Escalating Economic Conflict Between Europe and the United States – Currency Thoughts
Escalating Economic Conflict Between Europe and the United States
January 19, 2026
(156) Martin Luther King, Jr, the civil rights pioneer who espoused peace and brotherhood, would have been 97 years old, but on this commemorative observance of his birthday, President Trump has ramped up tensions with European nations opposed to his ownership demands on Greenland by threatening an additional tariff of 10% against Denmark, Norway, Germany, France, Finland, Great Britain, Sweden and the Netherlands that would jump to 25% on June 1st if a deal to sell America sovereignty over Greenland by that deadline. Europe is now considering an equally punitive penalty in kind. In the meantime, the dollar dropped about 0.3% on average this Monday, led by a 0.7% loss against the Swiss franc. And equities in Europe have sunk 1.1%, 1.2% and 1.4% against Euroland’s three largest economies. Japan has not been immune from chaos due to a rash of Japanese and Chinese data releases. The Japanese JGB yield climbed 8 basis points, and the Nikkei-225 index of stocks closed 0.7% lower.
The prices of silver and gold jumped 5.3% and 1.8% overnight, while those of oil and Bitcoin declined 0.6%.
The most eagerly awaited element of the Chinese batch of releases today was GDP growth in the fourth quarter and full-2025. GDP grew 1.2% compared to the prior quarter’s level, beating consensus expectations of a 1.0% rise. On a year-on-year basis, GDP climbed 4.5% last quarter and by 4.4% in between the second half of 2024 and the second half of last year, which was down from a 5.3% on-year increase in the first half of 2025. Average growth in 2025 of 5.0% met the government’s target on the nose and also matched the 2024 pace. The preciseness of the result relative to goal and its stability from one year to the next are suspect, but even if an accurate depiction of what really happened, the picture is not without disappointment, because another year passed without officials managing to rotate Chinese growth away from its excessive dependence on business investment and over-production and toward greater personal consumption, which will be necessary to sustain long-term popular support for the government and to limit frictions with other countries.
Among other Chinese data reported today,
- Industrial production in December was 5.3% above its year-earlier level, most in 3 months, and posted the same 5.9% average increase in 2025 as in 2024.
- A 0.9% December-over-December rise in retail sales was smallest in three years, and average retail sales growth in 2025 of 3.9% was down from 5.3% in the previous year.
- Fixed asset investment in calendar 2025 fell 3.8%. This result represented the sharpest year-to-date decline since the early days of the Covid pandemic.
- Capacity utilization in 2025 averaged 74.5%, which was 0.6 percentage points below the average in 2024.
- Chinese unemployment was at 5.1% in each month of the final quarter of 2025, matching its full-2024 mean.
- Property prices were lower than a year earlier for 41 of the past 43 months, and last monthly 2.7% on-year slide was the deepest drop since July.
Japanese core domestic machinery orders recorded their sharpest monthly plunge (-11.0%) in 67 month during November and were also 6.4% fewer than in November 2024. The revised industrial production measurement from November shows a 2.7% monthly decrease and the biggest year-on-year drop (-2.2%) in a half year. A 3.4% on-year decline in capacity utilization was the sharpest drop in a year. Japan’s tertiary index of service sector activity dipped 0.2% in November and rose just 1.7% compared to a year earlier, representing the smallest 112-month rise since July.
A 1.0% monthly rise in Australian consumer prices last month was the sharpest advance in two years and significantly more than had been projected.
Canadian consumer price data from December produced mixed results. Total inflation of 2.4%, a 3-month high, expected expectations and target and was appreciably above last year’s 1.7% low touched in April, May and July. The trimmed mean reading was also above 2.0% but down from 2.8% in November and last August’s 3.2% reading.
Euroland’s final December CPI inflation matched the preliminary monthly price increase of 0.2% but revised the size of the 12-month rate of increase down to a sub-target 1.9%% from 2.0% estimated earlier and 2.1% in by October and November. A 3.4% on-year rise in service sector prices remains problematic, however.
Other inflation news this Monday involved Austria (CPI inflation of 3.8% last month), Kyrgyzstan ( CPI inflation at a 4-month high of 9.4% and far above the August 2024 low of 3.8%), the Czech Republic (producer price inflation of -2.1%% in December, its most deflationary reading in 110 months) and Moldova’s 6.3% rate of producer price inflation.
The National Bank of Romania’s policy interest rate as analysts were anticipating again was left unchanged at 6.5%. From a cyclical high of 7.0% first reached in February 2023, the rate has been lowered just twice, and those 25-basis point reductions occurred in back-to-back in the summer of 2024. Romanian inflation got as low as 4.2% early in 2024 but ended 2025 at 9.7%.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Chinese GDP and retail sales, Japanese machinery orders and tertiary index, National Bank of Romania, Revised Euroland GDP, Trump’s latest tariff threat
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