Japan Snap Election; GOP Fed Backlash; Trump's Iran Tariff | Horizons Middle East & Africa 1/13/2025

Horizons Middle East & Africa - January 11, 2026 - Summary

Key Concepts:

• Snap Election (Japan): A potential early general election called by Prime Minister Sanae Takaichi, driven by a fragile ruling coalition and high approval ratings.
• Trump Administration Actions: Investigations into Fed Chair Powell and proposed tariffs on countries trading with Iran.
• Bank Earnings & Regulation: Upcoming earnings season for US banks, impacted by potential credit card rate caps proposed by President Trump.
• Geopolitical Risk & Oil Prices: Rising oil prices due to geopolitical tensions, particularly concerning Iran.
• Rare Earths & Supply Chains: G7 discussions on diversifying rare earth supply chains away from Chinese dominance.
• South African Reserve Bank: Review of the prime lending rate and potential implications for the banking sector.
• DRC-US Copper Deal: A strategic agreement to ship copper from the Democratic Republic of Congo to the US, challenging China’s dominance.

1. Market Overview & Global Economic Outlook

The program opened with a snapshot of global markets. S&P futures were at 7000, showing stabilization after initial fears surrounding a Justice Department subpoena related to Donald Trump. Asia Pacific markets were up over 1%, brushing off previous concerns. The 10-year yield was down to 4.17% from a high of 4.2% the previous day. Key events for the day included the CPI print in the US and the start of US bank earnings season, with JPMorgan Chase reporting first. Brent crude oil was climbing, up over 4.5% to just under $645, driven by geopolitical factors.

2. Japan: Potential Snap Election & Fiscal Policy Implications

Reports indicated that Japanese Prime Minister Sanae Takaichi intends to call a snap election. The ruling coalition currently holds a very narrow majority (one seat) in the lower house. Takaichi enjoys high approval ratings (70-80%), but faces risks due to a new coalition partner (Japan Innovation Party) with an unproven track record in national elections. A previous attempt at a snap election by her predecessor in Autumn 2024 was unsuccessful.

If Takaichi succeeds, she is expected to continue her stimulative fiscal policies, having already passed a large stimulus program and proposed a record budget. This is expected to be positive for stocks but potentially negative for bonds and the Yen. The election could be called as early as February 8th, leaving the opposition limited time to prepare.

3. US Political Developments: Trump & the Federal Reserve

The Trump administration’s actions against Federal Reserve Chair Jerome Powell have sparked a backlash. A Department of Justice subpoena issued to Powell has drawn criticism from both Democrats and Republicans, who emphasized the importance of an independent central bank. Trump himself appeared to distance himself from the decision. Concerns were raised that the probe is a pretext to remove Powell from his position, even after his term as Chair ends in May, potentially preventing him from serving as a Governor until 2028. This could disrupt the Fed’s ability to function effectively, particularly with upcoming appointments.

4. US Bank Earnings & Regulatory Concerns

The upcoming US bank earnings season is under scrutiny. Bank stocks experienced a recent dip due to President Trump’s proposal to cap credit card interest rates, which would negatively impact bank margins. This issue is expected to be a major focus during the earnings calls. A chart was presented illustrating the decline in bank stock prices Thursday and Friday of the previous week following Trump’s announcement.

5. Geopolitical Risks & Oil Prices

Oil prices have risen significantly, driven by geopolitical tensions, particularly surrounding Iran. While Iran’s oil production is approximately 2 million barrels per day (2% of global supply), any disruption could significantly impact prices. Goldman Sachs’ Head of Commodities will be appearing on the show later to discuss these developments. A disruption of 50% of Iranian oil supply (down to 1 million barrels per day) could potentially increase oil prices by $8 per barrel, according to models. However, the base case remains a downward trend in prices due to oversupply.

6. Global Supply Chains & Rare Earths

The G7 held a meeting to discuss diversifying rare earth supply chains, currently dominated by China. The meeting involved finance ministers from G7 countries, as well as representatives from the EU, Australia, Mexico, and India. Discussions focused on establishing minimum flow prices, trade protections, and increased recycling efforts. The US is pushing for greater coordination and action to reduce reliance on Chinese rare earth supplies.

7. South Africa: Prime Lending Rate Review

The South African Reserve Bank is reviewing its prime lending rate, which has been fixed at 350 basis points above the monetary policy rate since 2001. Analysts suggest this review is long overdue. Potential changes could include narrowing the spread or abolishing it altogether. The implications for existing contracts and the overall economy are being assessed. Some analysts believe narrowing the spread could ease financial constraints and improve access to loans.

8. DRC-US Copper Deal & China’s Dominance

The Democratic Republic of Congo (DRC) has begun its first shipment of copper to the United States, as part of a strategic agreement to challenge China’s dominance in the metals market. This initiative aims to diversify supply chains and reduce reliance on Chinese sources.

9. UBS Leadership Transition

UBS CEO Sergio Ermotti is expected to step down in April of next year, following the successful integration of Credit Suisse. This officially initiates a leadership search for one of the world’s largest banks.

Notable Quotes:

• “It is completely dedicated to the Federal Reserve’s mission to support the American people…leading very effectively.” – Commentator on Jerome Powell’s integrity.
• “It is a pretext. It is a way to try to knock the legs out from Jerome Powell.” – Commentator on the DOJ probe.
• “We are laser focused on this.” – Goldman Sachs representative on the situation in Iran.

Data & Statistics:

• S&P Futures: 7000
• 10-Year Yield: 4.17% (down from 4.2%)
• Brent Crude Oil: Up 4.5% to just under $645
• Japanese Yen: Weakening to a 2024 low, nearing 159 against the dollar.
• Japanese Prime Minister Approval Rating: 70-80%
• Iran Oil Production: 2 million barrels per day (2% of global supply)
• Potential Oil Price Increase (50% Iranian supply disruption): $8 per barrel.

Conclusion:

The program highlighted a complex interplay of geopolitical risks, economic factors, and political developments. The potential for a snap election in Japan, the ongoing tensions surrounding Iran, and the regulatory pressures facing US banks are all key factors shaping the global outlook. Diversification, careful risk management, and a focus on fundamentals will be crucial for investors navigating this uncertain environment. The emphasis on alternative supply chains for rare earths and the DRC-US copper deal underscore the growing trend towards reducing reliance on single-source suppliers.