Market insights, January 2026
In January, the World Economic Forum (WEF) released its annual ‘Global Risks Report’. This year, the top-ranked risk over the short term was ‘Geoeconomic confrontation’[1]– something that certainly resonated in the first 4 weeks of 2026.
Thanks to the increasingly bullish stance of Donald Trump and his tendency to lash out via US trade policy, fears of a global trade war spiked last month, and global growth prospects dampened.
Amid rising levels of investor angst, precious metals again proved to be popular across the month. Gold, which is often labelled as a ‘safe-haven’ asset for its perceived protection qualities, reached yet another record high, breaching USD $5,000 (per troy ounce) for the first time[2].
At one stage the Cboe Volatility Index – commonly known as the VIX and considered one measure of near-term volatility in US stocks – spiked to a reading above 20[3], before settling down again. As a reminder, anything above 30 starts to signal market stress.
By the end of the month, however, the worst of the tension had dissipated. Global shares, as measured by the MSCI World Index, finished up 2.24%[4]. The tech-heavy S&P 500 index closed up 1.42% [5] (both in US dollar terms).
Things were less positive at home, with the NZX50 posting an underwhelming –0.91% for January (with imputation TR NZD)[6]. For Kiwi investors, the stuttering domestic performance reinforces the value of holding globally diversified assets and managing the risk of home bias.
A US bull in a global China shop
The extraordinary extraction by US special forces of Venezuelan President, Nicholas Maduro, marked a dramatic start to the year. While the official line was that Maduro was wanted on drug-trafficking charges[7], Trump was quick to lay claim to Venezuela’s vast oil reserves[8]. Following the intervention, prices in Brent Crude briefly rose as investors weighed up potential implications for supply and demand[9].
Later in the month came the news that criminal proceedings were being launched against US Federal Reserve (Fed) Chair, Jerome Powell. The decision to go after Powell, with whom Trump has tussled in public over recent months about the pace of US rate cuts, placed the much-heralded independence of the Fed under extreme stress. At the end of the month, the Fed decided to keep US interest rates on hold.
Things escalated further when confrontational rhetoric from Trump about Greenland’s future, saw the US and the European Union exchange trade tariff threats. In the end, Trump used his speech at the WEF in Davos to pull back from the brink of conflict.
Why do we mention all of this on the January market insights article? For a few reasons, including:
· First, the unpredictability and aggression of US foreign policy spooked financial markets and drove the investor flight-to-safety, as seen with precious metals.
· Second, Trump’s apparent willingness to do as he pleases, marks a significant step away from the so-called ‘rules-based order’ that has loosely guided international relations in modern times. In response to increasing hostility from the US, both Canada and the EU talked about strengthening their ties with China. This would have big implications for future trade flows around the world.
· Third, the criminal proceedings against Fed Chair Powell, potentially weakens one of the perceived strengths of the US economy – an independent central bank at its core. And as an extension, this has negative implications for the perceived value of US assets. At one stage in January, the US dollar – the world’s most important currency – fell to a 4-year low[10].
· Fourth, the ugly tariff spat with the European Union was an echo of last year’s trade war fears. Trump’s tendency to use trade policy as a bullying tool won’t do economic growth prospects any favours in2026. The global economy needs less friction, not more.
· Fifth, Trump’s decision to de-escalate his Greenland stance was a reminder of a phrase coined last year – ‘T.A.C.O’, short for ‘Trump always chickens out’[11]. While it’s impossible to predict the US President’s next move, he does have a history of blowing up, before calming down. As a long-term investor, that’s worth remembering in the months ahead.
NZ wallets face more strain
Back at home, the NZ economy was jolted from its festive break by the news that domestic inflation (CPI) had risen to 3.1% in the 12 months to December 2025. This is the highest it’s been since June 2024 and above the central bank’s target[12].
At the start of the year, the consensus had been that NZ rates would be held steady for the bulk of 2026, before a new rate hiking cycle commenced at the end of the year, or beginning of 2027.
However, in light of the higher-than-expected CPI print last month, markets are now pricing in a rate rise ahead of schedule[13]. In other words, the window for Kiwis to lock in low rates this year has just narrowed.
All eyes will be on the first MPC session of 2026, with new Governor Dr Anna Breman at the helm, on 18 February.
Taxing times for Japanese bonds
In one of the other noticeable developments of the month, Japan attracted renewed investor focus.
Investors reacted badly to the news of a snap election on 8 February, and to a lack of clarity about how tax pledges from current Prime Minister Takaichi, might be funded.
Japan has the highest debt-to-GDP ratio in the developed world[14], making the prospect of unfunded tax cuts unpopular with investors. They want reassurance that Japanese government debt is affordable (for the country) and rewarding (for them).
There was also mounting speculation about a potential consecutive rate rise by the central bank. As a reminder, the Bank of Japan (BoJ) increased its headline rate in December 2025 to 0.75% (a 30-year high)[15].
In the end, the BoJ opted to keep the headline rate on hold, partly in attempt to calm anxious investors.
However, the interconnectivity of global markets meant that events in Japan had a ripple effect across global bond markets and pricing. The US is particularly sensitive to changes in Japan, given the country’s status as the largest international holder of US Treasuries[16].
Next month’s Market Insights article will cover the election result and any market reaction to it.
Final thoughts
Any investors who were hoping to ease into the new year gently were given a reality check in January.
For as long as Donald Trump is the US President, investors will need to stay live to the fact that US policy – both domestic and foreign – has the potential to spook markets, and to weigh large on economic growth.
Ongoing friction with China, worsening relations with the EU, and possible military intervention in Iran, remain on the cards for the time being.
Frequent policy reversal, (i.e: T.A.C.O) is a reminder of the inherent risks of knee-jerk investment decision-making in the face of news headlines. Calm, long-term portfolio strategy should be the priority for investors.
For Kiwi investors, global asset diversification likely holds the key in 2026, given US unpredictability and a domestic stock market that isn’t firing on all cylinders.
Sources:
[1] https://www.weforum.org/publications/global-risks-report-2026/
[2] https://www.reuters.com/business/finance/gold-rushes-record-high-above-5000oz-2026-01-25/
[3]Data reference is 20 January 2026. Historical data available here: https://www.cboe.com/tradable-products/vix/#market-data
[4] https://www.msci.com/indexes/index/990100
[5] https://www.spglobal.com/spdji/en/indices/equity/sp-500/#overview
[6]Source: https://www.spglobal.com/spdji/en/indices/equity/sp-nzx-50-index/#overview
[7] https://www.bbc.com/news/articles/cwyndnqqey5o
[8] https://www.rnz.co.nz/news/world/584155/the-us-has-officially-started-selling-venezuelan-oil
[9] https://www.reuters.com/business/energy/oil-prices-gain-us-inventory-draw-venezuela-focus-2026-01-08/
[10] https://www.ft.com/content/04c785c0-9ca4-4a85-a279-d95c9d8f1f80
[11] https://www.ft.com/content/e81ae481-fbb6-47e7-bd6b-c7d76ca5ab69
[12] https://www.stats.govt.nz/news/annual-inflation-at-3-1-percent-in-december-2025/
[13] https://www.rnz.co.nz/news/business/584555/what-are-interest-rates-likely-to-do-this-year-and-should-you-fix
[14] https://uk.finance.yahoo.com/news/japans-central-bank-holds-rates-065232774.html
[15] https://www.bbc.com/news/articles/c2dz11pykwno
[16] https://www.reuters.com/world/china/foreign-demand-us-treasuries-slips-september-japan-steps-up-buying-2025-11-18/
Photo credit: Fine Photographics for Unsplash
