9 min readRecap of recent weeks:
Global equity markets ended the holiday-shortened weeks with the Nikkei 225, Nifty 50, Stoxx 600, S&P 500, and the Dow Jones closing at record highs, supported by light news flow, thin holiday volume, and continued optimism around AI.
On the data front, US GDP growth accelerated to 4.3% annualised in Q3, marking a 2-year high and significantly beating expectations. However, durable goods orders turned negative as consumer confidence cooled amid concerns about the employment outlook and business conditions. The USD recorded its weakest week since June, dropping to its lowest level since early October around Christmas, before recovering as January began.
Gold and Silver extended impressive rallies throughout 2025, reaching record highs of $4548 and $84, respectively, in low volumes around Christmas, before falling sharply at the start of last week. However, geopolitical tensions could spur safe-haven demand in the week ahead.
US-Venezuela and geopolitical risks
Markets are so far shrugging off the US audacious capture of the Venezuelan President Nicolas Maduro. Still, the markets may underestimate these risks as Trump threatens further action in the Americas. Stocks in Asia are surging, and Europe has opened higher on Monday. Oil prices are lower, although safe-haven gold and Silver are rising after Trump said the US would take control of Venezuela and threatened Colombia and Mexico, marking an aggressive shift in US policy, which brings geopolitical risks back to the market at the start of 2026.
If stability in Latin America comes into question, it could hurt risk sentiment. Any involvement by Iran, Russia, or China in the situation in Venezuela could also be a clear negative. However, if Venezuela’s oil returns to the broader market, it could benefit the global economy in the long term.
Federal Reserve Chair Nominee
At the end of last year, President Trump hinted that he would nominate the successor to Federal Reserve Chair Jerome Powell in early 2026. CNBC reported that this could take place in the first week of January. The original list of 12 nominees has been narrowed, with White House economic advisor Hassett positioned as the favourite to replace Powell for much of the contest.
However, in the final stages, there are reports of insiders recommending against Hassett. Other favourites include Governor Warsh, Governor Waller, or BlackRock’s Rick Rieder. Powell’s term expires in May this year. Trump has often criticised Powell for cutting rates too slowly. The next Fed Chair is expected to be more aligned with Trump’s dovish stance, which could support stocks and keep pressure on the USD and pull USD/JPY lower.
OPEC+ meeting (Sunday)
OPEC+ met on Sunday and left output unchanged after a quick meeting. This reaffirmed its pause in production increases in Q1, reflecting concerns about a supply glut this year as oil prices slipped sharply throughout 2025. Oil prices fell 18% in 2025. OPEC+ producers are showing few signs of desire to resume oil production increases at this stage.
Oil prices have fallen 1% at the start of the week. However, this is due to markets weighing the prospect of additional Venezuelan oil entering the market, rather than a reaction to the OPEC+ meeting.
ISM manufacturing PMI (Monday)
Expectations are for US ISM manufacturing to remain in contraction at 48.3, up modestly from 48.2, but still below the 50 level that separates expansion from contraction. The S&P Global manufacturing PMI also showed that a softer trend persisted in US manufacturing activity in December, with a weaker gain in production and renewed contraction in order books. International sales continued to decline, partly due to tariffs, which have increased operating expenses.
That said, input and output costs rose at the slowest pace in 11 months. The market will be watching to see if these trends are confirmed in the ISM manufacturing data. Stronger-than-forecast data could help boost stocks such as the Dow Jones.
ISM services PMI (Wednesday)
This is a closely watched gauge given the service sector’s importance to the US economy. Using the S&P Global services PMI as a point of comparison, service sector activity expanded in December but at a slower pace. The index fell to a 20-month low amid weakening demand across the service sector and employment growth as good as stalled as firms became more cautious.
Any sense that the industry is weakening could hurt confidence, although the prospect of further rate cuts would be a positive for the sector. Expectations are for the services PMI to ease to 52.3 in December from 52.6. A stronger-than-forecast services PMI reading could boost stocks and the USD.
Eurozone CPI (Wednesday)
Expectations are for headline inflation to cool 0.1% to 2% YoY, in line with the ECB’s target level, while core CPI is expected to remain unchanged at 2.4% YoY. Lower fuel prices are expected to continue driving disinflation. Service sector inflation will be closely monitored by the ECB, given stronger wage growth. The ECB has kept interest rates unchanged across the past four meetings, noting that policy is in a good place. Cooler-than-expected inflation could pull EUR/USD modestly lower; however, given the limited impact on monetary policy, any move is likely to be moderate.
Chinese CPI (Friday)
Expectations are for CPI to rise to 0.8% YoY in December, up from 0.7%, while PPI is expected to rise to -1.5% YoY in December, up from -2.2% YoY, a 22-month low. In November, CPI rose to 0.7% as, a 21-month high, driven mainly by food prices. However, the PPI declined to 2.2%, reflecting persistent deflationary pressures amid weak demand and slack factory activity. Rebounding inflation could help ease deflation fears.
China has been suffering from deflation since the end of the pandemic. Stronger than forecast inflation could help boost socks and AUD/USD – the Aussie is considered a proxy for China.
Canada jobs data (Friday)
The market and the BoC will be watching the December jobs figures closely to see whether the strength in recent months, particularly November, continues. In November, the unemployment rate fell to 6.5%, marking a third straight month of solid growth. The minutes of the BoC meeting also noted an improvement in the labour market following job losses over the summer.
Recent strong labour market reports have led the market to price in rate hikes from the BoC. There are 20 basis points of hikes priced in before the end of the year, implying a 76% chance of 25 bps hikes by the end of 2026. Strong data could lift the likelihood of a hike and boost CAD, pulling USD/CAD lower.
US non-farm payroll (Friday)
Expectations are for 57k jobs to have been added in December, down slightly from 64k in November. The unemployment rate is set to tick lower to 4.5% from 4.6%. The data marks a return to usual reporting after the November report also included October’s numbers, which showed payrolls declined by 105k as the government shutdown reduced federal worker payrolls. The shutdown is expected now to have a limited impact on December’s numbers. The data will likely set expectations for Fed policy at the January FOMC meeting, following softer-than-expected CPI data but stronger growth.
The jobs market has been a point of concern among policymakers, who continue to weigh the risk of sticky inflation against a cooling labor market. The Fed cut rates at its final meeting last year, and while policymakers remain open to further cuts, any such moves would be contingent on clear disinflation. A weak US NFP report could fuel hopes for a rate cut and boost stocks, including the Nasdaq. However, a markedly weaker report could raise concerns about the economy’s outlook and weigh on stocks such as the S&P 500.
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