What to watch in the week ahead

• Global equities rose last week, despite an increase in geopolitical risk following the US action in Venezuela and protests in Iran. Investors will also be awaiting a decision from the US Supreme Court on the authority of the Trump administration's tariffs based on declaring national emergencies. Finally, investors will be evaluating relations between the Fed and the administration, after the central bank was served grand jury subpoenas from the Department of Justice threatening a criminal indictment.
• US jobs data at the end of last week added to evidence that demand for workers is cooling. That boosts our confidence that the Fed will decide to cut rates again before the end of the first quarter. But will inflation data this week provide an impediment to further easing?
• Chinese stocks had a tepid week of trading, with the onshore CSI 300 flat for the week, and the offshore Hang Seng and Hang Seng tech indices edging only fractionally higher. Can the market recover momentum?

Will US inflation data point to one or two Fed cuts?

Last week ended with further evidence that the US labor market is cooling. US employment rose by 584,000 last year, the slowest pace since 2003, after the final month of jobs data for the year came in below expectations at 50,000. For the previous three months, the average private sector job creation fell to 29,000 in December, compared to an average of 61,000 for the year, and 130,000 in 2024. While the jobless rate fell to 4.4%, down from a recent peak of 4.6% as the effects of a government shutdown were largely reversed, the report reinforced our view that demand for workers has been moderating. Job openings for November also dropped, according to JOLTS data earlier in the week. The ratio of openings to unemployed workers fell to 0.91, its weakest since early 2021.

The focus this week will shift to inflation and consumer spending, as investors look for guidance on how many rate cuts are left from the Federal Reserve. At present, the median forecast from top Fed officials is for just one cut, while the market is priced for two. In our view, the December consumer price index reading could point to a renewed acceleration in core inflation. However, this will likely be the result of an unwinding of prior distortions related to the government shutdown and the unusual timing of holiday discounts by companies. Inflation—though above the Fed’s target —should not be a barrier to central bank easing in the first quarter, in our view, especially given concerns over the weakening labor market. The retail sales data for November also look likely to support our view that consumer spending remains a key support for the economy.

So, based on this backdrop, we expect the Fed to cut rates once again in the first quarter. The combination of continued economic growth and monetary policy easing has historically been positive for equity markets, and we expect this year to be no exception. While markets are looking for a second rate cut later on this year, this could hinge on changes in the composition of the Federal Reserve board—including the expected appointment of a more dovish chair after Jerome Powell's term ends in May.

Will markets remain relaxed about risks from Venezuela?

The US decision to topple the Venezuelan president is a significant geopolitical move by the Trump administration. It marked a forceful assertion of what the president has called the “Donroe Doctrine,” which claims US dominance in the Western hemisphere. It also raised questions about whether further foreign interventions might lie ahead in Colombia, Cuba, Iran, or Greenland. But despite the historic nature of the intervention from a geopolitical perspective, it has so far largely been shrugged off by investors. The rise in uncertainty didn’t even result in the customary fleeting bout of equity volatility that often accompanies a geopolitical crisis. Global stocks ended Monday—the first opportunity for markets to react to the weekend's developments—0.8% higher, based on the MSCI All Country World index, and rose again on Tuesday. The price of Brent initially fell on the assumption that the move will lead to higher output from Venezuela. But the move was modest, as was the increase in the price of gold.

The questions for investors this week will be whether updates on the situation will undermine this initial calm reaction. A wave of other policy uncertainties also loom, including the potential for a Supreme Court decision on the Trump administration's tariff authority. Relations between the Fed and the administration are also back in focus after the central bank was served grand jury subpoenas from the Department of Justice threatening a criminal indictment.

Regarding geopolitical developments and Venezuela, our view is that there is unlikely to be a delayed market impact, either via a significant move in energy prices, emerging market assets, or broader market sentiment.

On energy, while the eventual removal of the US embargo on Venezuelan oil and renewed investment could eventually lift production, this will be a challenging multi-year process. Venezuela’s energy infrastructure has suffered from several decades of underinvestment following the nationalization of the industry in 2000, which included taking control of assets from US firms such as ExxonMobil and ConocoPhillips. Venezuelan assets are not a significant part of emerging market bond or equity indexes. Global investors have long held a negative view of the nation’s outlook. Its sovereign debt, which has been in default for over eight years, trades idiosyncratically with limited correlation with other emerging market sovereign debt. Finally, there is our long-standing observation that geopolitical crises tend to have only a fleeting effect on markets. During the last 11 major geopolitical events, the S&P 500 was on average just 0.3% lower one week after the event and 7.7% higher 12 months later. Except for worries over tariffs, markets have barely reacted to even relatively major geopolitical developments.

So, we expect investors to focus mostly on fundamentals in equity markets, which are positive. Heightened political risk could, however, further improve the outlook for gold—adding to the incentive for many central banks to diversify away from US dollar reserves. We recently raised our gold target to USD 5,000 an ounce by the middle of this year.

Can Chinese equities regain momentum?

Chinese stocks had a tepid week of trading, with the onshore CSI 300 flat for the week, and the offshoreHang Seng and Hang Seng tech indices edging only fractionally higher. The cautious mood appeared to reflect a combination of mixed US data, geopolitical tensions, and profit taking after a strong start to the year. This was despite a strong debut for Chinese tech initial public offerings (IPO). Three new listings on Thursday raised a combined USD 1.19bn and rallied well above their offer prices. Zhipu AI opened 3.3% higher, Iluvatar CoreX surged 31.6%, and Edge Medical jumped 36.4%, underscoring robust investor appetite for China’s next wave of AI, semiconductor, and robotics leaders.

Investors will be looking this week to see if the Chinese market can regain some of the momentum. There were some signs of sentiment improving on Monday, with a strong performance for Chinese stocks. While timing market developments is hard, our view is that enthusiasm over key growth themes will help push the market higher.

We expect ongoing policy support, with President Xi’s New Year address underscoring the priority of homegrown AI models and chipmaking. Anticipation is high for the next-generation DeepSeek model launch in February, and recent technical advances are drawing renewed interest from investors. IPOs are booming, and liquidity is structurally improving. Hong Kong’s capital markets are riding high, with semiconductor and AI firms leading a wave of new listings—nearly 10 major IPOs are lined up for January alone. This follows a banner year for Hong Kong IPOs, with USD 37.2 billion raised from 115 listings in 2025, the strongest performance since 2021. We expect MSCI China earnings to rebound from just 2.5% growth last year to 13.6% this year, led by tech stocks, and see the index climbing to 102 by year-end, suggesting high-teen returns.