Market Sentiment Shifts: Concerns Over U.S. and Japan Economies

Market Overview and Key Developments

A look at the day ahead in European and global markets from Tom Westbrook

Impact of U.S. Market Resumption

Fresh "sell America" sentiment put some pressure on Treasuries in Tokyo, while investors wait to see how U.S. markets respond to transatlantic tension over Greenland.

European Equities Downgrade

U.S. markets resume trade, having been closed for a holiday when the rest of the world sold stocks and the dollar in response to President Donald Trump threatening tariffs on European allies opposing his push to control the Danish arctic territory.

Japanese Economic Concerns

Trump has told Norway's Prime Minister by text that he no longer feels obliged to "think purely of Peace" because he was not awarded this year's Nobel Peace Prize.

Ten-year Treasury yields rose 2.4 basis points in the Asia session and equity suggests a fall at the open.

Investors have been exhausted by a year of shock-and-awe policy shifts and are now waiting on Europe's response, to be decided at an emergency meeting of EU leaders on Thursday to assess how scarifying Trump's threats may be.

Citi on Tuesday downgraded European equities on the basis of uncertainty clouding the outlook for earnings.

Elsewhere, Japanese yields speared higher and demand at a 20-year debt auction faltered as Prime Minister Sanae Takaichi takes Japan to an early election in February. Debt investors fret that talk of tax cuts and a mandate to spend don't bode well for the state of future government finances.

The yen has missed out on much of a boost from this week's broad dollar selling and hovered near 158 to the dollar.

Key developments that could influence markets on Tuesday:

- U.S. markets return from holiday

- World Economic Forum at Davos

- German ZEW survey

(Reporting by Tom Westbrook; Editing by Himani Sarkar)