Weekly Market Outlook | 12 – 16 January 2026

Last week opened with a geopolitical shock, and the coming week appears set to follow a similar trajectory. Political unrest in Iran has affected another major oil producer that is operationally more significant than Venezuela. Despite this, crude and Brent oil prices have continued to trade near historically depressed levels, broadly consistent with the lower ranges observed over the past two decades. Toward the end of the week, however, oil markets showed signs of stabilisation, with WTI rebounding to 59.13, marking a meaningful recovery from recent lows.

Precious metals remain close to their recent highs and continue to exhibit elevated volatility. Silver in particular recorded an unusually wide weekly trading range of nearly nine dollars, closing at 79.91. This price behaviour reflects a combination of hedging demand, speculative positioning, and sensitivity to shifting inflation expectations.

Equity markets showed renewed strength, particularly in Europe, where indices pushed to new highs. The primary driver was continued disinflation, with German inflation converging toward the two percent target. This development outweighed the seasonal improvement in factory orders. At the same time, China surprised to the upside with a stronger manufacturing PMI reading, reinforcing the narrative of tentative global growth stabilisation.

Key Points to Watch

• US CPI data on Tuesday will be closely monitored, with core inflation expected to rise to 2.7 percent, shaping expectations around the pace and timing of Federal Reserve policy easing in 2026.
• The start of earnings season, led by major US financial institutions, will test elevated expectations following recent outperformance of the banking sector.
• Retail sales data in the United States will provide insight into actual household spending behaviour and the sustainability of domestic demand.
• Chinese macro data, including trade balance, retail sales, and GDP, will be critical in assessing the durability of the recent recovery signals.
• Foreign exchange markets remain sensitive to shifts in dollar momentum, particularly against the euro, sterling, and yen, as policy divergence remains a dominant theme.
• European equities continue to benefit from currency weakness and strong momentum, but elevated issuance of government debt may become a secondary factor to monitor.

CPI Focus and Earnings Season Begins

The earnings season begins with major US financial institutions reporting results, following a period of relative outperformance by the financial sector compared with technology stocks. Expectations are therefore elevated, increasing sensitivity to guidance and margin commentary.

Beyond labour market developments, services sector activity continues to show resilience according to PMI data. Factory orders, however, surprised to the downside, diverging from trends seen in other major economies. The most notable release was the trade balance, which recorded its smallest deficit in the past decade. This development reflects the impact of tariff policies and has contributed to renewed strength in the US dollar.

In the week ahead, markets will focus on CPI inflation data and retail sales. These releases will play a key role in shaping near term expectations around monetary policy and growth momentum.

China Data in Focus as Recovery Signals Build

China will be the focal point in Asia, with trade balance data due on Wednesday, retail sales on Thursday, and GDP figures on Friday. These releases follow a third consecutive increase in inflation, suggesting firmer end consumer demand.

The improving macro backdrop is also reflected in USD CNH trading firmly below the seven level. Recent policy management has aimed to balance export competitiveness with currency stability, and last week’s stronger manufacturing PMI aligns with this approach. The China 50 index is trading close to its highest levels since 2021.

In Japan, no major market moving data are scheduled. However, structural yen weakness remains a key theme, supporting equity markets. Nikkei futures reached new all time highs during Friday’s after hours session. From a relative value perspective, GBP JPY and EUR JPY continue to appear more attractive than USD JPY, which remains below its early 2025 highs.

Europe and UK : Currency Weakness Supports Equities

European equity indices and the FTSE 100 continue to push toward new highs. Although markets are broadly overbought, renewed strength in the US dollar and corresponding weakness in local currencies may continue to act as a tailwind for European equities relative to US peers.

In the UK, the upcoming focus will be on labour market data, followed by GDP, industrial production, and manufacturing output. Expectations point to stagnation at best, with flat GDP and negative growth anticipated for the latter two indicators.

While the euro area lacks clear near term catalysts, equity performance will be closely monitored following a strong multi week rally. European governments continue to take advantage of favourable market conditions to issue large amounts of debt. Although fixed income markets have so far absorbed this supply without disruption, the dynamic remains relevant for equity performance in the weeks ahead.

Conclusion

Markets enter the 12 to 16 January period with improving liquidity, renewed risk engagement, and heightened sensitivity to macroeconomic data. While no major central bank meetings are scheduled, inflation data, earnings results, and global growth indicators will play a decisive role in shaping expectations for 2026.

In an environment characterised by policy divergence, geopolitical uncertainty, and shifting FX momentum, disciplined positioning and active risk management remain essential as markets seek direction early in the year.