Committee (FOMC) would likely look through them, meaning they would not react with policy changes unless the effects are persistent.

• Policy Implication: He stated the FOMC would not respond to temporary inflation spikes caused by one-off factors like tariffs. Instead, the Committee would focus on whether such effects become embedded in broader inflation trends.

In short: the FOMC will look through the short-term impact of tariffs on inflation, unless there’s evidence those effects are lasting and broad-based.

This should be taken as a further GTFO signal for foreign holders of USDs — FOMC looks primed to repeat the transitory debacle and will preference defence of employment over inflation at the cost of the dollar.

On balance Waller’s message was cautious: the Fed will hold rates steady for now, watch incoming data closely, and is prepared to keep policy tight longer if necessary to ensure inflation returns to target.

Economic Activity: Waller noted the U.S. economy remains strong, with solid consumer spending and a resilient labor market. He expects moderate growth going forward.

• Inflation: While inflation has declined significantly from its peak, progress has stalled recently. Waller expressed concern about the lack of further improvement, particularly in services inflation.

• Monetary Policy Stance: Given stalled inflation progress and continued economic strength, Waller does not see a compelling case for cutting interest rates right now. He supports maintaining the current policy stance until there’s clearer evidence inflation is sustainably moving toward 2%.

• Outlook for Rate Cuts: Waller emphasized being “data dependent,” but if inflation does not resume its decline, the timing and extent of rate cuts may be delayed.

As you know, I’ve been painfully holding short 10Y Note & 30Y Bond exposures with a mental stop of two daily closes above 115’00 on the 30Y.

Over the past 48 hours, I have added a few positions to the portfolio which will serve as hedges should I be stopped out.

Bonds continue to squeeze higher and my spidey senses tell me they want to break th…

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Trump’s policy agenda is continuing to take shape, and we will provide running commentary as further details materialize. We will publish an executive summary of the Davos speech to your inbox later today.

Momentum Snapshot

• US Dollar has broadly weakened on the short 1h timeframe.

• Treasuries have rolled over, and momentum is negative on all maturities and timeframes.

• Stocks are short-term overbought, and expected to correct or congest.

• Crude rally is done in our view. Momentum is negative on all timeframes and fundamental drivers (excess capacity / Trump policy) are bearish.

• Gold continues to be a preferred destination for investors worried about inflation, and central banks worried about their FX reserves.

• Copper scared out the weak longs (and aggressive dip buyers) but now shows positive momentum again on all timeframes.

Equities

Equities strutted higher again, with momentum readings showing the S&P 500, Nasdaq, Dow, and Russell all pushing further into positive territory. The bullish tone in stocks suggests traders continue to lean into the idea of resilient economic growth, shrugging off any lingering rate jitters.

Going into this week, the S&P was in a broad 7 day downtrend which was reversed on inauguration day. If we project a new 7 day trend, calculated from 16-22 January, we observe a steep uptrend with narrow dispersion.

On an hourly basis, S&P momentum currently registers +7.39, which is historically a zone for reversal or sideways consolidation (see chart below). The steepness and narrowness of the linear trend is also notable.

A linear trend channel is not a forecast but an encapsulation or description of the expectations of market participants, as best as we can tell from price alone. Price change history on a chart shows nothing more than the evolution of expectations; an uptrend indicates incremental marginal improvements to expectations, and a downtrend shows shows the opposite i.e. incrementally deterioration of expectations.

When the slope of a trend is excessively steep, or when dispersion from trend is excessively narrow, we can infer that expectations are sensitive to disappointment. Such extremes provide nimble traders with opportunity.

In the short-term, we maintain the view that:

• now is an opportune moment to lighten up on risk or buy hedges; however,

• risk-on mania will not collapse on itself, so do not short this market; a catalyst is needed to break the fever; and

• likely catalysts include (i) hawkish FOMC that puts hikes back on the agenda, (ii) a proper bond market rout, like the LDI debacle, or (iii) a grey swan geopolitical event that ignited by Trumpian policy.

Treasuries

Pro-growth optimism was less friendly to Treasuries, where yields pressed higher and momentum flipped more decisively negative across the curve. The 10-year and 30-year futures remain under pressure, hinting that bond traders see less reason to hide in duration.

Bonds demonstrate negative momentum on 1h (-1.06), 4h (-2.84) and daily (-3.26) timeframes. Stocks are not paying attention, yet.

A weak close today might see us finish back within the weekly linear channel. Don’t destroy your capital trying to catch this falling knife. Bonds will rally (yields will fall) when the economy is cooling, not when it is heating up.

Commodities

Crude slipped meaningfully in the near-term timeframes, reflecting ongoing Trump rhetoric and policy to bring down oil prices to alleviate inflation. Most recently, newswires today alert to potential dealings with the Kingdom of Saudi Arabia to encourage utilization of their spare capacity; rumor is US may trade security guarantees (or some other geopolitical valuable) in exchange for economic cooperation. In our view, the rally is over and was always in no small part driven by short covering by offside hedge funds. Those positions are out of the market now, and price can again go down.

Meanwhile, metals shone today. Copper extended its uptrend, consistent with the pro-cyclical tilt in risk assets. There was two false momentum flips on the 4h chart which materialized as good buying opportunities.

Our calls on Copper and Crude published in the Weekly Edge 20-24th January proved prescient. We hope you succeeded in getting the right position on.

Gold also maintained a firm bid, underscoring lingering safe-haven or inflation-hedge demand. We standby our call on Gold, which is that it continues to demonstrate strong positive momentum across all timeframes, likely driven by safe-haven demand amid inflationary pressures. It is the standout performer, reflecting investor hedging against macroeconomic uncertainty and persistent inflation.

Foreign Exchange

In currencies, short-term flips in the euro and Aussie point to mild dollar softness at the margin, but the yen continued to fade on larger timeframes, reflecting its role as a funding currency in a risk-on environment. Bitcoin’s longer-term momentum remains positive, though intraday action has been choppier.

AUD is our favoured long pair against the USD, with CAD and EUR least favoured. Our long delta in AUD is structured conservatively and will payout provided AUD remains above 60c. Duration on our CAD options position is approx 6 months, as we need time for the consequences of US trade policy & indebted Canadian consumers to culminate in sufficient economic weakness to drive BOC to cut rates.

Summary

Overall, it was another session dominated by “risk on” appetite in equities and cyclical metals, coupled with fresh selling in bonds and a break lower in crude. Investors appear comfortable rotating out of defensive pockets, pushing yields higher and fueling the equity engine into late January.

The next FOMC meeting is scheduled for 28-29 January, which we are expecting to catalyze volatility (along with options expiry) into the close of the month.

Commodities present a mixed picture. Crude’s short-term momentum turned downward again despite still being in an uptrend on higher timeframes. Trump has made his intent clear post inauguration; “drill baby drill”. Reading between the lines, perhaps initial contact with Putin hasn’t yielded the results Trump had expected. He may be preparing his arsenal to combat Russia directly, and pressuring crude prices with US supply is one arrow in his quiver.

Gold stands out with consistently positive momentum across multiple horizons, hinting that “safe haven” demand hasn’t faded even in a risk-on environment.

FX is similarly two-toned. The Aussie (6A) and euro (6E) show an intraday lift, yet their daily momentum trends remain negative overall. Yen (6J) continues to soften, flipping to a fresh negative on short-term charts. It appears the BOJ inflation data and rate hike (released/announced tomorrow) was entirely priced in.

Meanwhile, bitcoin’s longer-term bullish pattern remains intact despite a minor intraday fade. Overall, the story is one of robust equity sentiment wrestling with rising yields, as commodity and currency moves scramble around the edges of a still largely risk-on narrative.

Recent Trades

• Yesterday we put on a 5,700 / 5,200 Bear Put Spread in E-Mini S&P Futures. With expiry on 31 March this was a cheap insurance (22 handles) and covers many catalysts over the coming months.

• We sold naked calls in EUR futures (6E). This position is in part a hedge for our long AUD futures (6A) position which was initiated due to divergence with moves in the industrial metals market. We expect US inflation, growth and therefore rates to continue to be incrementally hotter than Europe.

• We sold a Bear Call Spread in 30Y Bonds yesterday.

• And earlier this week, when the Canadian Dollar (6C) was up almost 100 bp, we initiated a medium term short position. Trump has threatened 25% tariffs on Canada and Mexico from 1 February. The Canadian economy is already faltering under the weight of excessive consumer debt burdens, an inflated property market and lackluster growth. Tariffs are salt in those already festering wounds; therefore, we expect BOC to be incrementally weaker than global peers.

Key Takeaways

• We are inside a mini mania but feverish risk appetite will not fold under its own weight.

• Financial conditions are as tight as a clowns shoe. It is increasingly likely either the FOMC will take away the punchbowl. Next FOMC meeting is January 28-29, 2025.

• If the FOMC doesn’t take away the punchbowl, odds are the bond market will do it for them. After a tepid recent bounce, momentum is again negative on all timeframes we track: 1h, 4h and daily. And you can expect incrementally hotter date over the coming months.

• We are potentially trading within a medium to longer term top for risk assets like equities. A meaningful analog is the 2021/22 topping formation which developed over 2 months between 5 November and 5 January. During that period the market reached a crescendo of ebullience before the fever broke; you remember the $300k jpegs, right?

• Catalyst for installation of the 5 January 2022 top was release of December 2021 FOMC minutes which revealed plans to accelerate its timeline for raising interest rates due to high inflation and a strong labor market, and also reducing its balance sheet by offloading bonds and mortgage-backed securities.

1. Trump will not impose tariffs on Day One of his second term, and

2. Trump pumped meme coins for personal gain.

Let’s parse the price action in light of these news items.

1) Pre-Inauguration Setup vs. Today’s Moves

Pre-Inauguration:

• Stocks were down

• US dollar was up

• Commodities (like crude, gold) were up

• Crypto was up

This suggests the market was bracing for a more protectionist, immediate-tariff scenario. Investors often buy the dollar when they expect a risk-off environment or looming trade conflicts. Commodities might have run higher in anticipation of supply disruptions or inflationary pressures from tariffs.

Inauguration Day:

• Stocks up

• US dollar down

• Crude, gold, oil all down

• Bonds flat

• Crypto ends flat after a big intraday swing

The single biggest shift in narrative: No Day-One Tariffs. That’s a near-term relief for risk assets (e.g., equities) and a reason for the dollar to back off (less immediate trade friction or “flight-to-safety” demand). Meanwhile, commodities that had risen on tariff fears (supply chain costs or friction) deflated once that risk was removed.

2) “No Immediate Tariffs” as a Relief Valve

Surface Story: Traders had priced in the possibility of harsh or immediate protectionist measures. When that risk didn’t materialize, it triggered a relief rally in equities: “Buy back the names you sold in case of a Day-One shock.” The dollar, which had been bid up, softened as safe-haven demand eased.

Deeper Context:

1. Trump’s style is often unpredictable; markets braced for fireworks that didn’t come—at least not yet.

2. The retreat in commodities (crude, gold) aligns with the view that near-term disruptions to global trade flows or supply chains are on hold.

3. Bonds staying flat suggests interest-rate markets aren’t sure whether the “no tariff” stance is permanent or if it’s just delayed.

Key Takeaway: The first 24 hours of a new term often set the tone. With no immediate trade-war threat, risk assets get a short-term green light to rally.

3) Reading Between the Lines: “Temporary” vs. “Permanent” Relief

Even though it’s a relief that there aren’t Day-One tariffs, the prospect of future trade tensions will still linger. Trump might see immediate tariffs as less strategic this time around, preferring to keep them as a bargaining chip or to roll them out after other legislative or diplomatic steps.

Market Misread: The market might assume “No tariffs on Day One = No tariffs at all.” That’s not necessarily true. Trump’s pattern in the past suggests trade friction will erupt unexpectedly.

Even though immediate pressure is off, the second-order risk remains: a complacent market might not be positioned for future policy twists.

4) Asset-by-Asset Implications

Equities

Why They Rallied: Relief from a worst-case trade scenario. Plus, a second Trump term typically signals lower taxes, lighter regulation (in some sectors), and a “pro-business” stance.

Non consensus Idea: This rally could be a “relief pop” that might fade if (a) the administration revives tough talk on trade or (b) yields resume their march higher . Short-term, though, equity momentum is up.

US Dollar

Why It Dropped: The immediate trade-war risk receded, so the safe-haven bid unwound. Additionally, a more predictable trade environment can incentivise capital outflows from the U.S. or a rotation into riskier assets abroad.

Non consensus Idea: If the new administration quietly wants a “competitive” dollar to boost exports, USD could stay subdued. But watch for sudden safe-haven flows if global tensions flare again.

Commodities (Crude, Gold)

Why They Fell:

Crude: With no immediate tariffs, the fear of disrupted supply chains or geopolitically driven energy shocks eases. If the U.S. ramps domestic production, it can pressure global oil prices.

Gold: It often rallies on inflation fears or flight-to-safety. With day-one trade tensions off the table (and the dollar down), gold’s safe-haven premium deflated.

Non Consensus Idea: Don’t assume the dip is permanent. If the administration launches big spending or renews trade tensions later, commodities could spike again. This might be the calm before the storm.

Bonds

Why Flat: The bond market sees enough potential policy moves ahead—spending, taxes, Fed pressure—that it’s in “wait-and-see” mode. No immediate tariff means no sudden shock to growth or inflation, so yields remain anchored.

Non Consensus Idea: Bond volatility could be lurking. If new policies spark fiscal expansion or a re-ignition of trade wars, yields could reprice quickly.

Crypto

Whipsaw Moves: A 5% drop in Asia (perhaps anticipating anti-crypto stance or risk-off behavior) followed by a 6% bounce in Western markets, ending flat.

Non Consensus Idea: Trump association with meme coins ($Trump, $Melania) is a bit nothing burger:”;

short-term hype but says little about long-term regulatory stance. Volatility is likely to remain high—stay nimble, watch for policy signals.

5) Bottom Line: A Reprieve, Not a Final Verdict

Relief Rally, But On Thin Ice: Markets were braced for immediate tariffs; they didn’t come. Equities rally, dollar slips—classic short-term euphoria.

Watch for Delayed Policy Surprises: Trump not acting on Day One doesn’t guarantee tariffs or other trade barriers won’t come later.

Volatility Likely Underpriced: Bond markets are too calm, commodities might be incorrectly pricing “all clear,” and crypto’s mood swings show how quickly sentiment can shift.

Non Consensus Opportunity: If the market increasingly prices in a “benign” Trump stance on trade, it sets up for a bigger shock when (or if) new protectionist measures surface. That’s the moment savvy traders might monetise a volatility spike or a sudden flight back to safe havens—be it in bonds, gold, or even the U.S. dollar. In the meantime, keep an eye on quiet signals from the administration’s early-day advisors, tweets, or policy drafts. Sometimes, the real hint isn’t on day one; it’s on day thirty—or day one hundred.