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The opening months of 2026 have seen a shift toward cautious optimism in global financial markets. Following a volatile 2025, improving inflation data and growing expectations of interest rate cuts have supported gains across equities, while bond markets stabilised. Gradual disinflation and resilient economic growth across major economies have bolstered investor confidence, despite ongoing geopolitical risks and political uncertainties.
Equity markets delivered strong returns, with Developed Europe and Asia Pacific ex-Japan leading the way. Emerging markets also outperformed in January, driven by a softer US dollar and sustained demand for AI-related infrastructure. US markets, however, showed more mixed performance as enthusiasm for artificial intelligence themes moderated.
Central bank policies diverged further during this period. The Federal Reserve and the Bank of England initiated rate cuts as inflation pressures eased, while the European Central Bank maintained a firmer stance. Meanwhile, the Bank of Japan signaled a gradual shift away from ultra-accommodative policies, reflecting differing domestic inflation dynamics.
Bond markets exhibited more measured performance, with yields fluctuating in response to shifting inflation expectations. However, the overall trend suggested that peak rates may now be behind us. Credit markets remained resilient, and alternative assets continued to attract capital as investors sought diversification.
Geopolitical tensions, including escalating conflicts involving the United States, Israel, and Iran, introduced fresh volatility into energy markets. Crude oil prices reacted sharply to concerns over potential supply disruptions and regional instability.
As markets enter the second quarter of 2026, attention will focus on inflation data, labour market conditions, and central bank communication. While risks such as sticky services inflation, geopolitical tensions, and trade policy uncertainty persist, the macroeconomic backdrop appears more stable. Investors are increasingly reassessing their positioning with greater confidence, supported by a more balanced environment and improving clarity on monetary policy.