The week that was …
Economic round-up
US rate decision
The US Federal Reserve left interest rates unchanged in its January meeting, while chair Jerome Powell emphasised the importance of central bank independence. The Fed will keep its lending rate between 3.5% and 3.75%, arguing US economic activity “has been expanding at a solid pace”. Read more from the BBC here
New Fed chair appointed
US president Donald Trump has announced former Fed governor Kevin Warsh will lead the US Federal Reserve when current chair Jerome Powell’s four-year term ends in May. Warsh is widely expected to support lower interest rates and has previously been critical of elements of Fed decision-making. Read more from the BBC here
US consumer confidence weakens
US consumer confidence has dropped to its lowest level in more than a decade, fuelling concerns about the health of the world’s largest economy. The Conference Board’s consumer confidence index fell to 84.5 in January – a level well below market expectations. Read more from the FT here
Germany economy strengthens
Germany’s economy expanded more than expectations in the final quarter of 2025, rising 0.3%, with the data suggesting the country is recovering from its brief recession over the summer. The uptick is the strongest performance for the German economy in three years. Read more from ING here
US inflation outlook
US producer prices have seen their biggest rise in five months, suggesting inflation could start to pick up. The Producer Price Index for final demand jumped 0.5% in December – the biggest monthly rise since July, after an unrevised 0.2% gain in November – and was ahead of economists’ expectations of 0.2%. Read more from Reuters here
German business confidence steady
The IFI index, Germany’s measure of business confidence, was unchanged at 87.6 in January, reflecting uncertainty over the country’s economic strength on the back of geopolitical tensions and tariff threats. Read more from ING here
Markets round-up
FTSE 100 up on the week
Despite significant falls for mining companies, the FTSE 100 ended the week higher, closing up 52 points at 10,223. The FTSE 250 ended down 0.1% while the AIM All-Share closed down 0.9%. Read more from the Independent here
Precious metals dip
Gold and silver prices plunged in response to the announcement of the new Federal Reserve chair Kevin Warsh. The appointment appears to relieve concerns about the US central bank’s independence and sent the dollar soaring. Silver dropped 28% – its worst day since March 1980. Read more from CNBC here
Yen falls could be positive – Japan PM
Japanese prime minister Sanae Takaichi has said in a speech there could be benefits to a weaker yen, in contrast to the finance ministry’s threats to intervene to support the sliding currency. Takaichi argued it could be good news for export industries. Read more from Reuters here
Mega-deals offer hope on UK IPOs
A £5bn IPO for RAC could be the start of a revival for the UK IPO market, as international investors begin to tentatively turn back to the FTSE. IPOs in the first half of 2025 recorded just £160m in fundraising. Read more from the FT here
OPEC+ keeps output on pause
The OPEC+ grouping of oil producers is likely to maintain its planned pause on oil output increases when it meets this week, according to Reuters. This in spite of oil prices hitting a six-month high after the US threatened military strikes on Iran. Read more from Reuters here
Bitcoin hits lowest level in over 12 months
Bitcoin dropped by 6.53% to $78,719 (£57,426) – its lowest level since November 2024 – continuing its decline from the previous session. The largest cryptocurrency was responding to dollar gains after former Federal Reserve governor Kevin Warsh was confirmed as the next chair of the US central bank. Read more from Reuters here
“The US economy has so far defied its doubters yet some real vulnerabilities are emerging that could create significant problems.
Selected equity and bond markets: 23/01/26 to 30/01/26
| Market | 23/01/26 (Close) |
30/01/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5475 | 5512 | +0.7% |
| S&P500 | 6916 | 6939 | +0.3% |
| MSCI World | 4505 | 4527 | +0.5% |
| CNBC Magnificent Seven | 422 | 426 | +0.9% |
| US 10-year treasury (yield) | 4.23% | 4.24% | |
| UK 10-year gilt (yield) | 4.53% | 4.53% |
Investment round-up
New chair for AIC
Former investment banker Sapna Shah has been appointed chair of the Association of Investment Companies, succeeding Gordon Humphries with immediate effect. She has been a non-executive director on a range of investment trust boards, including BioPharma Credit, BlackRock Greater Europe and Pantheon Infrastructure.
UK dividends bounce higher
The value of UK dividends is expected to increase in 2026 by 1.5% to £88bn, according to transfer agent Computershare. Regular dividends are expected to increase by 2% to £85.9bn.
SJP grows FUM to £220bn
St James’s Place saw its funds under management (FUM) climb to £220bn last year, boosted by its new charging structure. The group’s latest trading update shows FUM up 16% from £190bn in December 2024.
HL lowers fees
Investment platform Hargreaves Lansdown will lower its fees from 1 March, with annual account charges dropping from 0.45% to 0.35% on stocks and shares ISAs and SIPP accounts. A charge of 0.35% will be added to hold shares, however.
New LISA just for first-time buyers – HMRC
HMRC has confirmed the replacement for the Lifetime Isa (LISA) will focus solely on helping first-time buyers. The new product will only provide a government bonus when a saver buys a property, rather than paying a bonus on each contribution as with the current LISA.
Investment groups back away from US equities
Major investment houses have shifted their model portfolios to mitigate the risks of overcrowded positions. AJ Bell is looking to tilt towards the AI supply chain rather than the mega-caps, while UK wealth management behemoth St James’s Place has reduced exposure to higher-risk credit assets in developed markets.
British Land buys Life Science
REIT The board of British Land has reached an agreement to purchase Life Science REIT, valuing the company at approximately £150m. This valuation is a 21% premium to the undisturbed (pre-takeover) share price but a 26% discount to the value of its net tangible assets as of December 2025.
… and the week that will be
Markets eye corporate earnings
After a sell-off for Microsoft in response to disappointing earnings data, markets face another test this week in the shape of earnings data from megacaps Alphabet and Amazon, plus a raft of other companies. The market is becoming increasingly discerning in the face of high valuations, particularly for companies with in-built optimism around AI. Read more from Reuters here
Japan election
Japan’s prime minister Sanae Takaichi will see if her gamble of a snap election has paid off this week, with the country going to the polls on Sunday. Following concerns a clear LDP majority would become a mandate for fiscal expansion, her campaign has triggered a series of huge sell-offs in long-dated Japanese government bonds. Read more from the FT here
The week in numbers
UK interest rates: The Bank of England is widely expected to hold UK interest rates at 3.75% this Thursday although markets will be keeping an eye on an increase in Monetary Policy Committee members voting for a cut.
Europe interest rates: The European Central Bank is widely expected to hold European interest rates at 2.15% after its rate-setting meeting concludes on Thursday.
Eurozone inflation: Consensus expectations are for January’s flash reading of Eurozone inflation to show prices having risen 2% year-on-year – up from 1.9% in December – and falling 0.2% month-on-month, versus a 0.2% rise in December. Core inflation is forecast to hold at 2.3%.
US business sentiment: Consensus forecasts have the US ISM manufacturing purchasing managers index for January rising to 48.2, from 47.9 the month before, while the services equivalent is expected to fall to 54.3, from 54.4 in December.
US employment data: Consensus forecasts for US non-farm payrolls are for 40,000 new jobs – down from 50,000 a month earlier – while the country’s unemployment rate is expected to rise to 4.5%.
In focus: Three economic clouds for the US
On the face of it, the US economy is in rude health. GDP data from the end of January showed growth of 4.4% for the third quarter, with consumer spending and a better trade balance key drivers of expansion. The country also looks to have dodged any major tariff-shaped bullets while inflation appears under control. The dire predictions for the economy under a second Trump administration would seem to have been wide of the mark.
Even so, some clouds are threatening this sunny picture. Consumer confidence, as measured by the US Confidence Board, is at its lowest level in a decade while economists are pointing to a ‘K-shaped’ pattern in the economy, with higher-income households and large corporations doing the heavy lifting on growth.
To put it another way, a booming stockmarket and resilient house prices have allowed these upper echelons of the US economy to keep spending, while lower-income households are struggling. Smaller businesses have been hit by curbs to immigration, while manufacturing remains weak.
As for inflation, the latest CPI data showed it running at 2.7% in December – unchanged from November. This is above the Federal Reserve’s target – if not immediately problematic – but the US central bank still felt able to cut rates at the end of last year.
The bull view here is that the worst fears around inflation stemming from either tariffs or the AI infrastructure build-out have not materialised. The counter-argument on the tariffs front is that any negative impact has been cushioned by stock-piling ahead of their introduction and price pressures may yet emerge. The most recent producer-prices data suggests this could still be a possibility.
Understandably, this mixed picture draws different views from economists on the outlook, with Karen Ward, chief market strategist EMEA at JP Morgan Asset Management, positive about the near term. “US citizens will start to feel the personal benefits of fiscal stimulus when the One Big Beautiful Bill results in significant tax rebates early in 2026,” she points out.
“This cashflow boost adds to the wealth effects being generated by double-digit stock and house price gains. Under intense political pressure, the Federal Reserve now seems likely to bring interest rates back to ‘neutral’ – a level, which it believes to be around 3%.
It is important to note that not all US citizens are feeling the benefits of fiscal stimulus and lower interest rates.”
For his part, George Brown, senior economist at Schroders, says: “We are looking for an acceleration this year, helped by the Big Beautiful Bill, but if you look at the inflation story, it is not in line with the global picture. We believe it will remain sticky because you have got such solid growth.”
He goes on to argue the Fed will not cut US interest rates as expected, keeping them on hold for much of this year. In contrast, Kristina Hooper, chief market strategist at Man Group, believes a modest recession is plausible for the US as the economies’ vulnerabilities begin to be exposed.
As to what those vulnerabilities might be, market-watchers pick out three in particular – the first being income inequality. “It is important to note that not all US citizens are feeling the benefits of fiscal stimulus and lower interest rates, with spending increasingly driven by middle and higher-income households rather than those on lower incomes,” says Ward.
Hooper points out that healthcare premiums are going up as subsidies are removed and US adults continue to drop Affordable Care Act coverage. These are also pressures over student loan repayments, with new rules to allow student loan companies to recoup arrears through salaries another threat to lower and middle-income earners. Hooper suggests there could be some social disruption as a result of the clear disparities in wealth.
Another potential concern is the US economy’s reliance on artificial intelligence for good news. JP Morgan Asset Management estimates AI contributed around 1.1% to GDP growth in the first half of 2025, outpacing the US consumer as an engine of expansion. Not only does this raise the question of balance, its impact on the jobs market is also uncertain. As Hooper puts it, it is not clear whether there will be “creative destruction, or just destruction”.
“There is a lot of uncertainty about the type of jobs created,” she elaborates. “We could see a situation with structural employment of 10% to 15%, if you get rapid adoption of AI.” She also points to the “significantly higher” unemployment rates for college graduates than for the population at large, which may be a result of AI.
The bigger story is the ever-increasing monetary and fiscal fuel being delivered to an already healthy economic engine.”
This foreshadows the third problem – jobs weakness. “We have price increases but that is a short-term effect,” Hooper continues. “The bigger issue is that tariffs depress demand. They create economic policy uncertainty, which has a chilling effect on hiring and capex investment. Outside AI, there has been little investment. On hiring, fewer than 600,000 net jobs were created in 2025 and almost all in the first four months – pre-‘Liberation Day’.”
Even though JPM’s Ward is positive, she points to some real questions over government policy in the US. “The bigger story is the ever-increasing monetary and fiscal fuel being delivered to an already healthy economic engine,” she explains. “Indeed, never before have we seen fiscal deficits or rate cuts of this magnitude, delivered outside of recessions.” Logic suggests this should lead to higher inflation.
Schroders’ Brown agrees, pointing to the persistent positive output gap – that is, the difference between actual GDP and potential GDP. “This has been stubbornly positive for some time,” he continues. “When you have a persistent positive output gap, inflation follows. There is a lot of stimulus.” He can see a situation where constrained labour supply starts rubbing up against increasing demand, lifting wages.
This is where the new Fed chair may be very important indeed. If Kevin Warsh proves to be a responsible steward of the central bank, and global financial markets trust him to keep a lid on inflation, the US economy may be able to steer a more measured course. If the central bank’s credibility comes into question, however, this could be a significant problem.
“Trump may see Warsh’s prior criticisms of the Fed as an asset,” says Daniel Casali, chief investment strategist at Evelyn Partners. “Appointing someone with hawkish credentials provides political cover while still enabling a tilt toward policies that support growth and, by extension, his administration’s objectives. The incoming 2026 FOMC composition reinforces this direction.”
The US economy has so far defied its doubters yet some real vulnerabilities are emerging that could create significant problems. If inflation starts to emerge – and there are plenty of reasons for believing it might – it could prove a destabilising force for global financial markets.
In focus: Magnificent scrutiny
If the big investment question for 2026 is whether AI will justify the vast capital expenditure being lavished upon it, we are beginning to receive some clues as the technology giants release their results. Increasingly, the market is differentiating between different members of the Magnificent Seven as their AI success varies.
Last year, just two of this select band – Alphabet and Nvidia – outpaced the wider S&P 500. Nvidia was a beneficiary of AI spending, while the market concluded that Alphabet was spending judiciously and reaping the rewards. The jury was out on the other technology giants, whose spending continued to grow, with few tangible gains.
The early signs from 2026 are equally mixed. Microsoft shares dropped more than 10% in response to its earnings, with investors pointing to two major concerns: cloud growth and its entanglement with Open AI. “Disappointing cloud growth suggests that AI usage might undermine Microsoft’s current business model, and its intertwining with OpenAI revives the talk of ‘circular financing’ among big tech companies,” explains Lothar Mentel, chief investment officer at Tatton.
“According to the FT, 45% of Microsoft’s cloud contracts come from OpenAI, and Microsoft is also among the companies OpenAI has tapped for $40bn in funding for new infrastructure.” For its part, Meta was subject to many of those same concerns in 2025 yet posted better-than-expected results last week. “The company also revealed big spending on AI projects but markets did not seem to mind this as much as Microsoft’s spending,” says Mentel.
“Perhaps this tells us that companies will still be rewarded for investing big – provided they invest in the right areas. That would make sense of the fact that Tesla shares fell only mildly this week, despite an outright decline in revenues. Investors apparently care more about Tesla’s pitch for robotics and self-driving cars than they do its main business.”
Interestingly, AJ Bell has said it will be pivoting its portfolios to areas likely to benefit from the continued roll-out of AI into the real economy – including investment into US healthcare, energy and utilities ETFs. It has also shifted its weighting from traditional S&P 500 exposure to an equal-weighted option, explaining it was seeking to “enhance portfolio robustness, mitigate the effects of market concentration and maintain exposure to structural themes such as AI, without reliance on a specific narrative”.
The AI trend may well continue to flourish but there are clear signs investors are becoming more discerning. While companies are still being rewarded for ambitious innovation, they are also being punished where the rewards are not clear.
