Global interconnection shows resilience after Davos discussions. Senior officials argued that trade links are holding despite recent shocks. This matters now because new tariffs and supply chain frictions have revived market uncertainty. In the short term, sentiment and manufacturing readings are supporting risk assets. Over the long term, the balance between strategic decoupling and economic integration will continue to shape growth in the US, Europe, Asia and emerging markets.
Davos takeaways: integration versus rupture
High level conversations in Davos offered competing narratives on the fate of global trade. European Central Bank president Christine Lagarde stressed dependence and interconnection. World Trade Organization director general Ngozi Okonjo-Iweala acknowledged the largest trade shock in roughly 80 years but said the system is robust. Those remarks contrast sharply with comments from Mark Carney that described a rupture in economic norms.
Recent reports show a complex picture. The WTO flagged a record surge in G20 trade volumes subject to tariffs in the year through October while also noting a rise in policies that lower trade barriers. Separately, research on past US trade policy suggests that the economic blowback from tariff campaigns was smaller than feared. That was partly because tariffs never climbed as high as threatened and because negotiating truces kept many supply lines open even if costs rose for some firms and consumers.
Corporate views added nuance. Gary Cohn, vice chairman at IBM (NYSE:IBM), said the US posture favors greater self sufficiency but warned that reducing interdependencies cannot happen overnight. His comment underscores a practical constraint for firms that have optimized global supply chains for decades.
Sentiment and manufacturing: the data that matters now
US consumer mood has shown a clear bounce to start 2026. The University of Michigan index rose to 56.4 from 52.9 in December. That is the strongest reading since August. One year ahead inflation expectations eased to 4 percent, the lowest in a year. The broad-based improvement spanned income, education, age and party lines according to survey director Joanne Hsu.
Activity readings offer further support. S&P Global (NYSE:SPGI) reported its Flash PMI composite for the US at 52.8, up slightly from 52.7. The manufacturing component drove the move and hit a five month high in output. Those figures indicate expansion rather than contraction and provide a reason why equity markets found reason to be constructive late in the week.
Timing matters. The University of Michigan interviews were completed two days after the Jan. 19 announcement of new US tariffs on some European countries. That means the survey largely predates the full market reaction to that policy step. Markets digested the tariff news separately and volatility rose around the announcement. Taken together, the data show healthier underlying demand even as policy headlines add intermittent shocks.
Market implications for the coming session
For the next trading session, the twin themes of trade policy headlines and the sentiment PMI mix will frame market moves. Risk appetite has fresh support from the rebound in consumer confidence and stronger manufacturing. At the same time, the reappearance of tariff risk keeps a bid under safe haven assets and elevates sensitivity to geopolitical headlines.
Equities will likely trade with that duality in view. Cyclical sectors tied to manufacturing and industrial demand may find focus because the PMI pointed to rising output. Consumer oriented stocks may take cues from the University of Michigan read on spending power and inflation expectations. However, tariff announcements and political rhetoric can create intraday swings and prompt sector rotation.
Fixed income markets remain a barometer of risk sentiment. Treasury yields have the potential to act as a pressure gauge. Stronger economic data historically nudges yields higher as growth concerns fade. Conversely, renewed tariff shocks or signs of policy escalation tend to direct flows into government bonds. Traders will observe the front end for Fed reaction function signals and the belly for growth versus inflation dynamics.
FX markets will watch dollar dynamics relative to global risk. A firmer risk tone and easing inflation expectations could take some pressure off the greenback. Conversely, tariff noise that elevates safe haven demand would support the dollar. Commodity prices, including oil, will reflect both demand signals from manufacturing and any supply related headlines tied to geopolitics.
Near term watch list and trading session signals
Market participants will weigh several inputs during the session. First, any follow up to the Jan. 19 tariff announcement could amplify volatility. Comments from policymakers or further trade measures would be read as supply chain and cost shocks for global firms. Second, economic releases that refine the picture on labor markets or inflation would interact with the University of Michigan and PMI reads to shape risk pricing.
Third, central bank commentary in Europe and the US will matter for yield curves and currency flows. Lagarde and other officials have emphasized interdependence and the resilience of institutions while also noting headwinds. Those remarks may be parsed for clues about policy tilt even if they stop short of signaling change.
Finally, corporate earnings and guidance remain a backdrop. Firms that report results this week and discuss supply chain resilience or tariff exposure will offer real time examples of how companies are managing the trade and cost environment. That can translate quickly into sector specific moves and recalibration of risk premia across markets.
In short, the trading session opens with improved consumer mood and a stronger manufacturing pulse. At the same time, tariff headlines and geopolitical signals keep uncertainty elevated. Market responses will reflect that duality and traders will parse data and policy comments for signals on whether current resilience holds or the new policy backdrop imposes renewed constraints.
