STARTING STRONG
Despite mixed economic data and unexpected policy announcements from the US administration, equity markets performed strongly on both sides of the Atlantic as investors took an optimistic view of economic momentum.
News broke over the weekend that the US Department of Justice has launched a criminal investigation into the chair of the Federal Reserve, markets may react negatively to this if they perceive it as a threat to Fed independence.
The economic calendar is light this week but there will be inflation data from the US and Germany. Other than that, US officials will meet with counterparts from Denmark and Greenland later in the week and earnings season kicks off with results from Wall St Banks.
The ILIM team have released our 2026 outlook - you can read it by clicking on the button below.
The first full trading week of 2026 got off to a strong start. European markets fared well as German, Spanish and French industrial production exceeded expectations. Retail sales growth across the region accelerated to 2.3% and inflation continued its descent with headline annual inflation reaching the 2% target in December. In the US, markets saw a notable rotation with small and mid-cap stocks outperforming the large cap names that have dominated recent years. Policy announcements from President Trump created significant sectoral volatility although aerospace and defence stocks rebounded later in the week.
Economic data from the US was mixed. The December non-farm payrolls report showed that employers added 50,000 jobs - well below estimates but not disastrous. Unemployment, on the other hand, fell to 4.4% with both metrics painting a picture of a jobs market that is fragile but not broken.
In initiating the investigation against Jay Powell, the Trump administration is alleging impropriety in his oversight of a $2.5bn renovation of the Fed's headquarters. Powell released a statement denying any wrongdoing and stating that the case is part of a series of threats made by the Whitehouse in an effort to undermine Fed independence. Powell is due to be replaced later this year so it is unclear how markets will react.
The S&P 500 closed up 1.57% for the week. The tech-heavy NASDAQ 100 rose 1.88% while, in Europe, the STOXX 600 added 2.27% through the week as investors looked through the noise to focus on the positives.
Bond yields dropped on both sides of the Atlantic last week, (bond yields fall as bond prices rise) The 10-year US Treasury yield fell 17bps to 4.171% as soft economic data was interpreted as supportive of further rate cuts. The German bund equivalent dropped slightly to 2.867% aided by softening inflation data.
- Mon 12th US - Conference Board Employment Index
- Tue 13th US - CPI Inflation data * EU - ECB rate Meeting * UK - Bank of England rate Meeting
- Wed 14th US - Producer Price Inflation (PPI) data
- Thu 15th Germany - 2025 GDP estimate * UK - 2025 GDP estimate
This is intended as a general review of investment market conditions. It does not constitute investment advice and has not been prepared based on the financial needs or objectives of any particular person.