January’s market action often matters more than simply marking the opening of the calendar year. Institutional positioning resets, testing of economic assumptions, and early price moves reflect how market participants interpret the first meaningful signals of the year.

While January rarely determines full-year outcomes, it frequently shapes the narratives markets carry into the first quarter (Q1).

Four critical levers: growth, labour, inflation, and policy, can provide an early indication of how markets are processing and prioritising incoming information.

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Growth: manufacturing PMIs

January’s first growth test comes from the manufacturing surveys, with markets watching whether signals from S&P Global Manufacturing PMI and ISM Manufacturing PMI tell a consistent story.

Key dates:

• ISM Manufacturing PMI: 5 January, 10:00 AM (ET)/ 6 January, 1:00 AM (AEDT)

What markets look for:

Attention often centres on new orders as a forward-looking indicator of demand, alongside prices paid for early insight into cost pressures.

Broad strength across both surveys would support the narrative that the growth momentum seen toward the end of 2025 may extend into early 2026, easing some concerns about a sharper slowdown. Weaker or conflicting readings would keep the growth outlook uncertain, rather than decisively negative.

How it tends to show up in markets:

Firmer growth signals often appear first in higher short-dated Treasury yields. Rising yields can tighten financial conditions, weigh on equity valuations, and support the USD, with spillover effects across foreign exchange (FX) and commodity markets.

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Labour: job openings and payrolls

While early-January Non-Farm Payrolls (NFP) often drive short-term volatility, JOLTS job openings may be more influential in shaping January’s policy narrative.

Key dates:

• JOLTS Job Openings: 7 January, 10:00 AM (ET)/ 8 January, 1:00 AM (AEDT)
• Non-Farm Payrolls (NFP): 9 January, 8:30 AM (ET)/ 10 January, 12:30 AM (AEDT)

What markets look for:

Markets often treat JOLTS as a clearer indicator of underlying labour demand than month-to-month hiring flows.

A continued drift lower in openings would support the view that labour demand is easing in an orderly way, reinforcing confidence that inflation pressures can continue to moderate. A rebound or stalled decline would suggest labour conditions remain firmer than expected.

Market sensitivities:

For markets, easing labour demand typically supports lower short-dated yields and a softer USD, while persistent tightness can push yields higher, strengthen the USD, and increase volatility across rate-sensitive assets.

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Inflation: PPI and CPI

Key Dates:

• PPI: 14 January, 8:30 AM (ET)/ 15 January, 12:30 AM (AEDT)
• CPI (December 2025 data): 15 January, 8:30 AM (ET)/ 16 January, 12:30 AM (AEDT)

The inflation signal can be read as a pipeline from producer prices to consumer inflation. Markets are watching whether producer-level cost pressures continue to fade or begin to re-emerge.

What markets look for:

Core PPI, particularly services-linked components, provides an early indication of cost momentum. Core CPI breadth may help determine whether inflation is continuing to cool or showing signs of persistence.

A softer pipeline would reinforce confidence that disinflation can extend into early 2026, increasing the scope for a potential March policy adjustment. Stickier CPI readings above 3% would raise questions about the durability of recent progress.

How rates and the USD often react

Market reaction tends to be led by yields. Cooling inflation pressure usually pulls short-dated yields lower and softens the USD, while persistent inflation risks can push yields higher and tighten financial conditions.

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Policy: January FOMC meeting

By the time the Federal Reserve meets at the end of January, markets will have processed the early growth, labour, and inflation signals of the year.

Key Dates:

• FOMC rate decision: 29 January, 2:00 PM (ET)/ 30 January, 6:00 AM (AEDT)

What markets look for:

A policy change is unlikely this month, but how those signals are framed in the statement and press conference still matters. With January cut expectations priced well below 20%, attention is on whether expectations for a March move, currently around 50%, begin to shift.

Confidence that inflation and labour pressures are easing would typically support lower yields and a softer USD. A more cautious tone could lift yields, strengthen the USD, and tighten global financial conditions.

Putting it all together

January’s data acts as condition-setters rather than decision points. The practical takeaway lies in how markets respond as those conditions become clearer:

If growth and labour soften while inflation continues to ease, markets may lean toward a more constructive risk backdrop, with Treasury yields remaining the key guide and expectations for policy easing later in Q1 firming.

If growth holds up and inflation proves sticky, a more cautious posture may be warranted, with heightened sensitivity to Treasury yields, USD strength, and pressure on equity valuations and rate-sensitive commodities.

In 2025, the S&P 500 traded around 6,835 and was up approximately 16% year to date (YTD). Market direction remained most sensitive to Federal Reserve expectations, inflation data and the earnings outlook, with returns also shaped by mega-cap tech leadership and the broader AI narrative. The index pulled back from earlier December highs, but it has so far held above key major moving averages (MA).

Key 2025 drivers included:

• ‍Fed expectations and inflation: Inflation cooled through the year but remained sticky around 2.5% to 3%. A Fed easing bias likely supported price to earnings (P/E) multiples and “risk-on” positioning. More recently, markets appeared increasingly rate-sensitive, with the decreased likelihood of an additional rate cut until March 2026.
• ‍Earnings and guidance: Corporate earnings remained strong quarter on quarter. Recent Q3 results reportedly saw over 80% of the S&P 500 beat earnings per share (EPS) expectations. For Q4, the estimated year-over-year earnings growth rate is 8.1%, despite ongoing concerns around import tariffs and potential margin pressure.
• ‍Index leadership and breadth: Returns were heavily influenced by mega-cap tech and AI beneficiaries, even as broader market breadth appeared less consistent at points through the year.
• ‍Policy headlines and volatility: Trade and tariff headlines drove sharp moves, particularly earlier in the year. Some investors pointed to the “TACO” trade, with rapid recoveries after policy proposals were softened. Over time, similar shocks appeared to have less impact as the market became somewhat desensitised.
• ‍Valuations and sensitivity: The forward 12-month P/E ratio for the S&P 500 is 22, above the 5-year average (20.0) and above the 10-year average (18.7). That gap kept valuation sensitivity, especially in AI-linked names, firmly in focus.

Current state

The S&P 500 is about 1% below record highs hit earlier in December. That could indicate the broader uptrend remains in place, with a move back toward the recent highs one possible scenario if momentum improves. Despite the recent retracement, the index remains above all key major moving averages (MA). The latest bounce followed lower than expected CPI numbers earlier this week, alongside continued, and to some, surprising optimism about what may come next.

What to watch in January

• ‍Q4 earnings from mid-January: Results and guidance may help clarify whether valuations are being supported by forward expectations.
• ‍AI narrative and positioning: With AI-linked mega-caps carrying a large share of market capitalisation, changes in sentiment or expectations could have an outsized impact on index performance.
• ‍US jobs and CPI data: The latest US jobs report reportedly points to the highest headline unemployment rate since 2021. Cooling inflation this week may keep markets alert to shifts in rate cut timing, particularly around the March decision.

S&P 500 daily chart

Major FX pairs

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AUD/USD

AUD/USD has been choppy in 2025. Since the “redemption day” drop in April, the move has looked more like a steady grind higher than a clean upside trend.

Key levels
Recent peaks in early September and mid-December highlight resistance near 0.6625. Support has been evident around 0.6425, where price bounced over the last month.

What is supporting the bounce
That support test coincided with stronger than expected jobs and inflation data, lifting expectations that the Reserve Bank of Australia (RBA) may raise rates during 2026 rather than cut again. The latest pullback looks contained so far, with buying interest already visible and price still above key longer-term moving averages.

What could drive a breakout
The pair remains range-bound, but the tilt is still constructive. If Chinese data stays firm, metals prices hold up, and the central bank outlook remains relatively hawkish, a break above resistance could gain more traction.

AUD/USD daily chart

EUR/USD

After early 2025 euro strength, EUR/USD has mostly consolidated since June in a roughly 270 pip range. This month tested 1.18 resistance, reaching highs not seen since September.

What price is doing now
The recent pullback still lacks strong downside conviction. Some technical analysts refer to the 1.17 area as a near-term reference level.

What could come next
If price holds 1.17 and buyers step back in, another push toward 1.18 is possible. One view is that the European Central Bank (ECB) could be less inclined to ease in 2026, which could be consistent with a firmer EUR/USD scenario. Broader analyst commentary also suggests the euro may stall rather than collapse against the US dollar, although outcomes remain data and policy dependent.

EUR/USD daily chart

USD/JPY

Year-to-date picture
USD/JPY is close to flat overall for the year. After US dollar weakness in Q1, the pair reversed higher and now sits just below resistance near 158.

Rates remain the main driver
Rate differentials still favour the US dollar. The Bank of Japan (BOJ) held steady for much of the period despite expectations it might act, and the recent rate increase was modest. Policy has only moved marginally away from zero.

What could shift the balance
Rate differentials remain a key influence. Without a clearer shift in BOJ policy, the JPY may find it difficult to sustain a rebound. Some market commentators cite 154.20 as a chart reference level.

USD/JPY daily chart

Donald Trump has officially declared the Maduro regime in Venezuela a foreign terrorist organisation and ordered a "total and complete blockade" of the country's sanctioned oil tankers.

The U.S. has positioned 11 warships in the Caribbean to enforce the blockade, which could remove 400,000 to 500,000 barrels daily from global supply.

The move sent crude prices jumping over 2% and sparked renewed concerns about supply stability heading into 2026.

White House Chief of Staff Susie Wiles succinctly summarised the situation as: “Trump wants to keep on blowing boats up until Maduro cries uncle."

Brent crude jumped 2.4% to $60.33 per barrel, while WTI climbed 2.6% to $56.69.

If crude maintains its $60 per barrel price, analysts project the blockade, combined with potential Russian sanctions, could push prices toward $70 as Venezuela's already-devastated economy faces collapse.

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Bank of Japan to Hike Rates to Highest Level in Decades

The Bank of Japan is set to raise interest rates to their highest level in three decades this Friday, with Governor Kazuo Ueda expected to lift the benchmark rate from 0.5% to 0.75%.

While modest by global standards, this marks a landmark step in Japan's departure from decades of near-zero rates and unconventional easing.

The decision comes amid significant market turbulence. Japanese government bond yields have surged, with 30-year bonds hitting record highs and 10-year yields reaching 19-year peaks.

The volatility stems partly from concerns under new Prime Minister Sanae Takaichi, who recently approved a $118 billion stimulus package with over 60% financed through borrowing.

While Friday's hike appears certain, policymakers have signalled caution as they push rates toward levels estimated between 1% and 2.5%.

Ueda's post-meeting press conference will be closely watched for signals about future increases.

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Micron Forecasts Blowout Earnings on Booming AI Market

Micron Technology is projecting second-quarter earnings of $8.42 per share, nearly double Wall Street's $4.78 estimate.

Micron shares surged 7% in after-hours trading as markets reacted to the news that the AI-driven memory chip race is showing no signs of slowing.

As one of only three major suppliers of high-bandwidth memory (HBM) chips alongside SK Hynix and Samsung, Micron sits at a chokepoint in AI infrastructure.

The HBM specialised chips are essential for training and deploying generative AI models, and current demand is dramatically outpacing supply.

CEO Sanjay Mehrotra revealed that supply tightness will extend beyond 2026, with Micron expecting to fulfil only 50-70% of key customer demand in the medium term.

Micron projects revenue of $18.70 billion this quarter versus analyst estimates of $14.20 billion. The company has retooled their operations toward AI applications, even dissolving its consumer "Crucial" brand to concentrate on AI data centre demand.

HBM chips are now the bottleneck in AI system performance, and suppliers who can deliver at scale have the potential to capture large amounts of value over the coming years.

US indices pulled back from record highs after the Fed signalled no rate cut in January. The Nasdaq was hit hardest with AI sector anxiety resurfacing. 

Combine that with this week's shutdown-delayed jobs data release, and questions are mounting on whether markets can muster a Santa Claus rally this year.

Delayed Jobs Data Could Define Santa Rally

• This week delivers critical economic data that was postponed during the government shutdown: 
  
  • Tuesday: Non Farm Payrolls
  • Thursday: Consumer Price Index (CPI)
• These two releases could determine whether markets can rally or face further pressure into Christmas. 
• Volatility is expected around both announcements as traders position for potential surprises.

ECB and Bank of England Enter Rate Decision Spotlight

• The European Central Bank and Bank of England both announce rate decisions this week. 
• EUR and GBP traders should watch closely for any policy divergence that could create currency volatility. 
• Cross-border flows may shift as investors weigh different central bank trajectories.

Flash PMI Data Offers Real-Time Economic Pulse Tomorrow

• Tomorrow delivers a global economic snapshot through flash PMI releases from Japan, Australia, Europe, the UK, and the US. 
• Markets could react fast to these forward-looking indicators.
• Any regional divergence could signal shifting economic momentum across major markets.

Market Insights

Watch Mike Smith's analysis of the week ahead in markets.

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Key Economic Events

Stay up to date with the key economic events for the week.

The Federal Reserve delivered its third consecutive rate cut this morning, lowering rates 25 basis points to 3.5%-3.75% after a 9-3 vote in favour.

The three dissents were the most seen since September 2019. Governor Stephen Miran pushed for a steeper 50bp cut while regional presidents Jeff Schmid and Austan Goolsbee wanted to hold steady.

Four additional non-voting participants also preferred no cut at all, exposing deep disalignment on the best policy path going forward.

The updated Federal Reserve dot plot maintained projections for just one cut in 2026 and another in 2027, unchanged from September despite three cuts delivered since then.

Seven officials now see no cuts needed next year, while three believe rates are already too low, suggesting the divide between members is set to continue growing in 2026.

In his post-meeting press conference, Fed chair Jerome Powell explicitly stated, "We are well positioned to wait and see how the economy evolves." — phrasing last used when the Fed paused cuts for nine months.

However, with Powell's tenure ending in January and Trump publicly demanding deeper cuts, the Fed continues to face mounting pressure, further clouding 2026 projections.

Markets are currently pricing Kevin Hassett as the next chair, thanks to his apparent accommodation to Trump’s preferences.

Oracle Stock Plummets as Revenue Falls Short of Estimates

Oracle Corporation suffered a 10%+ after-hours selloff today, following fiscal second-quarter results that exposed mounting risks beneath its ambitious AI infrastructure buildout.

Revenue of $16.06 billion fell short of the $16.21 billion Wall Street consensus, triggering a sharp reassessment of one of the most leveraged bets in the AI sector.

The company's total debt now exceeds $105 billion, and the cost of insuring Oracle's debt against default reached its highest level since March 2009, rising to about 1.28 percentage points per year.

Further investor anxiety lies in Oracle's dependence on its contract with OpenAI, which is estimated to account for about 58% of Oracle's future order backlog.

The contract requires OpenAI to pay approximately $60 billion annually to Oracle starting in 2027. However, OpenAI currently only generates around $20 billion in annualised revenue, exposing Oracle to massive counterparty risk if OpenAI doesn’t meet its revenue projections.

Bitcoin Price Narratives Get Murkier

Standard Chartered slashed its 2026 Bitcoin price target from $300,000 to $150,000 yesterday.

Attributed to the apparent end of aggressive corporate Bitcoin accumulation and slower-than-expected institutional adoption through ETFs, it is one of the most dramatic forecast reductions this year.

The bank's updated forecasts project $100,000 by end-2025, $150,000 for end-2026, $225,000 for end-2027, $300,000 for end-2028, and $400,000 for end-2029.

Despite the revision, Standard Chartered explicitly rejects the notion that we have entered a new crypto winter, characterising the current phase as "a cold breeze" rather than structural weakness.

Broader market predictions for 2026 suggest a bearish scenario at $95,241, an average estimate of $111,187, and a bullish case of $142,049.

InvestingHaven forecasts Bitcoin trading between a minimum of $99,910 and a maximum of $200,000 in 2026.

And some bullish analysts like Cardano founder Charles Hoskinson have suggested Bitcoin could reach $250,000 in 2026 if tech giants increase their crypto exposure, indicating considerable divergence in expectations.

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US markets are eyeing all-time highs following strong data and earnings reports. Whether these records are achieved will depend on the news flow over the coming days, particularly from the Federal Reserve.

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Fed Decision Incoming

‍The Federal Reserve's two-day meeting will end this Wednesday with a 0.25% rate cut widely expected. But following Friday's encouraging PCE numbers, the bigger question is “Will there be a January cut?” The Fed press conference post-decision will likely the highest signal event for the rest of 2025.

‍Central Bank Decisions Everywhere

‍Beyond the Fed, the Reserve Bank of Australia meets tomorrow with a pause expected, as recent data hasn't provided sufficient incentive for another cut. The ECB, Bank of England, and Bank of Japan will also all announce decisions within the next ten days, creating potential volatility across both equity and FX markets.

‍Big Tech Earnings

‍Two major AI infrastructure players report earnings this week: Broadcom and Oracle. These reports come at a time when AI valuations are under heavy public scrutiny, however, they will likely take a backseat to whatever the Fed signals about its 2026 path.

‍Copper Breaks Out

‍Copper has rallied to a four-month high and is now testing the $5.50 level. After breaching the key $5.25 support level, the market is showing some hesitation in Asia ahead of major data releases and the Fed decision. The July record highs of $5.50 are now within reach, though it is still to be seen if this level holds or if we pull back toward $5.25 support.

Market Insights

Watch Mike Smith's analysis of the week ahead in markets.

Key Economic Events

Stay up to date with the key economic events for the week.