The week that was …
Economic round-up
Trump threatens more tariffs
European leaders condemned threats by Donald Trump to impose fresh tariffs on eight allies opposed to his proposed takeover of Greenland. The US president said he would impose a 10% tariff on goods from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and the UK from 1 February, adding this could later rise to 25%. Read more from the BBC here
UK growth
The UK economy outpaced expectations in November, with GDP up 0.3% – the strongest monthly reading since June 2025 There was evidence of strength in the services sector and a rise in manufacturing. Read more from the FT here
US inflation
Core consumer prices in the US showed a 2.6% rise in December – 0.1 percentage point below expectations. On a headline basis, the Consumer Price Index rose at an annual rate of 2.7% – in line with the Dow Jones consensus estimate. Read more from CNBC here
US industry
US producer prices picked up slightly in November – rising 0.2% in November, following a 0.1% rise in October. There was a surge in the cost of petrol, but businesses appeared to be absorbing some of the tariffs on imports. Read more from Reuters here
Germany economy
The German economy saw a full-year expansion for the first time in three years over 2025 – albeit by just 0.2% – with consumer and government spending fuelling the recovery. The data was in line with the forecast by analysts polled by Reuters. Read more from Reuters here
China trade data
China reported a record trade surplus of nearly $1.2tn (£900bn) in 2025, led by booming exports to non-US markets. The data indicated the resilience of the Chinese economy to US trade pressures, with Chinese firms diversifying beyond the world’s top consumer market. Read more from Reuters here
Markets round-up
Gilt yields drop
UK borrowing costs have fallen to their lowest level in more than a year, dropping as low as 4.34% on Wednesday. Fund managers say reduced anxiety over the public finances and hopes for further Bank of England interest rate cuts are fuelling gilts’ strength. Read more from the FT here
Wall Street dips
US stockmarkets ended with modest weekly losses on Friday, in spite of strong earnings seen in tech and banking. Gold was strong early in the week on safe-haven demand, while the US dollar stood firm near its six-week high. Read more from Reuters here
Sterling bounces
Sterling rose on Friday, setting itself up for a fifth consecutive weekly rise against the euro, following better-than-expected economic data in the UK. The pound was also up 0.13% against the US dollar – to $1.3402 – on track for a 0.3% weekly rise. Read more from Reuters here
Retail investors favour energy
Retail investors have targeted defence, energy and precious metals since the start of 2026 amid the geopolitical turbulence triggered by events in Iran, Venezuela and president Trump’s designs on Greenland. Read more from the FT here
Google appeals anti-trust ruling
Google has appealed a US district judge’s landmark antitrust ruling on the group’s monopoly in online search. The group argued: “The Court’s August 2024 ruling ignored the reality that people use Google because they want to, not because they are forced to.” Read more from the BBC here
Goldman Sachs regains equity-trading crown
Goldman Sachs took the top spot for equities trading in the fourth quarter, with revenues of $4.31bn – well ahead of the $3.7bn delivered by rival Morgan Stanley. Both companies reported a rise in fourth-quarter profits, while BlackRock reported assets under management above $14tn for the first time. Read more from the FT here
US cuts Taiwan tariffs
The US said it had agreed to cut the tariffs it charges on goods from Taiwan to 15%, in exchange for “new, direct investments” worth at least $250bn. The move is intended to boost domestic production of semiconductors. Read more from the BBC here
Crypto groups turn against regulation
Big cryptocurrency players have turned against a landmark bill to regulate digital assets, the Clarity Act. The bill was delayed in the Senate last week after Coinbase chief executive Brian Armstrong publicly withdrew his support. Read more from the FT here
“UK equity income funds are currently providing a halfway house for those tempted by the UK but not yet willing to go all-in on small and midcap stocks.
Selected equity and bond markets: 09/01/26 to 16/01/26
| Market | 09/01/26 (Close) |
16/01/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5458 | 5518 | +1.1% |
| S&P500 | 6951 | 6940 | -0.4% |
| MSCI World | 4484 | 4515 | +0.7% |
| CNBC Magnificent Seven | 426 | 418 | -2.1% |
| US 10-year treasury (yield) | 4.17% | 4.23% | |
| UK 10-year gilt (yield) | 4.38% | 4.4% |
Investment round-up
Rathbone’s Stick to retire
Carl Stick, co-manager of Rathbone’s Income fund, is set to retire after 30 years. The asset manager said the fund would now be solely managed by Alan Dobbie with the “same investment process, philosophy and style”.
Schroders sees profits rise
Schroders’s adjusted operating profit for the year is forecast to be at least £745m – up sharply from £603.1m in 2024. The company said the rise reflected higher management fees, increased performance fees and carried interest, plus positive market returns.
Kemp sets up investment group
Former Morningstar chief investment and research officer Dan Kemp has launched a new firm aiming to bridge the gap between boutique and institutional-scale advice. Portfolio Thinking is intended to enable advice firms, family offices and institutions to build outsourced investment propositions.
SFO makes arrests over Home REIT
The Serious Fraud Office has arrested six people as part of an investigation into the management of Home REIT. There is an ongoing £300m bribery and fraud probe into the social housing investment trust’s former management.
Liontrust reports outflows
Liontrust suffered another net outflow in the final quarter of 2025, according to its latest trading update. The asset manager saw £1.3bn leave its main UK retail funds and MPS segment, although it did record £330m in institutional net flows having secured two new mandates.
FGT wins continuation vote
More than 96% of Finsbury Growth & Income shareholders voted for the 100-year-old investment trust to keep going, as they continue to support manager Nick Train through a period of weaker performance. The trust has delivered a total return to shareholders of just 6.4% over five years.
… and the week that will be
Trump to address Davos
Donald Trump is due to speak on Wednesday in Davos, where he is expected to address housing market reforms and other economic topics. Investors may also be watching for signs of a climbdown on escalating trade tensions with European leaders over Greenland. Read more from Investopedia here
Red flag on Greenland
European countries are threatening to retaliate should president Trump go ahead with tariffs on eight European nations over their support for Greenland. This seems likely to inject fresh trade uncertainty and could unsettle stockmarkets in the weeks ahead. The US president said he would impose an additional 10% import tariff from 1 February on goods from Denmark, Finland, France, Germany, the Netherlands, Norway, Sweden and the UK, which could rise to 25% on June 1 if no deal is reached. Read more from Reuters here
The week in numbers
UK inflation: UK Consumer Price Index (CPI) data for December is out this week. Prices rose 3.2% year-on-year and fell 0.2% month-on-month in November. Core CPI inflation was 3.2% year-on-year in November.
US economic growth: Final third-quarter GDP numbers for the US are due this week and are expected to show growth of 4.3%.
Japan interest rates: Consensus forecasts have the Bank of Japan holding rates at 0.75% when it meets this week.
UK business sentiment: Consensus forecasts have the flash January readings of the UK purchasing managers index (PMI) rising to 50.8 for manufacturing and 51.5 for services.
UK employment: UK jobs data is due this week. The October unemployment rate was 5.1%, while average earnings rose 4.7% for the three months to October.
UK retail sales: The UK retail sales figures for December, which are due this week, will include the all-important Christmas-season numbers.
US personal consumption: Consensus expectations are for the US personal consumption expenditures price index for November to hold at 0.2%, month on month.
Japan inflation: December CPI data for Japan is due out this week. The previous year-on-year figure was 2.9%.
Chinese GDP growth: China’s fourth-quarter GDP numbers are due this week. Year-on-year GDP growth was 4.8% in the preceding three months, while the quarter-on-quarter figure was 1.1%.
In focus: UK equity’s third way?
In the long-running debate over whether the UK will ever be allowed off the investment naughty step, the once all-powerful equity income route tends to be overlooked these days. While it is now more often pitched as a straight fight between the internationally-focused FTSE 100 and the domestic charms of small and midcap stocks, however, could the sector provide a ‘third way’ for investors looking to dip a toe back in the UK?
The market as a whole would certainly look to have a number of factors in its favour – not the least being that, if investors want diversification, the low-beta, defensive companies that characterise the UK stockmarket should prove a useful foil to the US largecap technology names.
“These are areas that tends to outperform when markets are nervous and volatility is rising,” says Alan Dobbie, manager on the Rathbones Income fund. “We saw this in 2022 and also last spring, when a lot of the outperformance happened around March, April and May when there was significant volatility in markets.”
Equally, despite its strong performance in 2025, the UK is still unloved. “The UK stockmarket has been on the international-investor naughty step since Brexit,” says Mark Niznik, manager on the Artemis Future Leaders fund. “We have gone from Brexit to Covid to Kwasi Kwarteng to the 2024 Budget with its National Insurance hikes to the speculation round the recent Budget.” For the most part, this has left valuations relatively low.
The latest round of Investment Association fund-flow statistics did indicate better prospects for UK active funds. Not only did outflows from the UK slow considerably, in spite of a broader ‘risk-off’ environment, there was a marked preference for active funds.
The trade body suggests the numbers reflect “a growing recognition among retail investors of the UK’s value proposition”, adding: “The FTSE’s strong performance appears to have positioned the UK as an increasingly attractive alternative to the US – particularly as concerns mount over valuation bubbles and concentration risk in major American technology firms.”
The gains in the UK market have not been evenly spread. Largecaps, banks and defence stocks have done all the heavy lifting over recent years. Other areas are yet to join the party.”
Still, it is worth being careful. While the valuation case for UK small and midcap companies remains strong, their larger counterparts have had a good run. The FTSE 100 is up 25.8% since the start of last year – and kicked off 2026 by tipping over the symbolic 10,000 level.
Areas such as banks and defence companies have performed extremely well and the valuation of companies such as Rolls-Royce – now trading on around 40x forward earnings – may give investors pause for thought on how they approach UK assets.
Rathbone’s Dobbie highlights a significant disparity in the UK market that makes a passive approach difficult. His analysis shows the top 15 stocks in the FTSE All-Share now account for more than half of the index. Their average performance over last five years has been 130%, while the rest of the market is up just 20%.
“Some of it is down to genuine earnings growth,” he elaborates. “A lot of it is down to re-rating. HSBC, for example, was trading on 0.5x book value – today it is as 1.7x. The gains in the UK market have not been evenly spread. Largecaps, banks and defence stocks have done all the heavy lifting over recent years. Other areas are yet to join the party.”
Even before this year, UK Equity Income had been ticking along well – the average fund is up 34.2% over the past three years, putting it only a fraction behind Global Equity Income (35.1%). In 2025, meanwhile, the sector was one of the superstars – the average fund rose 18.7%, putting it significantly ahead of both the Global Equity Income (12.8%) and UK All Companies (15.4%) fund groupings.
We are particularly enthusiastic about the opportunities in mid and small-sized companies, where valuations appear extremely attractive.”
There may be worries UK equity income funds are just a play on this largecap strength – and certainly some funds focus more on this part of the market. That said, it is also true active UK equity income managers have far more choice further down the market-cap spectrum today than they have had before. The FTSE Small Cap index currently has a yield of 3.85%, while the FTSE 250 has a yield of 3.4% .
Rathbones have been taking profits from banks and defence stocks and recycling into stocks that look better value – with Dobbie arguing bond yields and inflation are likely to trend gradually lower this year, while economic growth will remain scarce.
“This is a positive backdrop for ‘quality compounders’ but also for some of the midcap names that are struggling, such as REITs, regulated utilities and some consumer staples,” he continues. “These tend to perform well as bond yields fall.” It is worth noting UK borrowing costs recently fell to their lowest level in more than a year, with the 10-year bond yield dropping to 4.34%.
Simon Murphy, manager of the Tyndall UK Equity Unconstrained fund, is also targeting lower capitalisation stocks. “We are hopeful the worst of the recent political uncertainty has passed and the period of extreme private sector caution can start to alleviate,” he explains. “We are particularly enthusiastic about the opportunities in mid and small-sized companies, which in our view have been disproportionately affected by these issues, and where valuations appear extremely attractive.”
This means many UK equity income funds are currently providing a halfway house for those tempted by the UK but not yet willing to go all-in on small and midcap stocks. The sector may also be an option for those moving away from an index holding in the FTSE 100 after its strong run, offering a way back into the UK market with less risk.
Read more on this from AJ Bell here and from St James’s Place here
In focus: Central heating
They may seem an unlikely band of brothers but central bankers last week rallied to support Jerome Powell. The US Federal Reserve chair became the target of a criminal investigation, in a move seen by many as politically motivated. The Trump administration has been increasingly disgruntled with his stance on interest rates, wanting him to cut faster and sooner.
Powell issued a statement at the start of the week saying: “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions – or whether instead monetary policy will be directed by political pressure or intimidation.”
Janet Yellen, Ben Bernanke and Alan Greenspan – the three surviving former Fed chairs – said in their own statement: “The reported criminal inquiry into Federal Reserve chair Jay Powell is an unprecedented attempt to use prosecutorial attacks to undermine that independence.”
And Bank of England governor Andrew Bailey noted: “Part of the purpose of international agencies is that, from time to time, they have to tell us what we do not want to hear, let alone act upon. Of course, they have to be accountable for the accuracy and quality of the assessment but, accepting that, we have to call out messenger-shooting.”
He added that financial policymakers had to push back against attempts by populist politicians to discredit them and went on to suggest populism was making it harder to spell out risks in the world economy.
The attacks on Powell are problematic, threatening the credibility of the world’s most important central bank. Yet, while global central bankers may have lined up to condemn the attacks, markets have remained oddly muted. After a brief rise, Treasury yields have been stable whereas a more extreme reaction might have been the one thing that would have reined in the administration’s interference.
Why are markets unmoved? It may be because bond investors are, for the time being, more focused on the data than any threats to central-bank independence. “Economic data took back control of yield moves,” noted analysts at Edmond de Rothschild Asset Management. “Investors were reassured when core inflation came in at 2.6%, or slightly below the 2.7% expected, and long bond yields stabilised.
“On the other hand, short bond yields rose due to upbeat retail sales in November, better-than-expected rises in advanced regional indicators and a fall in weekly jobless claims. The data confirmed US economic resilience and several Fed officials said current monetary policy was adapted to today’s environment. As a result, the Fed is not expected to cut rates at the next meeting of the Federal Open Market Committee.”
Even so, it is difficult to escape the view the US administration will keep pushing until markets rebel. With a new trade war coming into the mix, volatility could start to creep into equity markets once again.
