This week is arguably the most important of the quarter, with markets focused on earnings from the “Magnificent Seven” and the FOMC rate decision on Wednesday. Chair Powell is expected to strike a more cautious, data-dependent tone for the first half of 2026, particularly in light of recent geopolitical volatility.
On the data front, Germany’s IFO business climate, US durable goods orders and the Dallas Fed manufacturing survey are due today. China’s industrial profits are released on Tuesday, and later we have the US Conference Board consumer confidence and the Richmond Fed manufacturing index. Wednesday brings the FOMC decision, where a hold is widely expected, placing heightened emphasis on Powell’s press conference. On Thursday, eurozone consumer confidence, US initial jobless claims and trade data will be in focus, as will earnings from Apple and Deutsche Bank. Friday rounds out the week with Eurozone unemployment, ECB inflation expectations, a broad slate of global GDP prints, and the US PPI release. We will also hear from the Fed’s Musalem on the outlook for the US economy and policy.
Last week proved volatile, dominated by heightened geopolitical risk and a sharp “flight to safety” that pushed gold to fresh all-time highs. Early in the week, a rare triple sell-off across the US dollar, US equities and Treasuries was triggered by news of a snap election in Japan and amplified by geopolitical headlines surrounding Greenland-related tariff threats. Market conditions stabilised toward the end of the week as tensions eased. The 10-year US Treasury yield briefly spiked above 4.30% on Tuesday before ending the week broadly unchanged at 4.23%. The S&P 500 pulled back from record highs before rebounding on news of a framework agreement between the US and NATO to defuse the Greenland dispute, closing the week 0.49% lower. The dollar weakened sharply, with the DXY index down 1.8%, while Brent crude rose 2.7% to $65.88 per barrel.
In terms of data, the third and final estimate of US Q3 2025 GDP was revised slightly higher to 4.4%, the strongest quarterly expansion in two years, driven by exports and business investment. Personal consumption growth was unchanged at 3.5%, while underlying price pressures remained firm. The GDP Price Index held at 3.8%, and the Fed’s preferred inflation measure, core PCE, edged up to 2.8%yoy in November from 2.7%. Labour market data points were mixed, with initial jobless claims ticking higher while continuing claims fell unexpectedly.
Elsewhere, last week’s Davos discussions signalled a broader shift towards pragmatism, potentially easing ideological tensions and supporting improved China-Europe relations. Despite ongoing global trade headwinds, China’s export outlook for 2026 remains relatively resilient, underpinned by deep integration with ASEAN, where it has become a dominant upstream supplier of industrial equipment and machinery. While China achieved its 5% growth target in 2025, the economy continues to face a divergence between robust external demand and a cooling domestic backdrop characterised by weak investment and persistent disinflation. As a result, a modest acceleration is expected in early 2026, though full-year growth is likely to soften as balance-sheet adjustment pressures persist.
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