January 2026

January 2026 opened with global markets balanced in a familiar but increasingly fragile equilibrium, as easing inflation pressures collided with slowing growth, persistent geopolitical tension, and rising political noise.

The month’s market movements were shaped by a series of interlocking themes rather than by a single dominant narrative. Nuanced central bank signalling sat at the centre, amid growing tension between disinflation and late-cycle growth anxiety. Added to this were renewed political noise from the US on Trump’s various pronouncements, questionable evidence of recovery in China, persistent geopolitical risk premia, a recalibration of corporate earnings expectations, and shifting currency and capital flows. Combined, these forces reinforced a defensive bias across global markets.

Trump’s influence was felt less through concrete policy action and more through rhetoric and signalling. Early January saw renewed speculation around tariff threats, trade protection, fiscal priorities, and the future independence of US institutions, reviving memories of policy volatility from previous cycles. While no immediate policy shifts materialised, markets responded by pricing a wider distribution of outcomes, particularly in currencies, defence stocks, industrials, and companies with complex global supply chains. This political overhang added to the already delicate macro environment.

Geopolitically, January was defined by continuity rather than escalation. Relations between the US and China remained strained, with renewed emphasis on technology restrictions, supply-chain security and industrial policy. Trump’s comments on trade imbalances and strategic competition reinforced expectations of a tougher stance toward China should political momentum translate into policy later in the year.

Instability across the Middle East continued to underpin a geopolitical risk premium in energy markets. Investors closely monitored shipping routes, regional alliances, and the risk of spillover effects, keeping oil prices supported despite softer global demand signals. Defence stocks and traditional safe-haven assets benefited intermittently from this backdrop, particularly during periods of heightened headline risk, reinforcing the sense that geopolitics remained a background constraint on risk appetite rather than a catalyst for outright risk-off moves.

The war between Russia and Ukraine entered its fourth year, now sadly lasting longer than the First World War. While no longer an acute market shock, the conflict continues to be a structural influence on European security, defence spending and energy policy. Ukraine’s reliance on sustained Western support and Russia’s continued adaptation to sanctions ensured that geopolitical uncertainty remained embedded in European asset pricing, particularly in energy-intensive industries and sovereign bond markets.

Within Europe, domestic political pressure points resurfaced. Several EU states faced renewed strains linked to fiscal discipline, migration, and energy costs, complicating consensus on budget rules and longer-term integration. Meanwhile, the looming global election calendar for later in 2026 began to shape rhetoric around trade, defence, and fiscal policy, adding another layer of policy uncertainty at a time when growth momentum was already fragile.

Against this backdrop, central banks dominated the macro conversation through signalling rather than action. The Fed held rates unchanged and leaned heavily on data dependence. Officials acknowledged continued progress on inflation but pushed back firmly against market enthusiasm for early rate cuts, stressing that restrictive policy would remain in place until inflation was durably anchored. Trump’s renewed criticism of monetary policy and the Fed’s mandate reintroduced a degree of political sensitivity around central bank independence, even as policymakers worked to emphasise institutional continuity. Compounding this was a heightened focus on impending changes in Fed leadership. The ECB also maintained its policy stance, but its tone softened subtly over the course of the month. While officials insisted it was premature to discuss rate cuts, growing acknowledgement of downside growth risks marked a shift from resolutely hawkish to cautiously balanced. The BoE remained firmer than its peers, citing persistent services inflation and wage pressures. January minutes showed little appetite for near-term easing, reinforcing the UK’s “last cut, not first” positioning within the global policy cycle.

Equity markets reflected these crosscurrents. Global equities began 2026 on a cautious but constructive footing, with modest returns, elevated dispersion, and narrowing leadership. Investors increasingly prioritised quality, cash generation, and earnings visibility over cyclical leverage, particularly in an environment where political and policy uncertainty remained elevated.

US equities proved relatively resilient, with the S&P 500 breaking through 7,000 during the month and closing January up 1.4%, while the Nasdaq finished up 0.9%. Gains were concentrated in large-cap, cash-generative companies with durable pricing power, as speculative growth and rate-sensitive segments continued to de-rate. Mega-cap technology (Alphabet up 7.5%) and communications stocks provided much of the index support, benefiting from sustained investment in AI, automation, and digital infrastructure, although performance increasingly diverged between dominant platforms and second-tier names.

European equities also delivered a solid month, with the FTSE 100 rising 2.9% and the DAX gaining 0.2%. Defensive sectors such as healthcare, utilities, and consumer staples outperformed, while industrials, autos, and luxury goods lagged amid soft global trade conditions and weaker Chinese demand. Asian equity markets were notably strong, led by a 5.9% gain in the Nikkei and a 3.8% rise in the Shanghai Composite Index, supported by yen weakness, resilient corporate earnings in Japan, and targeted policy support in China that helped stabilise sentiment despite ongoing structural challenges.

Commodity markets were volatile but directionally mixed. Energy was the primary source of instability, with oil prices repeatedly jolted by Middle Eastern headlines and OPEC+ supply discipline, keeping a geopolitical risk premium embedded despite ongoing demand concerns. By month-end, WTI had risen 13.6% and Brent 13.8%. Precious metals told a more dramatic story. Gold and silver performed strongly early in the month, supported by lower US real yields, central bank buying, and geopolitical hedging demand, closing January up 12.7% and 11.2% respectively. These headline gains, however, masked a sharp late-month reversal. Silver suffered an intraday collapse of more than 30% following strong US data, renewed focus on Federal Reserve leadership, and rising political pressure on monetary policy, which reignited fears that the US economy was overheating and that near-term easing was unlikely. The resulting surge in real yields triggered a violent unwind of speculative positioning, with silver hit harder than gold due to its greater sensitivity to growth expectations.

Currency markets reflected shifting rate expectations. The US dollar weakened modestly against both the euro and sterling over the month, driven by late-January repricing of expectations regarding Fed policy and political uncertainty, rather than by a decisive improvement in non-US growth prospects.

Crypto markets mirrored broader risk dynamics. Bitcoin traded relatively steadily early in January but sold off sharply into the month-end as rising real yields and tighter liquidity expectations triggered forced deleveraging. Ethereum and higher-beta altcoins underperformed materially, as funding rates turned negative and speculative activity cooled rapidly. January closed with crypto once again demonstrating its acute sensitivity to US monetary credibility, political risk, and global liquidity conditions.