Market Commentary

January 2026

Global share markets were broadly positive in January, however a surge in the value of the Australian dollar and a broad fall of the USD led to the MSCI World Index ‒ Net returning -2.68% in unhedged AUD terms on the strength of the Australian dollar, which rose steadily through the month. In hedged AUD terms the index returned 1.70%.

Global equities continued their positive momentum through the first month of the year as investors remained optimistic on growth and earning. Smaller companies outperformed at times in the month as interest shifted from mega-cap tech toward materials, infrastructure and emerging markets.

US equities started the month positive as investors interpreted central bank positions as tilting toward future rate cuts, however gains were limited by mid-month volatility following threats of tariffs against European allies who obstructed a US takeover of Greenland. The threats caused the biggest financial market upset since President Trump’s “Liberation Day” tariff announcements in April 2025. Fortunately, comments about having a framework of a deal in place to end the trade dispute a few days later helped markets rebound. Generally, US markets maintained positive momentum through the month with each of the three major indexes posting 1-2% gains. The Dow Jones Industrial Average has now posted nine consecutive positive months.

Escalating tensions between Iran and the US also impacted markets in the month, most notably through a hike in energy and oil prices. Oil prices rose after protests erupted across several cities in Iran in late 2025 and continued through January, the largest uprising since the 1979 Islamic Revolution. 

A major trade deal has been finalised between the European Union and India, which creates a free trade zone covering a quarter of global GDP and around 2 billion people. The agreement, which has been under negotiation for nearly 20 years, aims to open markets amidst US tariffs and Chinese controls. EU exports to India are expected to double by 2032.

Emerging markets continue to perform well, particularly Asian markets including Hong Kong and Korea which posted strong gains early in the month as investors rotated into export-driven and technology shares. Financial shares were also supported toward the end of the month as China’s central bank talked up stronger market links and data showed Chinese industrial profits growing through 2025. Generally, there was a risk-on tone across Asia. There were pockets of pressure, however. International investors have fled Indonesia after a warning from MSCI of a potential downgrade. Trading on the benchmark Jakarta Composite Index was halted for 30-minutes after a 10% plunge. The sell-off – which was salvaged by a slight rebound at the end of the day – was the worst since the 1998 Asian Financial Crisis.

Central bank activity

The US Federal Reserve (Fed) held rates at its January meeting, which was widely expected. Updated Q3 figures showed increased growth, up 4.4% through the quarter and unemployment was down in December to 4.4% from 4.5%. The month ended with the latest Producer Price Index (PPI) coming in more than double Wall Street estimates and the biggest gain in five months – setting the all-time high – was businesses passing on tariff costs.

There was little other central bank activity in the month with meetings in early February for the Reserve Bank of Australia – who is broadly expected to increase rates – as well as the Bank of England and Bank of Japan. [Note: The RBA did hike rates by 0.25% to 3.85%, noting that inflation is likely to remain above target for some time.]

Outgoing Fed chair Jerome Powell released a statement and video in mid-January in response to the US Department of Justice (DoJ) opening a criminal investigation into him, denouncing it as punishment for not setting interest rates in accordance with the wishes of the US president. The statement, which raises significant concerns about the independence of the Fed with its next chair set to be appointed by May when Powell’s term ends. Global central bank leaders released a statement supporting Powell and condemning actions to limit central bank independence. 

US President Donald Trump also announced his selection for the next Fed Chair. Kevin Warsh is an American financier and bank executive who has previous experience as a Fed Governor and worked for Morgan Stanley in mergers and acquisitions. He also was a Special Assistant to the President for Economic Policy for George W Bush in the early 2000s. The initial reactions to Warsh’s announcement were mixed, with some observers finding his previous government experience a promising sign of future Fed independence with others concerned that his political ties will make him more likely to acquiesce to demands from the President for lower rates for short-term political gain.

Australian activity

The Australian share market continued the rally started in December, with shares hitting their highest level since October before retreating slightly at the very end of the month. Interest rate-sensitive companies were sold off as employment figures were released that firmed up expectations for a near-term RBA rate increase. The S&P/ASX 300 Accumulation Index closed the month up 1.72%.

Australian employment and inflation reports helped rally share prices in the short term but reignited rate hike bets. December employment grew more than expected – 65 thousand compared to 30 thousand as expected – and unemployment dropped to 4.1% from 4.3%.

Energy companies rose to end the month as oil prices climbed to a four-month high after threats of US attacks on Iran. 

Tech shares have continued to struggle, unlike their international counterparts. WiseTech continued to fall through the month, partially tied to concerns that an RBA rate hike would impact global logistics. Xero also continued to fall, down around 50% from its highs in June of 2025. Macquarie Data Centres was a sector outlier, rising on demand for domestic AI-related facilities and capabilities.

Fixed income performance

Global bonds rose in January, with the Bloomberg Global Aggregate Credit Index Total Return – $A Hedged closing the month up 0.39%.

The US government sold $766 billion in Treasury securities in the last week of January; long-term yields have continued to edge up (as they have since October) with the 30-year Treasury yield at 4.87% at month end. The 10-year yield ended the month at 4.251%, which is a 2-basis point rise.

The Australian bond market was up in January, with the Bloomberg AusBond Composite 0+ Year Index ahead by 0.21%. The Australian 10-year government bond yields rose to end the month as markets grew more certain of near-term RBA rate hikes. Shorter-term yields also rose modestly, reflecting market expectations for future rates. 2-year yields were up between 0.12-0.14% on the month.  

The Australian cash market returned 0.30% over the period, as measured by the Bloomberg AusBond Bank Bill Index. The Australian dollar hit 3-year highs against the US dollar, climbing above US$0.70 on expectations of a rate hike by the Reserve Bank of Australia (RBA) as well as general weakness in the US dollar. The move is notable as it inverts a trend generally experienced by the Aussie dollar, which generally rises gradually and falls steeply.

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