Markets Hold Near Highs Amid Rotation

For the week ending 16 January 2026

As of midday Friday, global equities traded close to record highs amid a continued rotation, particularly in the US, from large stocks to smaller ones and from growth to value. The yield on the US 10-year Treasury note remained rangebound at 4.19%, while the price of a barrel of West Texas Intermediate crude oil rose $1.25 to $60.05 from last Friday. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 18.15 from 16.45 a week ago. 

MACRO NEWS

Furor around Powell dies down

Aside from precious metals, markets traded remarkably calmly this week despite the bombshell news Sunday evening that Fed Chair Jerome Powell was under investigation by the US Department of Justice regarding his Congressional testimony on cost overruns related to the renovation of the Federal Reserve’s headquarters in Washington, DC. Powell, after nearly a year of assiduously avoiding tangling with the White House, went on the offensive, calling the investigation a pretext as part of President Donald Trump’s continued campaign to pressure the Fed to lower interest rates — and to end the independence of the central bank. Helping calm the waters, Senator Thom Tillis, a Republican member of the Senate Banking Committee, issued a statement on Sunday that he would oppose the nomination of any Trump appointments to the Fed as long as the DOJ continues its investigation against Powell. Several Republican senators echoed Tillis’ remarks, suggesting the confirmation path for any Fed appointees will likely be impossible so long as the legal threat hangs over Powell. The embattled Fed chair also received widespread backing from central bankers around the world, as well as some of the CEOs of the largest banks in the US. JPMorgan CEO Jamie Dimon said this week that “anything that chips away at [Fed] independence is not a good idea.” On Wednesday evening, Trump said he has no plans to fire Powell and that it is “too early” to say what he will ultimately do. Powell’s term as Fed chair expires in mid-May, though his term as a governor extends until 2028. On Friday morning, Powell’s potential replacement, Kevin Hassett, said he hopes nothing comes of the investigation while pledging to uphold Fed independence if he becomes chair.

Trump softens Iran threats

With widespread protests taking place across Iran in recent weeks, President Trump said early this week that he was considering conducting military operations in Iran, warning that the Islamic republic was starting to cross his red line amid an intensifying crackdown on nationwide protests. He told Iranian protesters that “help is on the way” and began withdrawing some US troops from certain bases in the Middle East. By late Wednesday, though, the president had softened his tone, saying he had been assured that Iran would stop killing protesters and had halted executions. NBC News reported Wednesday night that the president was in favor of undertaking military strikes in Iran only if they would deliver a swift and decisive blow to the regime and not spark a sustained war. According to the report, aides were unable to guarantee such an outcome. Trump has not taken military action off the table but indicated he will wait and see if the crackdown in Iran eases. Oil prices fell and equities rose on Thursday as fears about an imminent US attack receded.

US, Denmark, Greenland to set up working group

After a visit to the White House for talks with Vice President JD Vance and Secretary of State Marco Rubio over the fate of Greenland, Denmark has agreed to form a working group with the US on the matter. Danish foreign minister Lars Lokke Rasmussen characterized the meeting as “frank but also constructive” but added that plans that do not “respect the territorial integrity of the kingdom of Denmark and the right of self-determination of the people of Greenland” are “totally unacceptable.” Rasmussen said that even though they disagree with the US, Denmark agrees to explore whether it is doable to accommodate some of the US’s concerns regarding Arctic security while respecting the integrity of the Danish Kingdom and of Greenland. 

QUICK HITS

US CPI held steady at 2.7% in December, belying expectations that the methodological workarounds that pushed inflation lower in November would cause prices to rebound in December.

Foreign holdings of US Treasuries rose to a record $112.8 billion in November.

Amid high poll ratings, Japanese Prime Minister Sanae Takaichi reportedly plans to call a general election as soon as next month. Her popularity has been boosted by a continuing clash with China over statements Takaichi made regarding Taiwan.

The White House announced Thursday that a trade deal has been reached with Taiwan, lowering tariff rates on imports from Taiwan to 15% from 20%. Taiwan’s technology industry has committed to making at least $250 billion in direct investments to expand advanced semiconductor, energy and artificial intelligence operations in the US. In addition, Taiwan agreed to provide an additional $250 billion in credit guarantees for further investment in the American semiconductor supply chain.

Finance ministers from the Group of Seven nations, along with officials from other countries, met Monday in Washington to discuss a path forward to address vulnerabilities in critical minerals supply chains. Topics discussed at the meeting included minimum prices for critical raw materials, forming a trading club, and implementing recycling quotas, with officials aiming to make decisions in a time-frame of “weeks and months rather than years.”

US retail sales rose 0.6% in November; core sales rose 0.4%.

President Trump turned up the heat on the US’ North American trading partners this week ahead of the renegotiation of USMCA (United States-Mexico-Canada Agreement) later this year, saying it is “irrelevant” and brings no real advantages to the US. Trump argued that automakers should build cars in the US, not Canada or Mexico.

Amid lower mortgage rates, US existing homes sales rose 5.1% in December, the biggest gain since February 2024. Sales have risen four months in a row, the longest streak since 2020. The Mortgage Bankers Association reported that mortgage applications jumped 28.5% last week.

US industrial production rose 0.4% in December, while November production was revised up to 0.4% from 0.2%.

The Fed’s Beige Book showed that economic activity is expanding at a slight-to-moderate pace, an upgraded view relative to recent reports. Outlooks for future activity are mildly optimistic, the report showed. Prices grew at a moderate pace across majority of districts, while employment held steady.

President Trump said he had a “great conversation” with Venezuelan leader Delcy Rodriguez on Wednesday. “We discussed a lot of things, and I think we’re getting along very well with Venezuela,” Trump said.

On Thursday, China’s central bank rolled out targeted easing measures to bolster support for sectors deemed strategic by Beijing while maintaining a cautious policy stance.

The German economy expanded 0.2% in 2025, ending two years of contraction. Exports were negative for a third year in a row. Germany’s Bundesbank forecasts that GDP will expand 0.6% in 2026 thanks to a wave of defense and infrastructure spending.

According to Freddie Mac, the average rate on a 30-year mortgage in the US fell to 6.06% this week, the lowest level since September 2022.

Canada agreed to lift trade barriers on electric vehicles and China did the same for certain agricultural products after Canadian Prime Minister Mark Carney met Chinese President Xi Jinping in Beijing on Friday.

THE WEEK AHEAD

Monday: Japan industrial production; eurozone CPI; Canada CPI, US MLK Jr. holiday

Tuesday: UK unemployment

Wednesday: UK CPI; Trump speaks at Davos

Thursday: Japan trade balance; US Q3 GDP, PCE

Friday: Global preliminary manufacturing PMI; Japan CPI, Bank of Japan meeting; UK retail sales; Canada retail sales

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.