The VIX index (.VIX), nicknamed Wall Street's fear gauge, fell sharply and U.S. Treasuries, where a sell-off had pushed benchmark 10-year yields to their highest since August, caught a bid. /US
Germany's 10-year yields started little changed at 2.87% , while Japanese 30-year yields , which have spiked on worries about the country's finances and a snap election next month, eased back to 3.67%.
Ukraine's bonds also saw a strong rebound after U.S. envoy Steve Witkoff said "a lot of progress" had been made in peace talks ahead of a meeting between Trump and his Ukrainian counterpart Volodymyr Zelenskiy in Davos later.
CAUTIOUS INVESTORS KEEP EYE ON GOLD
The 1% rise in European stocks roughly halved the drop they had seen since Trump's tariff threats had reignited investors' trade war jitters.
Overnight, MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS) had also climbed 1% with chipmaker gains in South Korea carrying the KOSPI (.KS11) above 5,000 points for the first time.
"The TACO, as they call it, is certainly real," said Damian Rooney, director of institutional sales at Argonaut, a resources-focused broker in Perth, referring to a Wall Street acronym for "Trump Always Chickens Out".
Trump said after meeting with NATO Secretary General Mark Rutte that Western Arctic allies could forge a new deal over Greenland that would satisfy his desire for a missile defence system and access to critical minerals.
There were no details. Rutte later told Fox News the issue of whether Greenland will remain with Denmark did not come up in his conversation with Trump.
And investors were wary of completely unwinding some of the safe-haven bets made this week.
"Our mood here is it's been fabulous fun being a gold bull for the last year and a half," said Argonaut's Rooney, "and with gold you never throw the baby out with the bathwater because (Trump) can't help himself doing or saying some crazy things, whether he's going to carry through or not."
AUSSIE LEAPS ON JOBS BEAT
The erratic rebound in Japanese government bonds came as the Bank of Japan began a two-day meeting where it expected to send a hawkish message about possible further rate hikes.
The yen was steady at 158.24 per dollar, but remained under some pressure on crosses, with the euro not far from a record high on the yen and the Australian dollar scaling an 18-month top of 107.96 yen.
The Aussie also hit a 15-month high of $0.6810 on the U.S. dollar after a stronger-than-expected rise in Australian jobs data that had investors scrambling to price in the risk of a February 3 rate hike.
U.S. data later in the day includes U.S. core PCE figures with money markets now expecting around 45 bps of U.S. rate cuts this year.
Focus is also intense on who will be the U.S. central bank's next chair, and its independence from politics. On Wednesday, U.S. Supreme Court justices, during arguments over Trump's bid to fire Fed Governor Lisa Cook, seemed to embrace the idea that the central bank's independence must be preserved.
Wall Street earnings are also due later from Intel (INTC.O), General Electric (GE.N), Freeport-McMoRan (FCX.N) and Procter & Gamble (PG.N).
Reporting by Marc Jones in London and Tom Westbrook in Singapore; Editing by Shri Navaratnam and Emelia Sithole-Matarise
Reuters report
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