Global equities were mostly positive in January. Geopolitical developments featured prominently, including renewed tariff threats and developments regarding Greenland; however, investors largely looked through the noise and remained focused on supportive economic conditions and a resilient corporate earnings backdrop.
Central banks were steady, with the US Federal Reserve and the Bank of Japan both keeping interest rates on hold. In Asia, markets were particularly strong, with the Hang Seng surging 6.9% and the Nikkei rising 5.9%. European equities also performed well, with the Euro STOXX 50 lifting 2.7%.
US markets
In the United States, the S&P 500 rose 1.4% over the month, while the technology-heavy Nasdaq gained 0.95%. The Dow Jones outperformed, rising 1.7%, and small-cap stocks saw strong gains, with the Russell 2000 rallying 5.3%.
US equity markets extended their strong start to 2026, with major indices trading near or at record highs despite a steady drumbeat of political and geopolitical noise. Economic momentum has remained resilient, as have corporate earnings for the most part, encouraging investors to continue focusing on underlying fundamentals rather than worst-case scenarios.
The US economy continues to run hot. Recent data point to solid retail spending, improving housing activity and strong durable goods orders, suggesting business investment is gathering pace. Core inflation has eased to its lowest level since early 2021, giving policymakers greater flexibility even as headline inflation remains above target. The labour market has cooled modestly but remains far from weak, reinforcing the view that a recession is being avoided.
Federal Reserve policy has remained firmly in focus. The Fed held rates steady at its January meeting, but the decision highlighted ongoing internal debate. Chair Jerome Powell emphasised that the economy remains in good shape, while also striking a measured, data-dependent tone and characterising the inflationary impact of tariffs as largely one-off. Markets continue to price in two further rate cuts later this year.
Politics has added another layer of complexity. Powell is due to step down as Fed Chair in May, and President Trump’s nomination of Kevin Warsh has shifted market expectations. While Warsh has recently signalled openness to faster rate cuts, his historical record as an inflation hawk suggests policy may remain tighter than some anticipate. The announcement supported a stronger US dollar and triggered sharp profit-taking in precious metals after an extraordinary run.
Gold’s sudden pullback was a reminder of how quickly parabolic moves can reverse. After rising more than 80% over the past year and briefly trading above US$5,300 an ounce, gold experienced a sharp correction as positioning unwound. There was an even sharper pullback in silver prices which had risen nearly fourfold in the space of 12 months. The episode reinforced the importance of diversification and disciplined portfolio management, particularly following periods of outsized gains.
The earnings season has been broadly supportive. Large US banks have generally beaten expectations, underscoring the resilience of the US consumer and favourable credit conditions. In the technology sector, it is clear that heavy investment in AI will continue in the near term, based on guidance and commentary in recent results announcements from several of the hyper-scalers.
Markets have also shown a willingness to look through elevated geopolitical noise, including renewed tariff threats and developments around Greenland. Investors appear confident that extreme outcomes will be avoided, helped by a perception that political brinkmanship is often softened when market reactions turn adverse.
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Australian economy
In Australia, the ASX 200 rose 1.8%, supported by strength in the energy and materials sectors as commodity prices trended higher, alongside resilient domestic demand. The technology sector, however, came under pressure amid expectations of rising domestic interest rates following a stronger-than-expected quarterly inflation print.
Inflation has re-emerged as the dominant theme. Headline inflation in the 12 months to December jumped to 3.8%, the highest level in six quarters and up from 3.4% a month earlier. Core inflation has also re-heated, with the RBA’s preferred trimmed-mean measure rising 0.9% in the December quarter and 3.4% year on year, remaining stubbornly above the 2–3% target band and exceeding forecasts of 3.3%.
These inflation readings reinforced concerns that price pressures are proving stickier than previously hoped. As a result, markets recalibrated expectations toward a rate hike rather than further easing. The Reserve Bank of Australia duly obliged, raising rates in the first week of February. The shift in the monetary policy outlook supported the Australian dollar but weighed on interest rate-sensitive sectors.
Beyond inflation, the Australian economy remains in good shape. Household spending has held up better than expected, business confidence has improved, and a number of sectors outside mining have contributed to market gains. Resource stocks have been supported (until very recently) by strong prices across copper, gold and energy, while structural themes such as data infrastructure and healthcare continue to attract investor interest.
NZ economy
The NZX 50 declined 0.9% over the month, despite further evidence that economic momentum is improving. The early green shoots we have been observing are increasingly pushing through the soil.
Data released during the month showed that the manufacturing sector is expanding at its fastest pace in four years. December’s PMI was not only firmly in expansionary territory but also ahead of the global average. While this improvement is coming off a low base, it is nevertheless an important and encouraging signal that activity is beginning to turn.
More importantly, the recovery is broadening. After nearly two years of contraction, the services sector is now showing genuine signs of life, recording its strongest reading since mid-2023. Given that services account for a large share of the New Zealand economy, this improvement matters a great deal for the durability of any recovery.
Business confidence has lifted sharply. The latest Quarterly Survey of Business Opinion showed confidence at an 11-year high, with a net 39% of firms expecting general economic conditions to improve. Hiring and investment intentions have also moved higher, reinforcing the sense that sentiment is rebuilding after a prolonged period of weakness.
The export sector remains a key bright spot. Annual exports have exceeded $80 billion for the first time ever, led by strong demand for dairy and beef. Dairy prices have risen across the first three auctions of the year, which is encouraging following a weak period in the second half of last year. Tourism continues to provide a tailwind, with international arrivals now back to around 93% of pre-COVID levels, while migration flows are improving as the brain drain begins to ease.
It is not all positive. The housing market remains relatively subdued, and the labour market is still lagging the broader recovery. Partly due to rising participation unemployment has risen to 5.4%, though employment growth has picked up recently.. This dynamic suggests confidence is starting to return, even if conditions remain uneven.
Inflation has ticked up to 3.1% in the December quarter, sitting just above the top of the Reserve Bank’s target band. However, cost-of-living pressures are easing for many households, particularly as interest costs have come down. This has helped lift consumer confidence to its highest level since August 2021, complementing robust levels of business confidence.
The common thread across the data is confidence. While the recovery remains fragile and uneven, sentiment is clearly improving. This rebuilding of confidence, among businesses, households and exporters, is a critical foundation for a more durable and sustainable economic recovery as the year progresses.
Looking ahead
Looking to the month ahead, global markets will remain focused on central banks, inflation data and the ongoing earnings season, alongside elevated geopolitical and trade developments. In the United States, attention will centre on upcoming inflation and labour-market releases, Federal Reserve communications, and how policy expectations evolve as the leadership transition approaches. Corporate earnings, particularly from major technology and consumer-facing companies, will be scrutinised for signs whether growth and AI-related investment remain on track.
In Australia, the focus will be firmly on inflation and labour-market data following the recent upside surprise in prices, with markets assessing how quickly the Reserve Bank may need to tighten monetary policy. A number of large corporates will also be releasing earnings during the period.
In New Zealand, forthcoming CPI, confidence surveys and labour-market data will help determine whether recent green shoots are translating into a more sustained recovery. Overlaying this will be ongoing geopolitical and trade developments, which continue to generate headlines and periodic volatility, but which markets have so far largely looked through in favour of underlying economic fundamentals.
The Reserve Bank of New Zealand meets on February 18, and while no change in rates is expected, there will be strong interest in a range of updated forecasts from the central bank, particularly around inflation and economic growth. In addition, the OCR track will be closely watched for confirmation that interest rates have bottomed.
Another key focus over the weeks ahead will be the New Zealand reporting season, with around 34 companies from the NZX 50 due to report half or full-year results over the month of February. This will provide an important temperature check on the health of corporate New Zealand across a wide range of industries. Expectations are understandably modest given the challenging economic backdrop and the false starts in the recovery over the past year.
Markets are forward-looking, however, and the focus will be on company outlooks. Early signs that conditions are stabilising, particularly among businesses exposed to domestic activity, would be encouraging. Greater confidence around demand, margins or easing cost pressures over the next 12 months could prove constructive for share prices and for the New Zealand market more broadly.