Global Markets entered 2026 in a more balanced position than the previous year. Inflation has moderated, policy rates have retreated from their peaks in most major economies, and corporate earnings continue to show resilience. However, January was characterized by heightened uncertainty, driven by geopolitical tensions in South America and the Middle East, political noise around US policy and the Fed Reserve Independence as well as a notable flight toward hard assets. Equities showed bouts of resilience but lacked a clear upward trend, while bonds and currencies remained volatile amid rate-pause dynamics.
U.S.
US growth remains solid but slower, with unemployment around 4.4% and annual CPI easing to about 2.7% year on year in December 2025, down from 2.9% a year earlier. The Federal Reserve held interest rates steady at 3.50%–3.75% at its January 28th meeting after a series of 2025 cuts, signaling a cautious pause as inflation is “somewhat elevated” and the outlook remains uncertain. With inflation pressures still high U.S. remains in a higher-for-longer rate environment.
U.S. equity performance was mixed; after flirting with record levels, markets reacted to political risk, including tariff threats and corporate earnings divergence. Defensive sectors and commodities outperformed, while tech and financials showed volatility. The Earnings season continues to show healthy profit growth, led by technology, AI infrastructure, industrials and selected consumer names, with many S&P 500 companies guiding for solid 2026 revenue and margin trends.
US equities, while no longer cheap, are being supported by strong balance sheets and robust buyback activity. Treasuries saw modestly higher yields, with the 10-year climbing toward the mid-4 % range as markets digested the Fed pause and sticky inflation narrative.
Eurozone
In the Euro area, modest growth showed pockets of resilience but not enough strength to lift inflation. Inflation has fallen sharply from its peaks and is now slightly below the European Central Bank’s 2% target, giving policymakers room to keep rates steady and consider further measured reductions if the disinflation trend is sustained.
The ECB left policy rates unchanged at its December meeting and is widely seen as having ended its cutting cycle barring new shocks, with no move expected at its early February meeting.
Equity indices in Europe experienced modest gains, with defensive and energy names outperforming amid geopolitical risk and commodity strength. The euro has been range bound but remains sensitive to US euro rate differentials and trade policy risk.
India and the European Union have finalised a landmark trade deal on January 27th after nearly two decades of negotiations, paving the way for free trade between India and its largest trading partner and creating major opportunities for both regions. The deal is expected to eliminate up to €4bn of tariffs on EU exports.
UK
The UK’s FTSE 100 index welcomed the New year with a significant stock market milestone hitting the 10,000-point marker for the first time since its inception in 1984. Shares in British brands such as Currys and Marks and Spencer rose steeply this month alongside gains for precious metal miners, defense and financial services companies.
A big rise is good news for anyone invested in the stock market but is not a direct measure of the UK economy’s performance. The UK economy is growing only marginally, with Q3 2025 just above zero and inflation still above the 2% target but on a gradual downward trajectory.
The Bank of England cut its Bank Rate by 25 bps to 3.75% in December and is expected to deliver another cut to about 3.5% by March, and then pause as it waits for clearer evidence of underlying disinflation.
Britain and China celebrated a “reset” in relations on Thursday, after Prime Minister Keir Starmer and President Xi Jinping pledged greater economic cooperation.
China
The Chinese economy grew by 5% in 2025, meeting the government’s target. Growth was supported by strong exports, as companies diversified shipments to Europe and Latin America to offset weak domestic consumption and US tariffs.
China’s GDP expanded 4.5% year-on-year in Q4 2025, while industrial production grew 5.2% in December and PMIs remained in mild expansionary territory though underlying structural challenges including property and credit concerns persist. Goldman Sachs Research forecasts 4.8% growth in 2026, above market consensus, supported by additional monetary and fiscal easing and a record trade surplus.
China’s equity markets witnessed modest gains with a level of volatility supported by expectations of fresh policy support and advances in artificial intelligence and related technologies. However, mainland stocks came under pressure toward the end of the month amid a rising regulatory crackdown on speculative trading.
Asian tech indices outperformed in January, driven by earnings surprises and AI spending optimism, even as currency and yield volatility added complexity.
Japan
Japan continues to stand out as a developed market that is normalising policy into a more conventional framework. Japan’s central bank began a steady hiking path last year, signaling confidence that the economy can sustain modest growth and inflation around target without heavy-handed intervention. Japanese equity market performance was mixed with caution prevailing ahead of lower house snap election scheduled for 08 February.
Japan’s overall inflation rate dropped significantly in December to 2.1%, the lowest since March 2022. Core inflation was 2.4% year-on-year, matching analysts’ expectations. The BOJ kept its main interest rate at 0.75% ahead of upcoming elections. Prime Minister Sanae Takaichi, who supports easier monetary policy and government spending, will be seeking voter support for the first time.
Gold, silver, copper, and other metals all fell sharply as investors locked in profits after a strong rally to record highs.
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Disclaimer
This market review is issued by GSB Capital Ltd, licensed by the Dubai Financial Services Authority (DFSA) under licence no. F006321. This content is for information purposes only and does not constitute investment advice or a recommendation. Market views and forecasts are subject to change. Past performance is not a reliable indicator of future results. The value of investments can fall as well as rise and investors may not recover the full amount invested.
Sources: Public data and commentary from the Federal Reserve, European Central Bank, Bank of England, Bank of Japan, the S&P 500 and FTSE 100, and research from Goldman Sachs.