Market overview
Geopolitics rather than macroeconomics dominated the air waves during the first full trading week of 2026. There was further fallout from the capture of Venezuelan President Maduro by the US; the pursuit and boarding of tankers linked to Venezuelan oil exports by the US; renewed interest in owning Greenland from the US; and growing unrest across Iran, triggering threats of retribution from…the US. And yet despite elevated geopolitical tensions, global equity markets enjoyed a good start to the year with strong gains seen across main US and European benchmarks.
That’s because, thanks to solid fundamentals and earnings growth, the economic and investment landscape remains promising, despite lingering uncertainties around US policy shifts, central bank actions, and geopolitical developments. Cue the release of macroeconomic data during the week which, while not all positive, were nevertheless largely supportive.
In the US, the Labor Department released a near-enough in line December non-farm payrolls report (50,000 jobs were added). The unemployment rate also came in at 4.4%, a tad lower than the previous month’s revised 4.5% rate. On the other hand, the Labor Department’s Job Openings and Labor Turnover Summary for November estimated a decline in hires to 5.1m in November compared to October’s 5.4m, while job openings, at 7.1m, were the lowest they have been since September 2024.
US economic activity data was also mixed. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) edged 0.3 points lower to 47.9 in December, the tenth consecutive month the manufacturing sector has contracted. By contrast, the ISM’s Services PMI print showed services activity expanded for the 10th consecutive month.
Data coming out of Europe was decisively on the positive side. November’s industrial production numbers for Germany, Spain and France all beat expectations—German output was up 0.8% sequentially on a seasonally adjusted basis, expectations were for a 0.5% increase; non-seasonally adjusted production in Spain rose 1.0% sequentially; while French output was 0.1% lower on a seasonally adjusted basis, less than the 0.2% fall expected. Retail sales came in stronger than anticipated too, rising at a 2.3% annual rate in November, comfortably above the 1.6% expected. Finally, inflation continues to behave itself— headline annual inflation in the eurozone was in line with the European Central Bank’s (ECB) 2.0% target in December.
Nothing in the data then to suggest the positive global economic picture that helped equities finish 2025 strongly ought to be revisited.
In the week ahead, markets will have to digest US inflation numbers plus a possible ruling by the US Supreme Court on the legality of President Donald’s Trump’s tariffs. And most likely, there will be more surprises from the US administration to deal with— already there has been the news that Federal Reserve (Fed) chairman Jerome Powell’s testimony to Congress last June around ongoing renovations and building works at the Fed is being investigated by the Justice Department. Powell has come out fighting, saying that the investigation is really about whether the Fed sets interest rates based on economic conditions or is directed by political pressure and intimidation. Strong words on a key issue that looks set to rumble on in the year ahead.
For now, markets are taking Trump and what he says and does in their stride with investors choosing to focus on a global economy that appears to be ticking along nicely.
Weekly market moves
The MSCI All Country World Index (MSCI ACWI) ended the week 1.5% higher, bringing the (new) year-to-date (YTD) gain to 2.0%.
United States:
The main US stock index finished the week up 1.6% (1.8% YTD), setting new highs in the process. Normal service resumed then. Not quite. In a departure from recent years value (+2.5%), as opposed to growth stocks (+0.9%), pushed markets higher. Still early days, but so far this year value is up 3.4% YTD while growth is showing a 0.6% gain. Best of the lot are small caps which, thanks to a 4.7% weekly rise, are up 5.8% YTD.
US Treasuries were largely unmoved on the week— the yield on the 10-year Treasury edged two basis points lower to 4.17% (down two basis points YTD); while the 2-year Treasury yield was up six basis points to 3.53% (up six basis points YTD).
United Kingdom:
A quiet week on the economic release front couldn’t prevent UK large caps from setting new highs—London’s top tier index was up 1.8% (2.0% YTD). The strong weekly performance wasn’t confined to large caps with mid caps putting on 2.8% (2.6% YTD). The smaller end of the UK market, like the US above, currently outperforming their larger siblings. Too soon to say if 2026 could finally be the year of the small cap after years of relative underperformance, but one to watch.
Gilts also had a good week with the yield on the 10-year note decreasing 17 basis points to 4.37% (down 17 basis points YTD). Not such a good week for sterling which ended the week at US$1.34 compared to 1.35 previously.
Europe ex UK:
European equities, among 2025’s top performers, picked up where they left off last year. The MSCI Europe ex-UK Index was up 2.3% (3.0% YTD) thanks to the above raft of positive economic data. At the national level, German stocks led the way finishing the week 2.9% higher (3.1% YTD); France, not too far behind with a 2.0% gain (2.6% YTD); Italy added 0.8% (1.7% YTD); while Switzerland rose 1.2% (1.2% YTD).
Like sterling, the euro ticked fractionally lower against the US dollar to US$1.16 from US$1.17. Finally, the yield on the 10-year German Bund decreased four basis points to 2.86% (down four basis points YTD).
Approver Quilter Cheviot 12 January 2026
