2026 Weekly Update

Market update

The S&P 500 closed the week at 6,966.28, +1.57% higher. The Dow Jones closed at 49,504.07, +2.32%, with the Nasdaq higher by +1.88%. The volatility index VIX closed the week at 14.49, down from 14.51. The Euro Stoxx 600 rose +2.27%.

The 10-year UST closed at 4.17%, down from 4.19% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 56bps. US Corporate Bond spreads: Investment Grade spreads narrowed -1bp at 80bps and High Yield spreads narrowed -5bps at 318bps. German 10-year Bunds yield closed at +2.86% down from +2.90% a week before. In Europe, Corporate Investment Grade spreads narrowed -1bp at 88bps and High Yield narrowed -8bps at 295bps.

The US Dollar Index (DXY) appreciated +0.72% last week and closed at 99.13. The Euro closed at 1.1637 (-0.70%); the Yen depreciated -0.67%, closing at 157.89 and the Swiss Franc depreciated -1.11%, closing at 0.8012. Gold closed at $4,509.5, appreciating +4.09%. Oil was higher, Brent closed at $63.34 (+4.26%) and WTI at $59.12 (+3.14%).

Macroeconomy

US jobs

The Dec. Establishment Survey showed 50k payroll additions, below the forecast of 70k and short of “whispers” (some economists penciling in a number around 100k or higher). Private payrolls were particularly soft, coming in at +37k (vs. the Street +75k). Employment continued to trend up in food services and drinking places, health care, and social assistance. Retail trade lost jobs. Goods-producing headcount shrank 21k, with manufacturing employment falling another 8k. Federal government employment was little changed in December (+2k). Since reaching a peak in January, federal government employment is down by 277k, or 9.2%. Total government employment rose by 13k in Dec. Revisions to the Establishment survey were negative - employment in October and November combined is 76k lower than previously reported (Oct. went from -105k to -173k). The Household survey showed a large jump in the number of employed people (+232k in Dec. vs. Nov.) while the size of the civilian workforce shrank by 46k. Wages were inline on a sequential basis at +0.3% m-o-m but came in higher on a y-o-y basis at +3.8% (vs. expectations at +3.6% and vs. +3.5% in Nov.). The workweek was a bit shorter at 34.2 hours (analysts expected 34.3 hours, flat vs. Nov). The unemployment rate fell to 4.4%, down from 4.5% in Nov. and below the Street’s 4.5% forecast. The participation rate dipped 10bps to 62.4%, in line with consensus. In other jobs data, weekly jobless claims came in beneath expectations at 208k (vs. 212k expected). The ADP print showed that private payrolls grew broadly as expected at +41k in Dec. (vs. +50k expected). The Nov. JOLTS report showed layoffs were down to a 6-month low of 1.687m, whilst the quits rate of those voluntarily leaving their roles moved up to 2.0%. Job openings dipped by more than expected to 7.146m (vs. 7.648m expected).

Tariffs ruling

The Supreme Court delayed the expected Friday announcement about the ruling on the Trump administration’s tariffs. As a reminder, the Court are ruling on whether the use of the International Emergency Economic Powers Act (IEEPA) permits the imposition of widespread tariffs, and these IEEPA tariffs make up around half of the increases we’ve seen under Trump. The previous legal challenges in the lower courts were successful against the tariffs, but they’ve been appealed by the Trump administration, hence we’re waiting for the Supreme Court ruling now. As it stands, prediction markets think the Supreme Court is likely to rule against the tariffs, with Polymarket giving just a 25% chance they rule in favor. However, even if the tariffs are struck down by the Court, the administration have several other legal avenues they can pursue. For instance, the sectoral tariffs (e.g. on steel and aluminum) aren’t covered by the court ruling, whilst another option would be to use Section 122 of the 1974 Trade Act, which permits temporary 15% tariffs for 150 days.

ISM report

The Dec. ISM services index hit a 14-month high of 54.4 (vs. 52.2 expected). The details were strong with new orders component hitting a 15-month high of 57.9, and the employment component hit a 10-month high of 53.9. The ISM manufacturing was softer-than-expected with the headline measure falling to a 14-month low of 47.9 in December. Both, the new orders (47.7) and employment (44.9) components were also clearly in contractionary territory. Prices paid (58.5) were within a couple of tenths of expectations.

EU inflation

Eurostat’s flash estimate showed euro area headline inflation edged down to +2.0% y-o-y in December, with core inflation also easing slightly to +2.3%. The decline in core inflation was driven by both core goods (possibly due to seasonal factors) and services. December’s preliminary CPI figures indicated further moderation in headline inflation. The slight downside surprise is not significant enough to alter the ECB’s broader assessment that inflation will remain around target. Looking ahead, base effects are likely to push inflation temporarily lower in Q1 2026. The January print may be volatile due to various factors (resets, Bulgaria’s introduction, new weights), but we expect headline inflation to fall below 2.0% in Q1. At a country level, German CPI fell to +2.0% on the EU-harmonized measure (vs. +2.2% expected), whilst the French reading was in line with expectations at +0.7%.

EU data

German factory orders rose 5.6% m-o-m in November, following a 1.6% increase in October. Growth was mainly driven by fabricated metal products (+25.3%) and other transport equipment, including aircraft, ships, trains, and military vehicles (+12.3%). Excluding large-scale orders, new orders increased 0.7% m-o-m. These figures suggest the industrial sector likely contributed positively to Q4 growth. At a broader level, Euro area sentiment softened slightly in December, with the European Commission sentiment (ESI) index falling from 97.1 to 96.7, reflecting weaker confidence among consumers and services firms, while manufacturing confidence improved modestly. The ESI’s small decline aligns with the drop in December PMIs and remain consistent with GDP growth of around 0.3% q-o-q in Q4.

Swiss CPI

Swiss CPI inflation edged up to +0.1% y-o-y in December from 0.0% previously, in line with expectations. Domestic price measures (core, domestic, and services inflation) also strengthened somewhat. Average annual inflation reached +0.2% in 2025. Looking ahead, headline inflation is expected to rise gradually but remain subdued.

China data

China consumer prices increased by +0.8% y-o-y as expected, reaching their highest level since February 2023 and marking a third consecutive month of growth in December. This rise follows a +0.7% increase in November. In contrast, producer prices have decreased by -1.9% y-o-y, slightly better than the expected -2.0% decline, and easing from November’s -2.2% drop. This data extends China’s streak of factory-gate deflation beyond three years, underscoring persistent excess capacity and weak pricing power within the industrial sector.

Highlights

Earnings preview

The US earnings season officially kick off tomorrow Tuesday with the major banks. JPMorgan Chase, Bank of New York Mellon, and Delta Air Lines report first on Tuesday, followed by Citigroup, Bank of America, and Wells Fargo on Wednesday, and Goldman Sachs, Morgan Stanley, and BlackRock on Thursday, alongside TSMC for a global tech angle. In terms of expectations, S&P 500 EPS is forecasted to grow 8.8% y-o-y in 2025Q4. However, historical trends imply that growth should finish closer to 12.2%. 3Q followed a similar pattern, finishing at 16.1%, despite initial forecasts of only 7.7% - though the bar was notably low. Eight out of eleven sectors are projected to have positive growth, while 66% of the companies are expected to show positive EPS growth this quarter. In terms of sectors, Big 6 Tech+ are expected to grow 22.2%, but company forecasts are varied (MSFT: 22.7%, AAPL: 11.1%, META: 2.1%, GOOG: 22.0%, AMZN: 4.9%, NVDA: 70.7%). The other 494 companies in the S&P 500 are projected to report EPS growth of 4.3%, well below the 11.8% growth delivered in 3Q. Micron (MU), Broadcom (AVGO) and Oracle (ORCL) are among the top contributors to S&P 500 outside of the Big 6. S&P 500 margins are expected to increase 70bps, the lowest expectations since 2Q23. Consensus is expecting margin contraction in Telecom, Industrials, Discretionary ex-AMZN and Health Care. 2026 EPS expectations for S&P 500 ex-Tech+ have held steady since June (vs a typical ~3% decline in index as a whole), while revisions remain concentrated to Tech+, up ~14%.

On rates

On the back of the ISM manufacturing and mixed US labor data, the pricing of a January Fed rate cut declined to just 5%, with the number of cuts priced by December falling to 52bps (-5.7bps on the week and -4.4bps Friday). This drove a significant flattening in Treasuries, with the 2yr yield rising +5.9bps to 3.53% (+4.4bps Friday), while the 10yr yield fell -2.6bps to 4.17% (-0.2bps Friday). In terms of Fed speakers, Governor Miran said “I think that well over 100 basis points of cuts are going to be justified this year” which was in line with his previous dovishness. Meanwhile, Richmond Fed President Barkin said that “policy will require finely tuned judgments balancing progress on each side of our mandate”, and that it was “a delicate balance”.

What to watch

• Monday: US Housing Starts; South Korea Exports

• Tuesday: US ADP Employment and CPI

• Wednesday: US PPI and Retail Sales; China Exports

• Thursday: US Initial Jobless Claims; UK GDP; South Korea Rate Decision

• Friday: Singapore Exports