We anticipate monitor and comment on market-moving global economic and geopolitical issues. No dark side brooding, no wanting the world to end, no political rants. Traders, investors, policymakers, or market observers can’t afford to ignore us. In one word, perspicacity.
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This commentary will necessarily be speculative. Trading this week will likely be dominated by the breakout of war with Iran. However, markets do not trade in the short-term on logic; they trade on positioning, leverage, and emotion, often in that order. That caveat matters more than usual following the reported killing of Iran’s supreme leader. If confirmed and the result is protracted war, the event introduces an immediate geopolitical risk premium into global markets just as risk appetite was already fraying.
The setup heading into the weekend was fragile. U.S. equities were internally deteriorating despite flat headline performance. The S&P 500 was down modestly on the week, the Nasdaq Composite is now negative year-to-date, and AI-related enthusiasm has shifted from euphoria to existential anxiety. Even Nvidia’s “beat and raise” quarter failed to stabilize sentiment. Meanwhile, private credit concerns broadened, hitting software-related equities and financials.
Underneath, bonds told a different story. The global bond market rallied; U.S. 10-year Treasury yields fell below 4% for the first time since November. Credit spreads widened slightly. That combination, falling sovereign yields and widening spreads, rarely signals optimism.
This year’s significant moves are striking. The S&P 500 ETF is up just 0.6% YTD, but the equal-weight S&P is up 7%. The Dow Transports are up 13% while the Nasdaq is down 2.5%. Energy (XLE +25%) and materials/staples (+15% range) are leadership; technology (XLK -4%) and financials (-6%) lag. The so-called Mag 7 are no longer magnificent—Microsoft down 19%, Amazon and Tesla down ~10%. Gold (+22% YTD) continues to outperform Bitcoin (-25%), a notable reversal in the “digital hedge” narrative. Traders and investors are ditching the digital hedge for “boomer rocks.”
Internationally, U.S. markets are lagging badly. Korea is up nearly 50% YTD, Taiwan +23%, Brazil and Mexico double digits, Canada +8%. Europe is grinding higher on earnings resilience.
Continued escalation with Iran risks oil volatility, further safe-haven flows into Treasuries and gold, and renewed stress in high-beta equity segments. That said, markets have repeatedly faded geopolitical spikes unless supply chains are materially disrupted. Watch the Straits of Hormuz and potential attacks on the U.S. power grid. Predicting the durability of any move is inherently uncertain.
10-year Treasury yield <4%; curve flattening with global bond rally
Credit spreads modestly wider
Gold +22% YTD; Bitcoin –25% YTD
Europe
STOXX Europe 600 modestly higher; new highs
Italy and UK outperformed; Germany mixed
Inflation trending below ECB target in parts of eurozone
Growth stabilizing near trend
Asia
South Korea: +~50% YTD; strongest global market
Taiwan: +~25% YTD; semiconductor-driven
Japan: equities higher; yen weakness and BoJ policy debate ongoing
China: modest gains; policy easing and property support measures underway
Emerging Markets / LatAm
Brazil & Mexico: double-digit YTD gains
Hungary: rate cut; election risk rising
Colombia: rising political volatility impacting FX and bonds
The Week Ahead: Geopolitics, Data, and a Fragile Tape
1. Geopolitics Comes First
Oil is the tell.
The market’s reaction to developments involving Iran will matter more than any single economic data point this week. If crude sustains a breakout above recent highs, that reinforces energy leadership and puts renewed pressure on consumer cyclicals.
A genuine risk to the Strait of Hormuz would not be a headline event — it would be a global growth event. That would force a material reassessment of inflation, supply chains, and policy trajectories.
2. U.S. Macro: A Dense Calendar
This week’s data flow is heavy:
ISM Manufacturing
ISM Services
ADP Employment
Nonfarm Payrolls (consensus expects moderation)
Retail Sales
The narrative hinges on whether the economy is cooling gently — or proving more resilient than the Fed would prefer.
3. Rates & The Fed: Easing Narrative Under Pressure
Markets are still cautious about near-term cuts:
March cut probability: ~5%
June pricing: ~57% for 25 bps
But the latest PPI print (0.8% MoM core) complicates the easing story. Sticky producer prices don’t support an aggressive pivot. The bond market is watching closely — and signaling restraint.
4. Technical Backdrop: No Cushion
The technical picture remains delicate:
S&P 500: hovering just above the 100-day SMA
Nasdaq: rejected at its 100-day SMA; near-term bias moderately bearish
VIX: elevated around ~21
This is not a market with strong downside shock absorbers.
5. Positioning Risk: Hidden Leverage
Under the surface:
AI dispersion remains wide
Private credit stress is building
Crypto volatility remains elevated
Leverage pockets exist — and they’re vulnerable. If geopolitical headlines persist, defensive sectors are likely to continue gaining relative strength.
Bottom Line
The global leadership rotation away from U.S. mega-cap tech is real.
Bonds are signaling caution. Gold is confirming it.
If Iran escalation remains contained, markets may attempt another volatility fade. But if energy supply risk rises, today’s “orderly rotation” could quickly morph into broader risk reduction.
The week ending February 6 was defined by rising internal stress beneath still-resilient headline equity levels, with sharp dispersion across asset classes and regions. U.S. equities experienced notable volatility, with the S&P 500 briefly touching record highs early in the week before selling pressure intensified midweek. A sharp Friday rebound, however, reversed much of the damage and caught short sellers off guard, restoring modest weekly stability .
Beneath the surface, market leadership continued to broaden away from mega-cap growth, as cyclicals and value-oriented sectors—particularly energy, industrials, materials, and staples—outperformed meaningfully. In contrast, the “Mag 7” (excluding Apple) posted significant losses, reinforcing a rotation away from concentrated AI-driven equity exposure. Credit markets also reflected rising stress, with widening spreads in lower-quality credits and notable deterioration in peripheral Europe, including Greece .
In commodities, gold strongly outperformed, finishing the week higher despite sharp early volatility, while silver lagged. This divergence underscored renewed demand for defensive, liquid hedges amid macro uncertainty. By contrast, Bitcoin underperformed sharply, ending the week down roughly 10% despite a dramatic $10,000 rebound on Friday, highlighting aggressive deleveraging across speculative risk assets.
Globally, leadership continued to shift outside the U.S., with select emerging markets such as Mexico posted outsized gains. Overall, the week reinforced a key theme: headline stability masking growing internal fragility, with positioning increasingly vulnerable to macro and policy surprises
Regional Performance Highlights
United States
S&P 500 endured deep midweek losses before a powerful Friday rebound
Market breadth continued to improve, favoring equal-weight and cyclicals
Homebuilders surged, benefiting from rate expectations
Energy, Industrials, Materials, and Staples were standout performers
Tech and software stocks lagged sharply, reflecting AI saturation concerns
Credit spreads widened in lower-tier credits, signaling rising risk aversion
Asia
South Korea stocks have emerged as a global leader, driven by AI-linked earnings momentum but was subject to some profit taking
Vietnam and Indonesia equities fell more than 4% on the week
Japan equities rose modestly, though yen weakness remained a key overhang
Europe
Core European equities were modestly higher
Peripheral stress increased, with Greek spreads widening
ECB tone leaned dovish as inflation dipped below target
Latin America
Mexico’s Bolsa surged nearly 5%, one of the strongest global performances
Broader regional equities supported by easing inflation trends
Commodities & Crypto
Gold outperformed decisively, reinforcing its defensive appeal
Silver declined despite broader metals volatility
Bitcoin fell ~10% on the week, even after a sharp $10k Friday bounce
Crypto weakness reflected forced deleveraging and speculative risk unwind
The Week Ahead
Productivity and AI-driven growth expectations move center stage as key macro drivers
U.S. markets face a rare data-heavy convergence: jobs, CPI, and retail sales
Markets remain vulnerable to spillover from crypto deleveraging
Expect continued sector dispersion, favoring defensives and cyclicals over speculative growth
Central bank messaging—especially from the Fed and ECB—will be critical in shaping risk sentiment
Wells Fargo published a pair of charts this week that appear to tell very different stories. On the one hand, higher tariffs are being promoted as a catalyst for job creation. On the other, job openings continue to slide meaningfully. It is increasingly difficult to reconcile those narratives. More plausibly, the growing drag on labor demand reflects the accelerating impact of AI, as productivity gains allow firms to do more with fewer workers.
Global markets ended the week with rising internal stress beneath still-resilient headline equity levels, setting up a fragile start to the new week. While U.S. equities held modest January gains, risk signals deteriorated meaningfully late in the week, culminating in a sharp weekend collapse in cryptocurrencies—a development likely to pressure risk assets at Monday’s open.
Beneath the surface, financial conditions remain extremely loose (see the NFCI in our Commodities Table), but cracks are emerging. The U.S. yield curve steepened sharply, with the 2s–10s spread widening to ~70 bps, signaling improving growth expectations but also greater sensitivity to inflation and policy risk. Equity leadership narrowed, small caps pulled back, and volatility rose into the month-end.
Globally, however, performance outside the U.S. was exceptional, led overwhelmingly by Asia. South Korea stood out as the best-performing equity market in the world, driven by massive capital inflows, AI-led earnings momentum, and its growing role as a global trading and technology hub. Taiwan and Brazil also posted outsized January gains, reinforcing the theme that global leadership is rotating away from the U.S. margin.
The most acute near-term risk comes from crypto markets, where Bitcoin fell nearly 10% over the weekend, confirming aggressive deleveraging at the far end of the risk spectrum. Historically, such moves tend to spill over into equities, particularly high-beta, small-cap, and speculative segments, raising the probability of a risk-off tone early in the week
Regional Market Performance Highlights
United States
S&P 500 briefly broke above 7,000 before retreating
Small caps lagged, with the Russell 2000 down ~2% on the week but still +5% in January
Yield curve steepened sharply (2s–10s +8 bps), now ~70 bps
Financial conditions remain extremely loose (See NFCI in Commodities Table), but increasingly vulnerable to market tightening shocks
Tech leadership fractured; volatility rose into month-end
Semiconductor ETF +12% in January
Asia (Clear Global Leader)
South Korea – Exceptional Outperformance
Up ~23% in January
Best-performing equity market globally over the past year (+99%)
Net foreign equity inflows of $96B since 2019, with $35B since 2025 alone
AI-driven rally led by:
Samsung Electronics (+186%)
SK Hynix (+287%)
Market capitalization surged to ~$3.1T, approaching Germany
Korea is increasingly viewed as a global AI and trading hub amid fading U.S. economic dominance
Taiwan
Equities up ~12% in January
Semiconductor strength remains a dominant tailwind
Benefiting from sustained global AI infrastructure demand
Japan
Equities softer on the week amid yen volatility and election uncertainty
FX dynamics remain critical for BoJ policy timing
Europe
STOXX Europe 600 modestly higher
Italy and UK outperformed; Germany lagged
ECB expected to hold rates with inflation near target
Growth stabilizing but still modest
Latin America
Brazil up ~13% in January
Central bank held rates but signaled possible calibration (cuts) ahead
LatAm equities supported by easing inflation and selective policy flexibility
Commodities & Crypto
Energy ETF +14% in January
Precious metals were highly volatile and hit hard late-week, but still up big in January
Crypto collapse is the dominant shock:
Bitcoin is down ~10% over the weekend
Represents forced deleveraging at the riskiest end of the spectrum
Historically precedes short-term pressure on equities and credit
Week Ahead: Risk Catalysts & Market Focus
Risk Markets Under Pressure at Monday Open
Crypto selloff likely to spill into equities
High-beta, small caps, and speculative tech are the most exposed
Defensive sectors are likely to outperform early
Key Macro Events
U.S. employment report (Friday)
ISM Manufacturing & Services
ECB, BoE, RBA, and Banxico policy decisions
Rates & FX
Yield curve steepening raises sensitivity to inflation surprises
USD volatility remains elevated amid geopolitical hedging and Fed transition
Central Bank Messaging
Fed: policy on hold, but easing optionality narrowing
EM Asia: easing bias persists despite market pricing for hikes
Japan: FX remains the key trigger for earlier BoJ action
Bottom line: Markets enter the new week with strong global performance contrasts but deteriorating risk signals. Asia—especially Korea—remains the standout structural winner, but the crypto-led deleveraging shock materially raises near-term downside risk. Expect higher volatility, sharper dispersion, and a defensive bias until risk appetite stabilizes.
This week’s global financial landscape was characterized by intense volatility and a continued and significant rotation across asset classes. A prominent trend is the marked shift toward small-cap stocks, as investors move away from the high-valuation mega-cap technology sector that dominated the previous year. This rotation has been underscored by the notable underperformance of technology stocks in January, with investors largely shying away from the sector amid concerns over AI-related valuations and higher interest rates. Conversely, the commodities market witnessed an extraordinary surge. Silver prices have skyrocketed, rising by over 44% this month alone, while gold has also shown strong gains. Energy markets were equally explosive, with natural gas prices spiking more than 70% this week, driven primarily by a severe cold spell.
In international markets, Asian equities—particularly in Korea—continued their impressive trajectory, with Korean markets up 18% in January following a massive rally in 2025. This occurs against the backdrop of a sharply declining U.S. dollar, with the DXY index dropping 1.80% over the week. While U.S. GDP growth was revised higher to 4.4%, persistent inflation and geopolitical tensions, specifically regarding trade threats, continue to weigh on market sentiment.
Summary
Risk Appetite and Credit Spreads: While credit spreads remain tight historically, the current week saw a shift in investor focus toward defensive commodities and rotational equity trades.
Asset Performance Divergence: A clear divergence has emerged between surging precious metals and natural gas versus a “hammered” U.S. dollar and Bitcoin.
Equity Rotation: Investors are increasingly moving away from mega-cap technology, testing support levels in indices like the Nasdaq 100 as they seek value in other sectors.
Regional Economic Insights
United States: The economy remains resilient with a revised Q3 GDP of 4.4% and an Atlanta Fed Q4 Nowcast of 5.4%. However, consumer sentiment, while improving monthly, remains 20% lower year-over-year due to high prices.
Europe: The Eurozone is facing renewed trade and geopolitical uncertainty, with the STOXX Europe 600 ending the week nearly 1% lower. Bulgaria notably adopted the euro currency on January 1st, despite internal political turmoil.
Asia:
Korea: Remains a standout performer, with gains reaching 18% for the month of January.
Japan: Markets are roiled by political uncertainty and proposals for temporary food tax cuts, leading to a spike in 10-year JGB yields to 2.26%, the highest since 1997.
China: Growth remains uneven, with the fourth quarter of 2025 seeing the slowest pace (4.5%) since the pandemic reopening.
Latin America: Brazil showed significant strength with markets up 8%, even as Colombia faces potential rate hikes due to a 23% minimum wage increase.
Inflation: CPI-PPI Divergence
PCE and Inflation Targets: The November core PCE price index rose 0.2% monthly and 2.8% annually, remaining consistently above the Fed’s 2% target.
Expectations: While one-year inflation expectations eased to 4.0%, long-run expectations ticked up to 3.3%, indicating that price pressures remain a long-term concern for the FOMC.
Valuations and the “Low Fuel Tank” Risk
Technology Sector Pressure: Software stocks are under particular pressure due to AI concerns and a broader rotation away from the mega-cap tech cohort.
Market Volatility: The CBOE Volatility Index (VIX) has fluctuated, and with major tech earnings (MSFT, AAPL, META, TSLA) and a Fed meeting scheduled for next week, the risk of a sharp repricing remains high.
Yield Curve Shifts: The U.S. Treasury yield curve ticked up slightly, with the 10-year yield hovering around 4.25%, reflecting shifting expectations for 2026 rate cuts.
Precious Metals: Gold & Silver
Recent Trends: Gold surged 8% this week, while silver has seen an extraordinary 15% weekly gain, bringing its total January increase to over 44%.
Market Drivers: A “hammered” U.S. dollar, with the DXY index dropping 1.80%, has acted as a significant tailwind for dollar-denominated metals.
Forecast: Continued dollar weakness and lingering geopolitical scars from recent trade threats could sustain the “safe haven” bid for precious metals.
Supply/Demand Impact: While demand is rising as a hedge against inflation and dollar depreciation, the rapid monthly ascent in silver suggests potential for high volatility or a technical cooling period if the dollar stabilizes.
Energy: Natural Gas
Recent Trends: Natural gas prices spiked 70% this week, the most significant gain among major commodities.
Key Factors: Extreme price action was primarily driven by a cold spell, which significantly tightened the short-term supply-demand balance.
Forecast: Investors should monitor the EIA Natural Gas Inventories report on Thursday (Jan. 29) for confirmation of inventory drawdowns.
Supply/Demand Impact: Current demand is heavily weather-dependent; any signs of moderating temperatures could lead to a swift retracement of this week’s 70% gain.
Energy: Crude Oil
Market Outlook: While not matching the volatility of natural gas, crude oil remains sensitive to broader macroeconomic sentiment and the declining dollar.
Significant Events: The EIA Crude Oil Inventories report is scheduled for Wednesday (Jan. 28). Additionally, Friday’s earnings reports from energy giants Chevron (CVX) and Exxon Mobil (XOM) will provide critical insights into production levels and capital expenditure trends for 2026.
Supply/Demand Impact: Resilient U.S. economic growth (revised to 4.4% in Q3) supports the demand side, but investors remain cautious about potential shifts in global trade policy.
Industrial Commodities & Agriculture
Trends: Durable goods orders (forecasted to rise 5.4%) and upcoming data on manufacturing and factory orders will serve as proxies for industrial commodity demand.
Factors to Watch: The “AI and space race” between the U.S. and China, along with a global supply chain reset, is expected to sustain demand for industrial inputs and high-tech manufacturing materials throughout 2026.
Supply/Demand Impact: Protectionist surges worldwide and the risk of new tariffs (though currently tempered) create uncertainty for international trade flows and commodity supply chains
Week Ahead
The upcoming week is expected to be marked by “Higher Volatility” as investors navigate a dense schedule of high-impact earnings from the technology sector and a pivotal Federal Reserve meeting.
Major Economic Indicators
Durable Goods Orders (Mon, Jan. 26): Forecasted to rise 5.4% in November, driven by a rebound in Boeing orders and a broadening of investment across various industries.
Consumer Confidence (Tue, Jan. 27): This report will provide further insight into whether the recent improvement in sentiment can be sustained despite ongoing pressures on purchasing power.
EIA Crude Oil and Natural Gas Inventories (Wed & Thu, Jan. 28-29): Following massive weekly spikes in natural gas prices, these inventory reports will be critical for gauging whether supply constraints persist.
Trade Balance (Thu, Jan. 29): Analysts forecast a modest narrowing of the trade deficit to $23 billion, though data remains limited due to previous government disruptions.
Producer Price Index (Fri, Jan. 30): This wholesale inflation gauge will be closely watched for signs of “sticky” input costs that could impact future consumer prices.
Key Earnings Releases
Mega-Cap Technology (Tue–Thu): Microsoft (MSFT), Meta Platforms (META), Tesla (TSLA) , and Apple (AAPL) all report this week. These results are expected to be the “primary driver of investor sentiment”.
Semiconductor & Software (Wed–Thu): ASML, ServiceNow, SanDisk, and Western Digital will offer a “better sense of the state of tech,” particularly regarding AI demand and memory chip market health.
Industrial & Transportation (Tue–Thu): Boeing (BA), General Motors (GM), Union Pacific (UNP), and UPS will provide a pulse check on manufacturing, labor, and logistics.
Energy & Finance (Fri): Chevron (CVX), Exxon Mobil (XOM), and American Express (AXP) will round out the week, highlighting trends in consumer spending and energy sector profitability.
Global Events & Factors
Federal Reserve Monetary Policy Meeting: While no interest rate change is expected , the meeting is “in focus” as markets weigh the timing of potential cuts later in 2026.
International Central Bank Decisions:
Bank of Canada (Wed, Jan. 28): Focusing on economic fallout from trade strains with the U.S..
South African Reserve Bank (SARB): Analysts expect a 25-basis-point rate cut.
Central Bank of Colombia (Fri, Jan. 30): Expected to hike rates by 25 basis points following a massive 23% minimum wage increase.
Geopolitical Resilience: Market confidence remains sensitive to trade policy headlines, particularly following recent volatility surrounding Greenland and global tariff threats.
We anticipate monitor and comment on market-moving global economic and geopolitical issues. No dark side brooding, no wanting the world to end, no political rants. Traders, investors, policymakers, or market observers can’t afford to ignore us. In one word, perspicacity.
Global Macro Monitor 