Market Compass January 2026

Highlights:

• Barring a further spike in geopolitical tensions, the global economy is entering 2026 on a steady footing. It has proved remarkably resilient to the trade war shock, and easy financial conditions imply upside risks for global growth.
• Central banks have cut rates, and fiscal policy will be accommodative in Germany, China and the US, where the administration prepares for the mid-term elections.
• The two big economic risks for 2026 lie in a reversal of the credit cycle – as rising leverage exposes tight spreads – and a burst of the AI «bubble». We retain a cautious pro-risk bias, positioning is not stretched, but investor sentiment appears solid. 
• We still prefer Credit and Equities over Govies and Cash. We maintain a slight short stance on Euro Area (EA) duration, and a neutral view on US rates. We anticipate a further US dollar depreciation as its yield advantage erodes.

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