2026 Weekly Update

Market update

The S&P 500 closed the week at 6,940.01, -0.38% lower. The Dow Jones closed at 49,359.33, -0.29%, with the Nasdaq lower by -0.66%. The volatility index VIX closed the week at 15.86, up from 14.49. The Euro Stoxx 600 rose +0.77%.

The 10-year UST closed at 4.22%, up from 4.17% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 58bps. US Corporate Bond spreads: Investment Grade spreads narrowed -4bps at 76bps and High Yield spreads narrowed -9bps at 309bps. German 10-year Bunds yield closed at +2.83% down from +2.86% a week before. In Europe, Corporate Investment Grade spreads narrowed -1bp at 87bps and High Yield widened +3bps at 298bps.

The US Dollar Index (DXY) appreciated +0.26% last week and closed at 99.39. The Euro closed at 1.1598 (-0.34%); the Yen depreciated -0.15%, closing at 158.12 and the Swiss Franc depreciated -0.22%, closing at 0.803. Gold closed at $4,596.09, appreciating +1.92%. Oil was higher, Brent closed at $64.13 (+1.25%) and WTI at $59.44 (+0.54%).

Macroeconomy

US prices

The US CPI print for December was softer than expected. Core CPI was up +0.24% m-o-m (vs. +0.3% expected), while headline inflation rose +0.31% (+0.3% expected). So that meant the y-o-y rates were unchanged at +2.7% for headline and +2.6% for core. Food prices jumped 0.7% m-o-m, driven by dairy, “other”, and food away from home. Travel categories saw robust gains with hotels up +3.5% and airfares +5.2%. The downside for core inflation was driven by goods, including a monthly -1.1% decline in used cars and trucks as well as a -2.2% fall for IT commodities (computers, smartphones etc.). However, the more negative interpretation was that the weakness was driven by a few outlier categories, and the Cleveland Fed’s trimmed mean (which excludes the outliers) was still up +0.31% for the month, the highest reading since June. The last two months have seen softer inflation prints but have been accompanied with substantial distortions and outliers in the data. In terms of PPI inflation (Producer Price Index), the headline measure was running at +0.2% as expected in November, with the y-o-y measure at +3.0%.

Japan elections

Japan’s prime Minister Sanae Takaichi will dissolve lower house on January 23 and will call for snap elections on February 8. In terms of election outcome, approving rating for Takaichi cabinet has been very high at around 70%, and while approval rating for LDP is much less at around 30%, it is still much higher than any opposition parties. Baseline scenario would be ruling coalition secure the majority which they already have or even more seats. Risk scenario could be ruling coalition lose majority. Recently two major opposition parties have agreed to form a new party to challenge. In terms of macro implication, for fiscal policy, it largely depends on election outcome. Most analysts expect the budget for 2026 that was already announced would be approved. But even though in the baseline scenario with LDP keeping the budget for 2026 unchanged, market concerns around fiscal risk could be still lingering, especially if LDP secure much more seats, as it could potentially give Takaichi more confidence to push her pro- growth strategy through excessively proactive fiscal policy. Takaichi’s excessive fiscal stance also complicates monetary policy. Fiscal risk could lead to weaker yen, pushing higher CPI risk and force BOJ hike, but this could potentially increase fiscal risk further (higher interest burden), and even weaker yen.

Iran situation

Iran is an important player in the oil market. It produces 3.3 million barrels per day (mbd), out of 108 mbd globally, and exported 1.7 mbd in 2025. Iran ranks third in terms of reserve size, after Venezuela and Saudi Arabia. Any political turmoil in such an important supplier would therefore have a greater impact on the oil market than the recent events in Venezuela. In 2025, most of Iran’s crude exports were directed to China. Thus, after Venezuela (0.4 mbd), if Iranian exports are disrupted, China could be significantly affected in terms of oil availability. This would force China to turn to Middle Eastern suppliers and would undoubtedly create upward pressure on prices. In addition to the impact on Chinese demand, a messy scenario in Iran could endanger flows through the Strait of Hormuz, where 17 mbd transit (16% of global oil). This would affect most Middle Eastern producers: Saudi Arabia, Iraq, the UAE, Kuwait, Qatar, etc.

US data

The New York Fed’s Empire State manufacturing survey, which rose to 7.7 in January (vs. +1.0 expected), with the prices paid component at a 10-month low. Also, the Philadelphia Fed’s manufacturing business outlook survey rose to 12.6 (vs. -1.4 expected), with the prices paid component at a 7-month low. The NFIB Small Business Optimism index which beat expectations slightly (99.5 vs 99.2 estimated). The November retail sales were a bit stronger than expected at +0.6% (vs. +0.5% expected). Overall, the Atlanta Fed’s latest GDPNow update is now estimating Q4 GDP growth at an annualized pace of +5.3%, up from +5.1% before. In employment data, weekly initial jobless claims fell to just 198k in the week ending January 10 (vs. 215k expected), which meant that the 4-week moving average (205k) fell to its lowest in nearly 2 years. Even though there is likely to be a holiday season distortion partly impacting these numbers. ADP’s weekly report of private payrolls showed growth of 11.75k in the 4 weeks to December 27. So that’s slightly higher than the December monthly reading reported last week and points to stable private sector job gains near the breakeven rate.

EU data

UK November GDP print surprised on the upside. It showed that GDP grew by +0.3% in November (vs. +0.1% expected), which is the strongest monthly print since June. In Germany, we also found out that the economy grew by +0.2% for the full year in 2025, in line with expectations, recovering after two consecutive contractions in 2023-24.

China data

China's economy grew +4.5% in the fourth quarter compared to the same period last year, a deceleration from the third quarter's growth rate of 4.8%, marking the lowest figure since the first quarter of 2023 due to weakened consumption and investment. For the entirety of 2025, the economy grew by 5.0%, corroborating an estimate provided by President Xi Jinping during his New Year’s Eve address and aligning with the growth recorded in 2024. Meanwhile, retail sales increased by +0.9% in December year-on-year, slightly short of the +1.0% expected and slowing from +1.3% in the previous month, representing the weakest growth since December 2022. Industrial output rose by +5.2% in December, exceeding expectations of +5% growth and improving from +4.8% in the preceding month. In a separate report, China's new home prices continued their downward trend in December, decreasing by -0.37% m-o-m, compared to a nearly identical decline of -0.39% in November, highlighting ongoing challenges in the property sector despite the government's repeated commitments to stabilize it. Also, China's exports surged by +6.6% year-on-year in December, exceeding market expectations of +3.1% growth and accelerating from a +5.9% increase in November. Imports rose by +5.7% in December compared to the previous year, surpassing the expected +0.9% and marking the strongest growth since September of last year when they increased by +7.4%. For the entirety of 2025, China's trade surplus expanded to $1.2 trillion, continuing a record streak as overseas shipments saw stronger growth towards the end of the year.

Highlights

Earnings season

We are on the early innings of the 4Q25 earnings season. As usual, large banks kicked off the season. Overall, their earnings were better than expected thanks to solid volume growth, notably loans which led to net interest income beats; strong fees from asset management and trading; positive operating leverage; 2026 guidance confirmed earnings expectations with mid-terms targets unchanged. Therefore, the aggregate surprise for Financials is 5.4%. In terms of the S&P 500, current consensus estimates suggest only TECH+ and Materials are expected to outpace the index while Discretionary ex-AMZN is looks to be a drag on 4Q earnings. So far, 7.4% of the S&P 500's market cap has reported. 4Q expectations are for revenues to grow 7.3% and EPS 9.0%. Projected EPS growth among groups varies significantly, varying from TECH+ at 21.7%; Financials at 8.9%; Non-Cyclicals at -1.1%; Cyclicals ex-Energy at -2.7% and Energy at -0.5%. The 6 largest TECH+ companies are expected to outgrow the rest of the market as a group (EPS growth +22.4% vs. +4.4%), though forecasts vary for each company (MSFT: +22.7%, META: +2.2%, GOOG: +20.6%, NVDA: +69.3%, AAPL: +8.7%, AMZN: +9.8%). Earnings are beating estimates by 8.2% on aggregate so far, with 86% of companies topping projections to date. EPS is on pace for +12.6%, assuming the historical trend of estimate revisions through the end of reporting season. This week, 38 companies representing 6.7% of the S&P 500's market cap will report results, including State Street, Netflix, 3M, Johnson & Johnson, Procter & Gamble, General Electric and Abbott Laboratories.

On rates

Rates moved in opposite directions across the globe. US Treasury yields moved higher, with the 2yr up +5.5bps to 3.59% (+2.2bps) and the 10yr yield up +5.8bps to 4.22% (+5.3bps Friday), the highest since around the end of August. Friday’s rise in yields came as Trump suggested that he was leaning away from nominating NEC Chair Kevin Hassett as Fed Chair. Polymarket odds for Hassett have fallen from 34% earlier on Friday to 8% this morning, with former Fed Governor Kevin Warsh now seen as the clear frontrunner at 61%. Rick Rieder is now up to 18%. Over the week, investors dialed back the prospect of Fed rate cuts in the months ahead. The number of cuts priced by the December meeting fell to just 48bps, which is the fewest cuts priced so far this year. Feedspeak was quite active before the start of the blackout period. In general, comments were hawkish expressing concerns about inflation. Chicago Fed President Goolsbee said that “the most important thing facing us is we’ve got to get inflation back to 2%”. Atlanta Fed President Bostic said, “we need to make sure that we stay in a restrictive stance, because inflation is still too high”. Minneapolis Fed Kashkari said that it was “entirely plausible that we are sitting here well above our target for two to three more years”, and “then we’re looking at seven or eight years of elevated inflation. That’s very concerning to me”. In Europe, sovereign bonds rallied across the continent, with yields on 10yr bunds (-2.8bps), OATs (-0.5bps) and BTPs (-4.1bps) all coming down. In Japan, yields on 10-year JGBs rose +9.2bps to 2.18%, reaching their highest level since 1999, with 30yr yields up +7.9bps to 3.48% on the back of expectations that Prime Minister Takaichi calling a snap election.

What to watch

• Monday: World Economic Forum in Davos (19-23 Jan); US Stock and bond markets closed for Martin Luther King Jr. Day; Canada CPI; China Q4 GDP and December Data
• Tuesday: US ADP Employment; UK Weekly Earnings and Employment; Germany ZEW Survey; China Loan Prime Rates; Taiwan December Exports
• Wednesday: UK CPI; South Korea's January Exports; Indonesia Rate Decision
• Thursday: US Initial Jobless Claims, PCE, Personal Income and Spending; South Korea's Q4 GDP; Japan January Exports
• Friday: US S&P PMI, University of Michigan Survey; UK Retail Sales; Eurozone, Germany France, UK Flash PMI; BOJ Policy Meeting; CPI from Japan, Singapore and New Zealand
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