Global markets began 2026 on a positive trajectory, although geopolitical tensions and uneven economic data contributed to volatility.
Central banks signalled caution, with the ECB and Fed showing little urgency to cut rates despite stabilising inflation.
Technology and commodities remained major return drivers across Asia Pacific and emerging markets, while corporate bond spreads tightened globally.
Investment teams across Europe, the UK, Fixed Income, Asia, Emerging Markets and the US reported a constructive start to 2026, with equities broadly higher despite political tensions and mixed macroeconomic signals. Oil and precious‑metal prices surged amid geopolitical risks, while technology remained a core driver of returns across Asia. Eurozone GDP exceeded expectations and inflation stabilised, helping underpin European markets. UK data surprised positively on growth, while inflation came in higher than expected. US markets gained despite geopolitical headwinds and questions surrounding the Federal Reserve’s independence. Fixed income markets responded well to signs of easing inflation in the eurozone, while corporate bonds enjoyed tightening spreads and positive performance.
European equities rose, though gains came with significant volatility linked to geopolitical tensions involving Venezuela, Iran and Greenland. Oil recorded its strongest monthly jump in four years, and gold saw its largest rise since 1999. Eurozone GDP grew by 0.3% in Q4, with Spain leading despite uneven momentum across member states. Full‑year 2025 growth came in at 1.5%, above expectations. Inflation remained broadly stable, with Germany seeing softer services inflation and Spain recording a notable decline. French bonds strengthened late in the month, though long‑term fiscal concerns persisted following the government’s use of special measures to pass the 2026 budget.
UK equities closed higher, with the FTSE 100 surpassing 10,000. Inflation rose to 3.4% in December, slightly above forecasts, while core inflation remained unchanged. Economic growth exceeded expectations, rising 0.3% in November after the previous month’s contraction. Wage growth continued to cool, unemployment held at 5.1%, and consumer confidence improved modestly. Retail sales increased, driven by heightened demand for precious‑metal jewellery.
US Treasuries were stable as the Fed kept rates on hold, though dissenting governors favoured a cut. The nomination of Kevin Walsh as incoming Fed Chair led to a pullback in gold prices, a stronger dollar and higher long‑term yields. Eurozone government bonds rallied on expectations of further ECB cuts, supported by stronger sentiment data and 2% inflation. UK gilts underperformed amid political uncertainty. Corporate bonds had a strong month, with spreads tightening across investment‑grade and high‑yield markets, and sterling high yield outperforming global peers.
Asia Pacific equities delivered strong gains, driven by Korea and Taiwan as AI‑related semiconductor demand continued to accelerate. China advanced despite mixed domestic data, supported by resilient exports and expectations of policy easing. India lagged due to weak earnings and currency pressure, while Indonesia saw sharp declines after MSCI raised concerns about market standards. Japan rose amid improved political stability, and Australia benefited from soaring metals prices despite rising interest‑rate expectations.
Emerging market equities performed well overall, supported by strong technology stocks in China, Korea and Taiwan. Latin America advanced, buoyed by higher metals prices and solid foreign inflows into Brazil. Indonesia was the standout laggard, falling sharply after MSCI raised potential reclassification concerns. Middle East and African markets strengthened on solid domestic demand and commodity support, while Eastern Europe gained amid easing inflation and stable economic conditions.
US equities ended the month higher but lagged global peers amid geopolitical tensions surrounding Greenland and concerns about the Federal Reserve’s independence. Inflation remained steady at 2.7%, and the Fed held rates unchanged. Labour market data was mixed, with job creation below expectations but unemployment unexpectedly falling to 4.4%. Consumer confidence fell sharply to a 12‑year low despite resilient consumer spending.
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