Market overview
The capture of Venezuela President Maduro by US forces; US plans to ‘run’ the country with the biggest oil reserves in the world (for the foreseeable future); US President Trump’s talk of military operations elsewhere in Latin America — the first weekend of 2026 has been anything but the staple fayre of post-Christmas lethargy and New Year introspection. And yet, markets appear to be taking the news in their stride. Certainly, Trump’s actions have not been enough to derail the Santa Claus rallies that UK and European stock markets have enjoyed.
Muted market reaction
True, gold prices ticked higher on Monday 5 January, the first trading day since the US intervention in Venezuela, but this ought to be seen in the context of the yellow metal’s 5% decline the previous week. As for equity and bond markets, there was little sign of concern. Similarly, volatility gauges are so far not registering a spike in risk-off sentiment.
Oil prices are one area that could be sensitive to recent events, but the news is unlikely to change the supply/demand dynamic materially for quite some time. Venezuela accounts for less than 1% of current global oil production but holds around 17% of the world’s proven crude reserves. Any disruption to global supplies will therefore likely be limited, while bringing Venezuela’s significant reserves online at some point in the future could add meaningful production to global markets.
The overall muted reaction is likely down to Venezuela’s small size, at least in the context of global financial markets. The country is not a constituent of the MSCI Emerging Market index. So, on a country-specific basis, what happened in Caracas over the weekend was unlikely to move the dial, particularly when market attention remains firmly fixed on more positive drivers such as the potential for artificial intelligence to be a game-changer in terms of corporate productivity. What Venezuela means for the elevated geopolitical tensions seen during 2025, time will tell.
Santa Claus tracked
Over in the UK, the Santa Claus rally that propelled London’s large cap stock benchmark to break the 10,000-barrier for the first time on Friday 2 January remains intact. The Santa Claus rally is a seasonal phenomenon that tends to see stocks rise over the festive period. The MSCI UK index added 2.2% in December 2025, roughly in line with the 2.1% final month of the year average that stretches back to 1984. A similar story can be seen in Europe with the MSCI Europe Ex UK up 2.2% in December 2025. Not much sign of Santa in the US though. Main US stock indices did close higher on Friday 2 January, but this followed a four-day losing streak.
UK and European stocks picking up where they left off in 2025 then - both were among the year’s strongest performers. MSCI Europe Ex UK was the standout with a 27.2% gain in 2025. MSCI UK was not far behind with a 25.8% increase. Both comfortably ahead of the MSCI AC World’s +13.2% and the MSCI North America’s +10.3% (all returns in sterling).
Santa Claus explained
Plenty of reasons can be rolled out to explain a Santa rally. Thin trading conditions as more market participants shut up shop for the year is one. The prospect of a pick-up in consumer spending in the run-up to the festive period is another. The rally can also be triggered by a sense of optimism for the year ahead. This might explain why Europe has benefited from an end of year rally more than most. In December, the European Central Bank (ECB) upgraded its growth forecasts for the Eurozone to 1.4% from 1.2% for 2025 and to 1.2% from 1% for 2026. 2027 and 2028 figures were also raised. The positive outlook can be put down to the Eurozone navigating the US tariff storm better than expected, while the European economy looks set to benefit from a significant step-up in defence and infrastructure spending in the years ahead.
A positive data picture can also be painted for the US too. As announced on 23 December, the US economy grew at an annualised rate of 4.3% in the third quarter, well ahead of the 3.2% expected and the growth rates reported for previous quarters. And yet, Santa was conspicuous by his absence. This could be down to questions around US consumer sentiment. On the same day as the US Q3 GDP figure, consumer confidence in December fell to its second-lowest level in five years, according to Conference Board data. And then there are the lingering effects of the US government shutdown and the data vacuum it created. Just how robust is the data?
Data quality issues will be worked through over time and this week will see the release of December’s non-farm payrolls report. Expectations are for this to come in at around the +50K mark. In fact, there will be no shortage of economic data to get stuck into in the week ahead including PMI (Purchasing Managers’ Index) and industrial production figures from around the world as well as flash CPI (Consumer Price Index) numbers for both individual European economies and the euro area as a whole. Christmas it seems is well and truly over.
