Economy Market Wrap January 2026

Key Trends

January was dominated by policy and FX-driven risk rather than clear macro momentum. Sharp currency moves and active central‑bank FX interventions elevated policy uncertainty, while tariff rhetoric and a widening U.S. trade deficit fed risk‑off positioning. Market flows were further distorted by AI‑led reallocations in tech and supply disruptions from winter storms, producing uneven sector outcomes. Fiscal and governance uncertainty—most notably questions around Fed leadership and a South Korean budget‑minister withdrawal—added to short‑term financing and execution risk.

Notable Events

- Central‑bank FX interventions across multiple jurisdictions in response to outsized currency moves. - Public attention on the incoming Fed chair nomination, increasing concerns over Fed independence and governance. - Tariff threats and trade tensions that widened trade gaps and pressured trade‑sensitive sectors. - Winter storms that disrupted supply chains and amplified energy price swings. - Withdrawal of South Korea’s budget minister nominee, risking delays in budget implementation.

Performance

FX markets were the most volatile asset class; implied and realized FX volatility rose materially and prompted policy responses. Safe‑haven demand lifted U.S. Treasury prices (yields softened) as risk‑off flows emerged. Equities displayed higher intraday volatility: AI‑exposed tech saw concentrated flows while energy moved on storm‑related supply news. Credit and cyclical sectors experienced modest spread widening and relative underperformance versus fixed income.

Outlook

Near term, market direction will hinge on Fed‑nomination developments, the persistence of tariff rhetoric, and additional central‑bank FX actions. Expect elevated volatility and episodic risk‑off episodes until policy clarity and trade/fiscal signals stabilize; monitor Treasury demand, FX intervention footprints, and upcoming trade and budget data for signs of normalization.