Equity markets have seesawed in response to renewed geopolitical threats of a transatlantic trade war. A Greenland-related U-turn at the World Economic Forum (WEF) meeting in Davos offered momentary relief.
Gold continued its astonishing upward move last week to levels of just under USD 5,000 per oz on the back of concerns about US trade and security policy. Still, these headlines have outweighed positive US economic data.
This week, the Fed’s FOMC meeting will take place, with policy rates expected to remain unchanged, while 21% of S&P 500 constituents will publish their earnings.
Market recap
Beyond the numbers
Macroeconomics
In the US, the flash manufacturing PMI (January) increased slightly to 51.9 from 51.8, while the PMI services index was unchanged from the previous month at 52.5. Opinions in manufacturing have improved on new orders, but concerns persisted about weak exports. Consumer confidence has improved (the Michigan index is at 56.4, up from 52.9) thanks to an improving outlook and financial situation. Core inflation (core PCE for November) remained limited (0.16% m/m; 2.8% y/y).
In the eurozone, the manufacturing PMI has improved (the index is at 49.2, up from 48.8) thanks to higher production and orders, while the PMI services index fell slightly (from 52.4 to 51.9). Inflation declined in December from 2.1% y/y to 1.9% y/y thanks to lower energy and goods prices.
In the UK, manufacturing PMI (51.6) and services PMI (54.3) both made progress from the previous month and retail sales (December) were boosted by online shopping at year-end. Inflation was firmer than expected (up by 0.4% m/m and 3.4% y/y) due to higher transport, energy, and food prices.
This week, the focus will be on the Fed’s FOMC meeting: while no change in key rates is expected, governors should remain divided on rate management and on the balance of risks between labour and inflation. Several other central banks (Canada, Brazil, Chile, South Africa, and Sweden) will hold their regular meetings. US factory orders and December PPI should be the most interesting of the US indicators, showing a rebound in industrial orders and some easing in inflation pressures. In Japan, monthly indicators (labour, production, and retail sales) should remain mixed, notably consumption. In Germany, while some improvement should be seen in industry (IFO index), demand (retail sales, household confidence) and labour data should be mixed, but final inflation (December) should decline to 2.0% y/y.
Asset allocation: strategic views as at January 2026
Equities
Global equities ended last week stable (MSCI ACWI total return -0.1%) despite a rollercoaster of geopolitical headlines. Renewed fears of a global trade war initially sent markets sharply lower, but they recovered by the end of the week as US President Trump softened his stance on tariffs and announced a framework deal with NATO regarding Greenland.
The race for control of strategic resources continues to provide tailwinds for the global materials sector, which was the best-performing sector last week (+3.5%). Meanwhile, investors continued to shun technology (-0.5%), signalling a persisting sector rotation. However, we highlight the outperformance of the Magnificent 7 (+1.1% last week), which rebounded sharply after briefly falling into oversold territory at the start of the week.
Geopolitical noise drowned out positive US macroeconomic data, which bodes well for corporate earnings. As at last Friday, 13% of S&P 500 constituents had reported Q4 results, with 75% delivering positive surprises. In the week ahead, 21% of the benchmark US index will publish results, including four of the Magnificent 7. This group is expected to account for approximately 50% of overall Q4 EPS growth (+8.2%), delivering an anticipated +20.3% in aggregate.
Investors will also be focussing on central banks (Fed commentary), long-term Japanese yields (carry trade unwind risk, with the Nasdaq seen as among the most vulnerable), and geopolitical developments (renewed (partial) US government shutdown risk, US–Iran tensions).
As of last Friday, 13% of S&P 500 constituents had reported Q4 results, with 75% delivering positive surprises.
Fixed income
Fixed income markets closed on Friday with surprisingly flat weekly performances (investment grade (IG), high yield (HY) and AT1s all ending roughly flat), despite the economic and geopolitical headline-driven volatility observed in the financial markets. 10-year Treasury yields spiked to 4.3% driven by uncertainty surrounding Greenland and tariffs, but eased slightly by the end of the week. Furthermore, most Fed members are now advocating keeping rates on hold until May, when Jay Powell is set to be replaced as Chairman. This marks a shift from the previous market consensus, which anticipated an additional rate cut in March. On this matter, President Trump is expected to officially announce the next Fed Chair as early as this week, with a growing number of market participants expressing concerns about the Fed’s independence in setting monetary policy.
In Europe, despite heightened geopolitical turbulence, French 10-year OAT yields fell back below 3.5%, driven by positive developments in domestic politics, where the government is expected to approve a budget by February. Additionally, European Central Bank (ECB) members now appear more cautious in addressing geopolitical issues and are refraining from proactively cutting rates to avoid risks, highlighting slightly better growth expectations for the eurozone.
In contrast, in Japan, we continue to witness rapid changes in the interest rate environment, with long-term yields rising sharply (40-year notes touched 4.2%) as markets respond to increasing uncertainties surrounding the outcome of the elections in February and the fiscal plans proposed by several politicians.
Most Fed members are now advocating keeping rates on hold until May, when Jay Powell is set to be replaced as Chairman.
Forex & Commodities
Last week, the USD edged lower against most of the G10 currencies, despite generally strong US economic data. The decline likely reflects increased FX hedging by market participants due to concerns regarding US trade and security policy. The main event for the USD this week is the Federal Reserve’s FOMC meeting, at which the central bank is expected to keep rates on hold. There is some risk that Chairman Powell may take note of generally strong US data; however, we do not anticipate any rebound, considering the greenback is breaking below important technical levels against several major currencies such as the CNY, AUD, and even the EUR.
The JPY appreciated aggressively on Friday evening during US trading hours in what looks like a coordinated intervention with the US authorities. The intervention brought the USD/JPY to levels of just under 155 and signals a more aggressive stance on managing the JPY, and it suggests that upside moves above 160 are unlikely to be tolerated.
The AUD/USD broke above key resistance levels last week just above 0.68 and the coming week has several event risks, with the publication of Q4 CPI data in focus. If the data are in line with expectations, it would justify current market pricing for the Reserve Bank of Australia, implying 50 bps in rate hikes this year. We believe that further AUD/USD upside is feasible in the near term.
Gold continued its astonishing upward move last week, to levels of just under USD 5,000 per oz. The upward move reflects increasing concerns about US trade and security policy, which is signalling the end of the Pax Americana. We note that real rate expectations have not changed to any significant degree, meaning that geopolitical concerns are in the driving seat. We anticipate that there is more upside in the near term.
Silver skyrocketed to levels above USD 103 per oz last week. The low gold-to-silver ratio and its extremely high level of volatility give us some cause for concern. We believe that the market narrative regarding physical shortages is overdone, and consequently we maintain a cautious stance on silver at current levels.
Gold continued its astonishing upward move last week to levels of just under USD 5,000 per oz.
The opinions expressed herein are correct as at 26 January 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
