What is happening?

Why is everything collapsing again?

2 main reasons:

1- The United States could enter shutdown again in 6 days.
2- The Fed could intervene in Japan.

1-Risk of shutdown in the US

The probabilities of shutdown are already around 78%.

Democrats have announced that they will vote against the new funding package.

If there is no agreement before January 30, part of the government will come to a standstill.

When there is a risk of shutdown:

-Uncertainty increases.
-Risk appetite decreases.
-Markets sell first and ask questions later.

2- Japan and the yen

Japan has had its currency (yen) very weak for years.

Many funds demand cheap yen and use that money to invest in stocks and crypto.

When the yen starts to strengthen, those funds are forced to close positions to repay loans.

This implies selling stocks and selling crypto.

Result: rapid declines.

Right now there are clear signs of possible intervention:

The Japanese prime minister has warned of measures against "abnormal" movements of the yen.

Traders report that the New York Fed has contacted banks about the yen, a usual prior step to an intervention.

What would that intervention imply?

-The US would sell dollars and buy yen.
-That strengthens the yen and weakens the dollar.

But before that, the following happens:

Yen rises → funds close carry trade → sell assets → market falls.

The tariff war involving Trump, Europe, and Canada is not helping either.

In addition to all this, this week is loaded with catalysts that will bring a lot of volatility:

-Consumer confidence data.
-Fed interest rate decision and press conference.
-Results from Microsoft, Meta, Tesla, and Apple.
-PPI inflation data.