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What’s in this issue;
Markets took a breather this week—but beneath the surface, important rotations are taking shape.
In Issue #44, we cover:
Market Consolidation: U.S. equities eased after record highs as investors digested mixed inflation data and a cautious start to earnings season. Volatility ticked higher, but this looks more like digestion than breakdown.
Silver Steals the Show: A powerful 11% rally puts real assets back in focus, driven by falling real yields, industrial demand, and tightening supply.
Leadership Shifts: Defensives and small caps outperformed as investors rotated away from crowded growth trades.
Emerging Markets Momentum: EM inflows are accelerating, valuations remain attractive, and what began as a rebound is increasingly looking like a durable allocation shift.
The Week Ahead: Davos, major earnings (Netflix, Intel, P&G), China GDP, and key global inflation data—all shaping expectations for growth and rate cuts into 2026.
ICYMI Global Themes: Geopolitics, AI infrastructure constraints, energy risks, and the quiet resilience of the UK consumer.
Bottom line: Markets are consolidating, not cracking. Selectivity, real assets, and emerging markets are becoming increasingly important as 2026 unfolds.
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What Moved Markets This Week
Markets paused after recent record highs, with U.S. equities ending the week modestly lower as investors digested inflation data, the start of earnings season, and sharp moves in commodities.
Softer core CPI offered some reassurance on inflation, but mixed signals from producer prices and cautious earnings reactions kept risk appetite in check. Away from equities, silver stole the spotlight with a powerful rally, while volatility ticked higher.
Key market drivers this week:
Inflation data sent mixed signals: Core CPI came in slightly below expectations, while PPI met forecasts—supporting the narrative of gradual disinflation but not enough to decisively shift rate expectations.
Earnings season kicked off cautiously: Results from major U.S. banks were met with a muted reaction, contributing to weakness in financials and broader index consolidation.
Silver surged over 11%: The metal benefited from softer inflation, falling real yields, geopolitical uncertainty, strong industrial demand, and tightening supply—outperforming both gold and equities.
Defensive sectors outperformed: Consumer staples, utilities, and real estate led gains, while financials and consumer discretionary lagged, reflecting a more cautious market tone.
Small caps bucked the trend: The Russell 2000 gained 2%, suggesting selective risk-taking beneath the surface despite headline index weakness.
Volatility picked up: The VIX jumped nearly 10%, signalling growing short-term uncertainty after weeks of calm markets.
Global markets diverged: Japan extended its rally, the UK posted gains, while France slipped and China edged lower.
What This Means for Investors
Markets are consolidating, not breaking down: Pullbacks near record highs suggest digestion rather than a shift to risk-off, but upside may be more selective.
Inflation progress supports cuts—eventually: Softer CPI keeps the Fed easing narrative alive, though mixed data means timing remains uncertain.
Leadership is rotating: Strength in defensives and small caps points to a market searching for balance rather than chasing last year’s winners.
Real assets are back in focus: Silver’s surge highlights renewed interest in inflation hedges and assets linked to industrial demand.
Actionable Takeaways
Use consolidation to rebalance: Consider trimming crowded growth positions and reallocating toward under-owned defensives or quality cyclicals.
Maintain exposure to precious metals: Silver and gold continue to offer diversification benefits amid rate uncertainty and geopolitical risk.
Stay selective during earnings season: Focus on companies with pricing power and resilient margins, as results are likely to drive sharper stock-specific moves.
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Emerging Markets: Momentum Builds
Emerging Markets continue to assert themselves as one of the most compelling parts of global portfolios as we move through January. What began as a late-2025 rebound is now turning into a broader allocation shift, with investors rotating away from crowded US trades and toward EM on the back of a softer dollar, expectations of further Fed easing, and resilient global growth.
Flows are starting to confirm the story. EM equities have pushed the MSCI EM index back toward the mid-1,460s, while dedicated EM equity funds saw some of their strongest inflows in months. This follows a standout 2025, where EM stocks delivered returns north of 30% in USD terms, outperforming US equities for the first time in years—driven largely by Asia’s tech and AI exposure.
The structural case remains intact. Valuations are still attractive relative to developed markets, balance sheets are healthier, and earnings growth is accelerating. South Asia continues to lead on growth, while analysts remain constructive on China (early private-sector green shoots), Korea (governance reform and AI tailwinds), and parts of Latin America where monetary stimulus is gaining traction. Many now see the early stages of a multi-year EM upcycle rather than a short-term trade.
What to watch this week
The IMF’s World Economic Outlook update: EM growth is expected to remain above 4%, reinforcing the widening gap versus developed markets.
US dollar and Fed headlines: further USD weakness would be a clear tailwind for EM assets.
Fund flows and index levels: sustained inflows will matter more than short-term price moves.
Commodities and regional drivers, particularly China, Korea, and India, which are doing much of the heavy lifting.
Bottom line: The setup for Emerging Markets remains constructive as we head deeper into 2026. Selectivity still matters, but for investors underweight EM, this rotation looks increasingly durable rather than fleeting.
Dalio: “Stocks Only Look Strong in Dollar Terms.” Here’s a Globally Priced Alternative for Diversification.
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Looking Forward: What We Anticipate Next Week
Key Events This Week
It is a holiday-shortened week for markets, with US equities closed on Monday for Martin Luther King, Jr. Day. Despite fewer trading days, investors face a busy agenda featuring the World Economic Forum in Davos, a growing slate of corporate earnings, and several important global data releases.
The Davos summit begins amid elevated geopolitical tension, with President Trump expected to appear as relations with EU leaders remain strained over Greenland.
A strong lineup of corporate leaders is scheduled to speak, including Nvidia CEO Jensen Huang, Microsoft CEO Satya Nadella, Salesforce CEO Marc Benioff, PepsiCo CEO Ramon Laguarta, JPMorgan Chase CEO Jamie Dimon, and Goldman Sachs CEO David Solomon.
Any policy signals or shifts in geopolitical tone could influence sentiment.
Earnings season continues to ramp up, with results due from Netflix, Johnson & Johnson, Intel, and Procter & Gamble.
On the economic front, delayed US income and spending data for November and December will offer fresh insight into the health of the American consumer heading into the new year.
China’s fourth-quarter GDP release on Monday sets the tone for the week. Growth is expected to ease to 4.6% from 4.8%, and the data will be closely watched as a proxy for global demand.
A weaker outcome could pressure commodities and export-heavy markets, while a resilient reading may support risk appetite across Asia and beyond.
Tuesday: Canada releases its December inflation data, with CPI forecast at 2.1% year-on-year. Inflation hovering near target would reinforce the view that the Bank of Canada has room to cut rates later this year.
The earnings calendar also picks up pace, with Netflix, 3M, and United Airlines reporting.
Wednesday: shifts the focus to the UK, where December inflation is expected to slow slightly to 3.1%. While still well above target, any further easing would reduce pressure on the Bank of England. A sticky reading, however, would keep rate cuts on hold and weigh on growth expectations.
Earnings continue with Johnson & Johnson, Kinder Morgan, and Halliburton.
Thursday: is dominated by corporate results, with Intel, GE Aerospace, and Procter & Gamble reporting. These updates will be closely examined for signs of demand resilience, margin pressures, and guidance into 2026.
The week concludes on Friday with the final estimate of US third-quarter GDP growth, expected at a robust 4.3%. While backward-looking, the figure will help confirm how much momentum the US economy carried into year-end and whether growth is cooling fast enough to support Fed rate cuts in 2026.
What to Watch Most Closely
Investors should focus on three key themes this week. First, messages from Davos, where geopolitical developments and commentary from global business leaders could influence risk sentiment.
Second, earnings from Netflix, Intel, and Procter & Gamble, which will offer insight into consumer demand, technology spending, and corporate pricing power.
Finally, inflation and growth data from China, Canada, the UK, and the US will shape expectations around the pace and timing of global rate cuts as markets look further into 2026.
ICYMI
In Case You Missed It: Global Themes Shaping Markets
As we move deeper into January, markets are being driven by more than just the AI narrative. Beneath the surface, a series of geopolitical and policy developments are quietly reshaping global risk sentiment and regional asset performance.
What else is happening
Middle East: “Board of Peace” proposal - Link
A new US-backed technocratic framework for Gaza governance has outlined its initial mission. While being positioned as a bold attempt at regional stabilisation, investor reaction remains cautious, with credibility and implementation the key unknowns.
Syria: Strategic escalation - Link
Syrian forces have taken control of the Tabqa Dam—the country’s largest—during a rapid advance toward Raqqa. The move has put regional security forces on alert and adds a fresh layer of uncertainty to Middle Eastern energy and security dynamics.
India: Flows, not fundamentals - Link
Indian equities have stumbled early in 2026, with foreign investors selling more than $1.7bn of shares this month. The pressure appears driven by global risk aversion rather than a deterioration in India’s long-term growth story.
Themes investors should be tracking
AI infrastructure constraints
The trade is shifting from software hype to physical bottlenecks—data centres, power, cooling, and water. If AI fails to deliver measurable productivity gains this year, the current capex cycle could lose momentum.
Russian oil tariffs risk
US lawmakers are debating aggressive tariffs on countries importing Russian oil. A move like this would push global energy prices higher and disproportionately impact emerging markets, particularly energy importers.
“Vibe coding” goes mainstream
AI-driven development tools are becoming standard across enterprises. With most new applications expected to be built on low-code platforms by 2026, software costs are falling—reshaping margins across tech-heavy portfolios.
UK consumer resilience
The rise of “affordable luxury” continues, with Games Workshop emerging as a standout FTSE 100 success. The message is clear: experience- and hobby-driven spending remains resilient even as traditional retail struggles.
Bottom line
Markets are entering a phase of divergence. While the US and Europe edge closer to the end of their easing cycles, China is preparing further reserve requirement cuts to support demand. The AI debate is also evolving—away from headline-grabbing models and toward “agentic AI,” where autonomous systems generate real productivity and revenue.
This shift in policy and technology leadership is likely to define market leadership through 2026.
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