Week ending 23rd January.

Global markets closed the week modestly lower, though sentiment improved as geopolitical tensions eased and investors took comfort from pockets of encouraging economic data.

It was a holiday-shortened week in the United States, with markets closed on Monday in observance of Martin Luther King Jr. Day.

Trading began on a weaker note amid renewed fears of a global trade dispute after President Donald Trump threatened to impose tariffs on European nations opposing U.S. efforts to acquire or exert control over Greenland. These comments reignited fears that trade policy could be weaponised again, putting markets on edge over a potential deterioration in transatlantic relations.

Attention therefore turned sharply to the World Economic Forum in Davos, Switzerland, where investors looked for clarity from both U.S. and European leaders. However, these concerns eased materially as the week progressed. President Trump stepped back from the notion of using force or coercive trade measures and instead signalled a preference for negotiation with European allies, focused on cooperation around Arctic security. This shift was accompanied by the announcement of a new “Board of Peace,”.

Markets responded positively to the shift in tone, with equities rebounding. As we anticipated, Trump’s rhetoric ultimately proved more forceful than the underlying policy direction. While negotiations remain ongoing and details are limited, the episode served as an important reminder that headline risks do not always translate into immediate or disruptive policy action.

Nevertheless, Trump’s willingness to use tariffs as a foreign policy tool remained a prominent topic in Davos. Frustration among major U.S. trading partners was evident, and discussions gained momentum around diversifying global trade relationships beyond the U.S.

Geopolitics also featured prominently in discussions surrounding the Russia-Ukraine war. The first three-way peace talks involving Russia, Ukraine and the U.S. concluded in Abu Dhabi over the weekend without a clear breakthrough. However, President Trump described a potential agreement as “reasonably close,” and Ukrainian President Zelenskyy indicated that a second meeting could take place as early as next week. While investors remain cautious given the conflict’s history, even tentative movement towards dialogue was viewed as a modest positive for global risk sentiment.

In equity markets, the FTSE 100 outperformed its European peers. Sterling strengthened further on Friday, supported by the release of stronger-than-expected economic data.

The UK PMI figures provided a welcome upside surprise. The Purchasing Managers’ Index, an indicator of economic momentum, showed expansion across both manufacturing and services. Manufacturing PMI rose to 51.6 in January from 50.6 in December 2025. Output increased at its fastest pace since October last year, and export orders rose for the first time in four years, an encouraging signal amid global trade uncertainty. Employment, however, continued to decline, highlighting ongoing cost pressures and caution among firms.

The services sector showed resilience. Services PMI climbed to 54.3, well above expectations, supported by improved clarity following the UK Budget and a pickup in client investment. New orders rose for the third time in four months, whilst rising payroll costs and elevated inflation pressures led to faster job shedding and higher output prices.

U.S. economic data was broadly positive this week. GDP grew at a 4.4% annualised rate in Q3 2025, driven by stronger exports and a smaller inventory drag. November PCE inflation held at 2.8% for both headline and core, matching expectations but remaining above the Fed’s 2% target. The Fed is expected to keep rates unchanged on 28 January, with markets focused on Chair Powell’s remarks for clues on future easing.

Next week, attention will turn to major earnings, with Apple, Microsoft and Meta all reporting. Key U.S. data releases including consumer confidence, durable goods orders, jobless claims, PPI and the Chicago PMI will also be in focus for further signals on growth and inflation. Europe will release flash GDP estimates as well.