Today’s market analysis on behalf of Michael Brown Senior Research Strategist at Pepperstone
DIGEST – After precious metals stole the show during the festive period, geopolitical events are in focus as the new year gets underway, amid developments in Venezuela. Besides that, PMIs, eurozone inflation, and the US jobs report highlight the week ahead.
WHERE WE STAND – Right then, the festive period is over, and back to the grindstone we go.
Besides us all eating and drinking far too much, from a market perspective, the Christmas and New Year period saw markets meandering for the most part, besides some notable strength in the precious metals complex which briefly pushed spot gold north of $4,500/oz, and spot silver above the $80/oz mark. We also saw the FTSE 100 briefly trade above 10,000 for the first time ever – which, despite Chancellor Reeves’s ramblings bears absolutely no reflection on the state of the US economy – while geopolitics has also come sharply back into focus, after the US’ weekend operation to capture Venezuelan President Maduro.
As for the ‘here & now’, the start of a new trading year simultaneously means absolutely nothing, and absolutely everything.
Nothing, as all the narratives from 2025 won’t magically change just because the calendar has rolled over – geopolitical tensions continue to simmer, trade risks persist, the US labour market remains stagnant, the UK fiscal doom loop continues, etc.
Everything, as participants across the board see their PnL reset to zero, come into the year flat, and must in relatively short order re-allocate their capital, positioning for whatever they see as the base case for the year ahead (consensus, for what it’s worth, is basically that 2026 will be a lot like 2025, albeit with less tariff risk). The weight of those flows, and of the expectation that participants should ‘do something’ as they return to their desks, shouldn’t be underestimated, and will probably make for a choppy first week or so of the year.
Speaking of the year ahead, I thought I’d throw out a few mantras that might serve participants well over the next twelve months.
‘Don’t fight the Fed/Treasury/President’ is a, perhaps, obvious one, but still rather apt. Fighting the Fed has always been a one-way ticket on the road to ruin, and given the increasingly blurred lines between monetary and fiscal policies these days, it seems appropriate to add Bessent and Trump to this mantra too, not least with November’s midterms looming large on the horizon.
‘Zoom out’ is another, albeit one that I harp on about rather often. It’s all too easy to get caught up in the noise of intraday price action, from which we can typically extract very little by way of ‘signal’. Zoom out on those charts, gain some perspective, re-examine the fundamental investment case underpinning the trade in question, and nine times out of ten that knee-jerk move you were just excited about morphs into a mere drop in the ocean.
‘The trend is your friend’, new highs in an asset aren’t bearish, and new lows are rarely bullish. Markets have increasingly become driven by momentum, and by narratives, in recent years, amplified by the increased proliferation of retail participation, and a desire to own what’s ‘hot’, driving a virtuous cycle. To butcher Newton’s first law, a body in motion will stay in motion, in the same direction, absent an external force. Absent that external force, trying to fight that momentum is folly.
‘Expect the unexpected’. Whatever base case we have for the year, it’s exceedingly unlikely that it will pan out to a tee. Similarly, whatever risks we’ve all identified for the year ahead (AI valuations, trade, geopolitics, etc.) are unlikely to be those which have the biggest negative impact. In fact, the biggest risk to markets is the one that nobody’s yet heard of, and hence nobody has discounted. Case in point, I re-read my 2020 outlook recently and the word ‘pandemic’ didn’t appear once, yet it’s all we spent the following twelve months (& more!) talking about.
Anyway, enough of the philosophy, given that you’re all here for some concrete(ish) market views.
At risk of disappointing, my overall biases are rather similar to those I possessed at the back end of last year.
On the whole, I retain my bullish equity view, with last year’s bull case rolling forwards into the new year, as the global economy remains resilient (with risks tilted towards a re-acceleration stateside); earnings growth stays robust; the monetary backdrop continues to loosen, along with the presence of a strong ‘Fed put’; the increasing emergence of a ‘Trump put’ as the Admin seek to backstop the economy into the midterm elections; a positive fiscal impulse as the effects of the ‘One Big Beautiful Bill Act’ are increasingly felt; and, last but not least, a calmer tone on trade continuing to prevail. From a geographic perspective, the US should outperform given the above, with Japan likely also benefitting from PM Takaichi’s proposed fiscal loosening; on a sectoral basis, meanwhile, industrials remain attractive as powering AI becomes an increasing focus, while resources are also likely to trade well given the increasing global scramble for key minerals and metals.
Meanwhile, in fixed income, my bias remains towards a steeper curve as the ‘run it hot’ approach seen over the last few years becomes ‘run it even hotter’. The Fed remain happy to tolerate an overshoot of the inflation target, with 2% clearly now a ‘floor’ not a ‘ceiling’, while the Trump Admin are seeking GDP growth of 4% annl. QoQ, if not faster. It’s tough to bet against anything other than a steeper curve in that environment, though it remains the speed of any sell-off at the long-end, as opposed to any particular yield level, that will determine whether such a steepening causes a more defensive tone to dominate cross-asset.
In the FX space, I go back to a theme that I’ve always gravitated towards – buying growth. While diverging monetary policy outlooks will drive things to an extent, most G10 central banks are likely to be, as near as makes no difference, back at a neutral policy rate by the end of the first quarter. This should leave activity data as playing a greater role in driving FX performance where, with the Fed, Treasury and President all pushing a ‘run it hotter’ approach, a return to the days of ‘US exceptionalism’ could be upon us.
Finally, turning to the commodities complex, it remains difficult to bet against further gains in precious metals, even if we did see a rather notable wobble in the space into the end of last year. Reserve demand should continue to underpin gold, while inflows from retail participants, and those seeking one of the few true hedges left will likely provide further tailwinds, with $5,000/oz distinctly possible by year-end. Other members of the complex should tag along with this upside, not least considering the industrial applications of silver, and the now-infinite extensions of deadlines to phase out internal combustion engines which should continue to underpin platinum and palladium.
LOOK AHEAD – A fair bit on the economic docket this week, as the first ‘proper’ trading week of the year gets underway.
Friday’s US jobs report highlights things, with the report likely to point to the labour market having continued to stagnate last month, albeit with unemployment seen pulling back slightly from the cycle high 4.6% printed in November. That said, there is likely to be little in the data to dissuade the FOMC from delivering further cuts, with the current pricing of just a 20% probability of a January cut appearing far too hawkish to my mind. Elsewhere, we receive a whole host of PMI surveys through the week, while we also get last month’s ‘flash’ eurozone inflation figures which, with core CPI set to have remained at 2.4% YoY, cement the idea that the ECB’s easing cycle is ‘done and dusted’.
Besides that, the central bank speaking slate is (mercifully!) rather light, with only the Fed’s Barkin and ECB Chief Economist Lane due to make remarks, while the corporate earnings calendar is also rather barren, ahead of the start of Q4 25 earnings season on Wall St next week.