Week commencing 26 January 2026

Tariff threats and interest rate bets fuel market swings

United States (US) equity markets experienced a volatile week, driven by geopolitical drama surrounding Greenland. Early comments from President Donald Trump threatening tariffs on North Atlantic Treaty Organization (NATO) allies sparked heavy selling. However, the mood when Trump retracted the tariffs and announced a NATO agreement granting permanent US access to Greenland, while ruling out the use of force.

Locally, the ASX 200 mirrored this turbulence from the Greenland headlines and is on track to close the week around 8850, marking a modest weekly loss of about 0.5%.

Rate-sensitive sectors -  property, financials, and information technology (IT) - were the main drags. The weakness followed a robust December labour force report, which saw the unemployment rate fall unexpectedly to 4.1%, lifting the Reserve Bank of Australia’s (RBA) February rate-hike probabilities above 50%. In contrast, energy and resources stocks outperformed, benefiting from the strength in precious metals and commodities.

The week that was: highlights

• The Federal Reserve’s (Fed) preferred measure of inflation, the core personal consumption expenditures (PCE) price index, climbed to 2.8% year-on-year (YoY) in November after rising 2.7% in October
• Third-quarter (Q3) gross domestic product (GDP) increased at an upwardly revised annualised rate of 4.4%, the fastest pace since the third quarter of 2023
• Initial jobless claims rose by 1000 last week to 200,000, below the 210,000 forecast
• In the United Kingdom (UK), the unemployment rate for November remained steady at 5.1% for the three months to November
• In China (CN), the economy expanded by 4.5% YoY in Q4 2025, slowing from 4.8% in Q3
• Japan's core inflation rose 2.4% YoY in December, easing from 3% in November
• In Australia (AU), employment surged by 65,000 in December, well above the expected 30,000 gain. The unemployment rate fell to 4.1% from 4.3%, defying expectations of a rise to 4.4%
• In New Zealand (NZ), inflation rose 0.6% in Q4, following a 1% rise in Q3
• Crude oil rose 0.62% to $59.71, poised for a fifth week of gains
• Gold rose 7.60% to $4945
• Bitcoin fell 4.63% this week to $89,310
• Wall Street's gauge of fear, the volatility index (VIX), eased to 15.63 from 15.87 the previous week.

Key dates for the week ahead

Australia & New Zealand

• National Australia Bank (NAB) Business Confidence: Tuesday, 27 January at 11.30am AEDT
• Q4 Consumer Price Index (CPI): Wednesday, 28 January at 11.30am AEDT
• Australia and New Zealand Banking Group Limited (ANZ) Business Confidence: Thursday, 29 January at 11.00am AEDT
• Q4 Producer Price Index (PPI): Friday, 30 January at 11.30am AEDT

China & Japan

• Bank of Japan (BoJ) Meeting Minutes: Wednesday, 28 January at 10.50am AEDT
• National Bureau of Statistics (NBS) Manufacturing Purchasing Managers' Index (PMI): Saturday, 31 January at 12.30pm AEDT

United States

• Durable Goods: Tuesday, 27 January at 12.30pm AEDT
• Conference Board (CB) Consumer Confidence: Wednesday, 28 January at 2.00am AEDT
• Federal Open Market Committee (FOMC) meeting: Thursday, 29 January at 6.30am AEDT
• Initial Jobless Claims: Friday, 30 January at 12.30am AEDT
• Factory Orders: Friday, 30 January at 2.00am AEDT

Europe & United Kingdom

• Eurozone Q4 GDP: Friday, 30 January at 9.00pm AEDT

Key events for the week ahead

AU: Q4 CPI

Date: Wednesday, 28 January at 11.30am AEDT

In Q3 2025, headline CPI rose by 1.3%, accelerating from a 0.7% increase in the second quarter (Q2). This pushed the annual headline inflation rate to 3.2%, up from 2.1% in Q2, marking the highest quarterly rise since March 2023. This rise was largely driven by housing, recreation and culture, and transport.

The RBA’s trimmed mean measure increased to an annual rate of 3.0%, up from 2.7% in Q2. This represented the first rise in annual trimmed mean inflation since December 2022, signalling a reversal of the prior downward trend.

Since the Q3 CPI release, inflation has shown elevated pressures: headline inflation peaked at 3.8% in October before easing to 3.4% in November, while the trimmed mean edged up to 3.3% in October before dipping slightly to 3.2% in November.

The December quarter 2025 CPI is expected to show headline inflation rising by 0.5%, taking the annual rate to 3.5%. The core measure, the trimmed mean, is expected to rise by 0.8% quarter-on-quarter (QoQ) for an annual rate of 3.2%.

A downside surprise of 0.7% in the trimmed mean could allow the RBA to remain on hold at its February meeting, while a quarterly print of 1% would likely ensure a 25 basis point (bp) rate hike.

Ahead of the Q4 inflation report, the Australian interest rate market is pricing a 60% chance of a 25 bp rate hike at the February meeting. A full 25 bp rate hike is priced in by May, with a cumulative 50 bp of rate hikes priced in for 2026.

All groups CPI and trimmed mean chart

US: FOMC meeting

Date: Thursday, 29 January at 6.30am AEDT

At the last FOMC meeting in December, the Fed cut rates by 25bp into a target range of 3.50% – 3.75%. The decision passed on a 9-3 vote, with dissenting opinions favouring a larger 50 bp cut or no change.

Fed Chair Jerome Powell described the Fed as 'well positioned to wait and see how the economy evolves,' emphasising a data-dependent approach. The updated dot plot projected just one additional cut in 2026 and one in 2027.

Since December, data has been better than expected, with GDP growth driven by reopening, resilient consumer spending, and business investment. The labour market showed resilience, with non-farm payrolls exceeding forecasts and the unemployment rate ticking down to 4.4%. Core inflation has moderated further to 2.6%, providing the Fed with room to maintain a cautious stance while monitoring tariff-related risks.

The next FOMC meeting is expected to see rates kept on hold, with market pricing showing 95% odds of no change. The focus will be on Powell's press conference for hints on labour and inflation risks and potential pauses amid tariff uncertainties.

Fed funds rate chart

EA: Q4 GDP

Date: Friday, 30 January at 9.00pm AEDT

Eurozone GDP grew 1.4% YoY in Q3 2025, compared to the 1.6% expansion in the first and second quarters. The slowdown was due to softer household consumption and investment growth, partly offset by exports and government support.

Preliminary forecasts for Q4 2025 point to modest quarterly growth of around 0.2%, with annual expansion expected near 1.2% – 1.4%, reflecting resilient domestic demand but facing tariff and external headwinds.

The European rates market is pricing the European Central Bank (ECB) to keep its key lending rates on hold for all of 2026.

EA GDP annual growth rate chart

US Q4 2025 earnings season

The Q4 2025 earnings season continues, with reports expected next week from major companies including UPS, General Motors, Boeing, ASML, Starbucks, Tesla, Microsoft, Meta, IBM, Apple, Visa, American Express, and ExxonMobil.