The week that was …
UK returns to growth
The UK economy looks set to return to growth in November as car production recovered at Jaguar Land Rover, according to economists. Pantheon Macroeconomics and Investec expect monthly GDP to have risen by 0.2% in November when the ONS unveils its data on 15 January. Read more from the Independent here
UK house prices fall
UK house prices fell for the second month in a row in December, according to the Halifax house price index. The average property value fell by 0.6% in December, following a 0.1% drop in November. A typical property now costs £297,755. Read more from This is Money here
US consumer sentiment
The University of Michigan’s consumer sentiment index moved higher for the second consecutive month, rising to 54.0 in January 2026 – slightly above market expectations of 53.5. In contrast to recent data, gains were concentrated among lower-income consumers, while sentiment among higher-income households slipped. Read more from Trading Economics here
US jobs
The latest non-farm payrolls showed US jobs growth grinding to a halt in December, with just three sectors in expansion territory. The bulk of the US economy is trimming employment, with non-farm payrolls for December hitting 50,000. The unemployment rate meanwhile dipped to 4.4% from a downwardly revised 4.5%. Read more from ING here
Euro area inflation
Eurozone inflation fell to 2% in December – in line with both economists’ expectations and the European Central Bank target. This was down from the 2.1% recorded in November, which market-watchers suggest strengthens the case for leaving interest rates on hold. Read more from the FT here
US manufacturing
US manufacturing activity slumped to a 14-month low in December, with import tariffs constraining new orders and raising input costs. The US Institute for Supply Management (ISM) manufacturing PMI suggested a recovery was unlikely in the near term as the index dropped to 47.9, from 48.2 in November. Read more from Reuters here
US services
For its part, the US ISM services PMI increased for a third consecutive month – to 54.4 in December 2025 from 52.6 in November. This was ahead of consensus forecasts and the strongest growth in the services sector since October 2024. Activity was boosted by the holiday season. Read more from Trading Economics here
Euro area retail sales
Eurozone retail sales rose more than expected in November, while German industrial activity continued to expand, supporting a picture of stable – if modest – growth in the region. The eurozone economy grew quicker than most forecasts in 2025, but most economists expect only modest expansion this year. Read more from Reuters here
Markets round-up
Footsie builds on recent strength
The FTSE 100 ended a record-breaking week at 10,124, supported by a mega-mining deal and a rebound in the oil price. The FTSE 250 also showed signs of strength, ending the week at 23,036. Read more from the Independent here
Banks adjust to Maduro capture
Wall Street banks are betting regime change in Venezuela could unlock tens of billions of dollars in energy and infrastructure investment and are positioning accordingly. The private sector is expected to play a key role in rebuilding the country. Read more from the FT here
Walmart moves to Nasdaq
From 20 January, Walmart will replace British drugmaker AstraZeneca in the Nasdaq-100 Index. This follows the announcement in November that the retail giant would shift its longtime listing on the New York Stock Exchange to its main rival. Read more from Reuters here
China’s ‘AI tigers’ enjoy strong debut
MiniMax and Zhipu AI, China’s ‘AI tiger’ start-ups, launched on the Hong Kong Stock Exchange last week. Both saw strong early gains, reflecting growing confidence in the Chinese AI sector. Read more from Reuters here
Semiconductor giant results
Taiwanese semiconductor giant TSMC showed slower revenues in December, but strong year-on-year growth, as demand for advanced chips continued. TSMC reported December revenues of NT$335bn (£5.9bn) – down 2.5% over November but 20.4% higher than December 2024. Read more from Hargreaves Lansdown here
UK supermarkets enjoy festive cheer
Britain’s biggest supermarkets benefitted from strong food spending ahead of Christmas, but fashion and homeware groups failed to make headway. Tesco, Sainsbury’s and Marks & Spencer reported strong festive grocery sales. Read more from the Independent here
Pub groups gain
UK pub groups Marston’s and Mitchells & Butlers gained on reports the chancellor is set to make concessions on plans to scrap business rate relief for the hospitality industry. She is now expected to extend relief to help landlords with rising bills instead of scrapping cash support. Read more from Hargreaves Lansdown here
“The collective wisdom of markets recognises there is unlikely to be any immediate impact on the oil price – nor is there any especially great opportunity for oil companies in the short term.
Selected equity and bond markets: 02/01/26 to 09/01/26
| Market | 02/01/26 (Close) |
09/01/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5358 | 5458 | +1.9% |
| S&P500 | 6858 | 6922 | +1.6% |
| MSCI World | 4445 | 4484 | +0.9% |
| CNBC Magnificent Seven | 420 | 426 | +1.5% |
| US 10-year treasury (yield) | 4.2% | 4.17% | |
| UK 10-year gilt (yield) | 4.54% | 4.38% |
Investment round-up
Fund investor confidence returns
Investors put £530m into funds in November – the strongest month for flows since May 2025, according to Investment Association data. There were consistent outflows across equities, as withdrawals totalled £2.9bn, but there was a rare inflow into active UK equity funds – of £52m.
Investment trust M&A picks up
2025 saw a frenzy of corporate activity in the investment trust sector, with 27 mergers, acquisitions and liquidations completed in the year, surpassing the previous record of 24 set in 2024, according to the Association of Investment Companies. Share buybacks soared 36% to £10.22bn, compared with £7.51bn in 2024 – the previous record.
Janus Henderson in new fund launch
Janus Henderson has launched its Horizon Discovering New Alpha fund. Led by portfolio managers Richard Clode and Nick Harper, it will be available exclusively to HSBC Private Bank customers for the next six months.
Glass Lewis recommends voting against Saba
The board of Edinburgh Worldwide investment trust says independent voting adviser Glass Lewis has recommended shareholders vote against all of Saba Capital Management’s resolutions at the upcoming general meeting. Saba now owns just under 30% of the trust and has called for the removal of the board.
AJ Bell ‘favourite fund’ changes
AJ Bell has removed both BlackRock UK Special Situations and BlackRock UK Income from its Favourite Funds list, citing underwhelming performance and a decline in active risk.
Shires and AEI agree tie-up
Shires Income is to merge with stablemate Aberdeen Equity Income. Shires will enter into voluntary liquidation with shareholders able to roll over into Aberdeen Equity Income. Managers Thomas More and Iain Pyle will be co-managers on the fund.
… and the week that will be
Big bank earnings
A number of the major banks will report fourth-quarter earnings in the coming week, kicking off an earnings season that should test stockmarkets’ optimistic start to the year. Analysts expect overall earnings from S&P 500 companies will rise more than 15% in 2026, according to LSEG IBES. Read more from Reuters here
US inflation
This week sees the release of December’s Consumer Price Index in the US, which showed price pressures slowing to 2.7% in its prior report. Delayed reports from October and November could also provide further insight into pricing changes in the US economy. Federal Reserve officials remain divided over whether to cut interest rates at the central bank’s next meeting in late January. Read more from Investopedia here
The week in numbers
UK GDP: Consensus forecasts have November’s three-month average reading for UK GDP holding at -0.1%.
US inflation: Investors keenly await the December US consumer price index (CPI) reading. The November iteration showed inflation at 2.7% year-on-year and core CPI at 2.6%.
US retail: Consensus expectations are for US retail sales to rise 0.1% in November and for the producer price index to rise 0.3% month-on-month, compared with the October number.
Germany GDP: Consensus expectations are for Germany’s full-year GDP growth to come in at 0.2%.
China exports: China trade data for December is due this week. Exports rose 5.9% in November.
In focus: Same old drill?
Occam’s Razor – the principle the simplest explanation, with the fewest assumptions, is usually the correct one – suggests the US’s Venezuela incursion really was all about oil. Facing a slump in popularity ahead of the US mid-term elections, Donald Trump needs to show he is doing something to improve household finances. Bringing his ‘Drill, baby, drill’ mantra to Venezuela might be seen as an easy win.
There is much to support this view. First and foremost, it is the reason given by the US president himself. Trump believes bringing Venezuela’s vast oil reserves onstream can help him achieve his target of oil at $50 a barrel. This, in turn, should help bring down inflation and allow for more interest rate cuts. All these factors combined could deliver a cost-of-living boost in time to shore up his popularity before the nation goes to the polls in November.
Venezuela certainly has plenty of oil. The country is estimated to hold the world’s largest proven reserves of crude oil – almost 20% of total supply. Yet, years of economic mismanagement, sanctions and corruption have left it producing at a fraction of its capacity. It pumps just under one million barrels of oil per day – around 1% of global production. It seems an easy target to boost global oil supplies and bring prices lower.
Johannes Mueller, global head of research at DWS, highlights a clear correlation between inflation and oil prices, saying: “Break-even inflation rates are the difference between yields on inflation-indexed and nominal bonds – and are generally regarded as a proxy for inflation expectations in the bond market. These inflation expectations correlate strongly with the price of oil.”
Two reasons explain the tight but unstable link, he says: first, oil prices feed straight into headline consumer price inflation via energy and transportation costs; second, oil prices convey real-time information on demand across a wide range of households and businesses. In other words, if demand for oil is lower, it suggests weaker overall demand.
“By that logic, the mere prospect of renewed supply can cool crude prices, driving 10-year US breakeven inflation lower,” Mueller notes. “Never mind that nobody quite yet knows who – and at what cost and on which timescale – might restore Venezuela’s crumbling hydrocarbons sector.”
Venezuela’s sticky, thick oil is both difficult and expensive to extract while the country’s oil production infrastructure is in a state of disrepair after years of underinvestment, corruption and sanctions.”
Superficially, this looks like a neat trick – an easy win for an under-fire US president – yet there are some holes in the plan. The first is buy-in from business – someone has to be persuaded to get the oil out of the ground. Venezuela’s sticky, thick oil is both difficult and expensive to extract. At the same time, the country’s oil production infrastructure is in a state of disrepair after years of underinvestment, corruption and sanctions.
Trump has been meeting the management team of the major US oil companies to encourage them to invest in Venezuelan production. These companies even saw meaningful spikes in their share prices in the immediate aftermath of the Maduro extraction. Nevertheless, it is not at all clear they will be persuaded to invest.
Certainly, any development looks uneconomic at current oil prices. The breakeven point for Orinoco oil is around $80, according to consultancy Wood Mackenzie. It is unlikely the shareholders of Chevron or Exxon will support management teams investing at a loss.
For his part, Darren Woods, chief executive of ExxonMobil – a company that bears the scars of having its Venezuelan assets seized twice – has said the country remains “uninvestable” without “significant changes”. He added he would need clear investment protections and changes to the hydrocarbon laws in the country.
Nor is it just the local regime the oil majors do no trust – as one private equity investor memorably told the Financial Times: “No-one wants to go in there when a random fucking tweet can change the entire foreign policy of the country.” There are plenty of investment opportunities that look far easier and potentially more profitable.
As Benjamin Melman, CIO at Edmond de Rothschild Asset Management, noted last week in Wealthwise, the immediate response to the US’s actions may even be to diminish supply. “The blockade limits imports of the diluents needed to process heavy crude, operational constraints are mounting and several Petróleos de Venezuela partners have been asked to reduce their production,” he says. “According to Energy Aspects estimates, 200,000 to 300,000 barrels per day could be shut down.”
Lower oil prices may not even deliver lower interest rates in the way the US administration is expecting.”
Then there is the problem of assuming that increasing supply in one area will have no repercussions elsewhere. OPEC had been progressively increasing supply throughout 2025 but currently has a pause on new supply. They may act to withdraw supply if more came on stream from Venezuela. “The freeze on increases is being maintained, the pause extended and the alignment between Saudi Arabia, Russia and the United Arab Emirates remains intact,” notes Melman.
There are further concerns. Mueller points out that central banks may look through oil shocks when deciding interest rates unless they are extreme, adding: “That is why policymakers focus on core inflation, which strips out volatile energy and food.” In other words, lower oil prices may not deliver lower interest rates in the way the US administration is expecting.
Equally, there is a question over whether oil is as important a part of the inflation bucket as before. The US CPI basket has become more dependent on services rather than goods in recent years, reducing its sensitivity to oil prices.
According to Noah Barrett, a research analyst at Janus Henderson, markets appear to understand the situation. “Initial price action in oil markets has been muted, with Brent crude futures trading within a fairly narrow range as of 5 January,” he observes. “That said, while the initial move was lower, prices eventually swung higher, with near-term upside attributed to geopolitical uncertainty as well as positioning, with oil prices coming off their steepest annual decline since 2020.
“Should the US move forward with meaningful investment in Venezuela, the increase to production – supply – would be bearish for oil prices, longer term. At the same time, Gulf Coast refiners stand to benefit as they are well equipped to run this type of heavy crude, while shorter shipping distances would reduce transportation costs. Conversely, it could present a headwind for Canadian producers, as some of their heavy barrels would be displaced in favour of Venezuelan oil and would need to find a new market.”
In the end, the market’s response to all this drama is probably the right one. The collective wisdom of markets recognises there is unlikely to be any immediate impact on the oil price – nor is there any especially great opportunity for oil companies in the short term. There may be foreign-policy reasons to target Venezuela but a decline in domestic inflation is not a clear outcome from the US incursion.
Read more on this from the FT here, from the Guardian here, from Nasdaq here and from Reuters here
In focus: Raised AI-brow
To date, big tech has largely been tested in the sunny optimism of equity markets. As companies move to up their enormous capital expenditure still further, however, they will also be tested by far gloomier debt markets. Already, bond investors seem less inclined to afford the sector special privileges.
The early signs from 2026 suggest investors remain as nervous about the potential for an AI bubble as they were in the final months of 2025. The technology sector has underperformed the wider market. Its experience in the bond market may prove instructive, with bond investors more sceptical on the AI trend.
“Credit investors will also likely demand extra compensation until there is clarity around the defined ‘winners’ of this supercycle,” notes Nicholas Ware, a portfolio manager on the global bonds team at Janus Henderson Investors. “Despite the exceptional fundamentals in this cohort, observed through a mix of continued growth and free cashflow generation, we anticipate the shift in financial policy may leave technology spreads range-bound.”
He points out that these changes are already evident. In September 2025, for example,10-year BBB technology spreads traded on average 12 basis points tighter than broader non-financial corporates. That premium no longer exists, however, with technology BBBs now trading almost in-line with broader non-financial corporates. Bond investors appear unwilling to give technology companies the benefit of the doubt on the potential for AI in the same way equity investors have.
This does not necessarily suggest a crash, of course, but Tatton Investment Management CEO Lothar Mentel foresees a rotation in markets, with AI’s momentum spreading to new industries and investors increasingly looking beyond technology for new growth opportunities.
“It does not mean US tech will do badly,” he explains. “Most of the companies are far too profitable to have any serious problems. A better way to put it is that, in the medium-term, actual earnings growth will support tech shares but it is hard to see future growth expectations pushing up share price valuation multiples – relative to earnings – much further.
“In other words, gains for the megacaps will likely have to come from maintained outperformance in profit growth.” This is riskier for investors, meaning that any weakness is likely to be punished by markets.
The bond market may have inadvertently shown the way for equity investors on big tech. Rather than treat them as special, it is evaluating them on the reality of their businesses today. This more objective appraisal presents a different picture to the still-optimistic view of equity markets. The two views may start to align.
