Major central banks mostly held a steady course amid broadly easing inflation. US price data remained benign – headline CPI was about 2.7% year-on-year in December, about the same as November – supporting expectations that the Fed may only cut rates later in 2026 rather than move quickly.
The first full trading week of 2026 unfolded with a steady macro backdrop and limited change in central bank expectations. Policy signals across major economies remained broadly consistent with late-December messaging, reinforcing a sense of continuity rather than transition. Inflation trends continue to ease gradually, while growth indicators point to moderation rather than deterioration, keeping investors positioned cautiously but constructively.
Global policymakers enter 2026 with policy divergence and a broadly stable backdrop. In the US, Fed officials have signalled a pause in rate hikes after a 3.50-3.75% policy rate (no hikes likely ahead and only one cut pencilled in 2026). Economic data have shown cooling inflation and modest growth, and markets now see Fed cuts (perhaps two) outpacing other central banks.
Markets traded through a holiday-shortened and liquidity-constrained week, with price action driven more by positioning, macro expectations and year-end flows than by fresh data surprises. Several major exchanges were closed for Christmas, while others operated on shortened hours, amplifying moves in otherwise thin conditions.
Markets closed out the penultimate full trading week of 2025 grappling with a defining theme: policy divergence. Despite several potential volatility catalysts, investors largely held existing positioning, with mixed US macro data failing to force a meaningful repricing into year-end.
