16 January 2026
Weekly Market View
The case for lower Fed rates
US job creation ground to a halt in Q4 2025 and core inflation settled at a four-year low. Meanwhile, the US probe against Fed Chair Powell and President Trump’s plans to revamp the Fed Board highlight growing pressure on the Fed to ease policy.
We continue to see 75bps of Fed rate cuts this year, adding downside risks for the USD. We also see an opportunity to lock in yields on high quality 5-7-year USD bonds and short duration high yield debt.
An oil shock, potentially from any escalation in Iran, is a key risk to this outlook. We hedge the risks through gold and gold mining equities, US inflation-protected bonds and by turning bearish on USD/CAD.
A Supreme Court decision to strike down President Trump’s tariffs or Fed Board member Cook’s challenge against Trump’s decision to fire her are other risks, especially to longer-maturity bonds, although the president is likely to use other means to reimpose some tariffs, if necessary.
Tranche into US financials – current pullback an opportunity to build exposure; credit card interest cap unlikely
Prefer 5-7-year US government bonds over mortgage bonds – boost to mortgage bonds temporary
Limited downside for USD/CNH – near-term support at 6.94-6.95
Charts of the week: Stalling job market, cooling inflation
The US job market ground to a halt in Q4 2025 and core inflation fell to a 4-year low, sustaining Fed rate cut expectations
US quarterly net new non-farm jobs created
US 1y inflation swap rate, 10y inflation expectation, WTI oil
Source: Bloomberg, Standard Chartered
Editorial
The case for lower Fed rates
Strategy summary: US job creation ground to a halt in Q4 2025 and core inflation settled at a four-year low. Meanwhile, the US government’s probe against Fed Chair Powell and President Trump’s plans to revamp the Fed Board by replacing Powell as Fed Chair (an announcement due shortly) and firing Fed Governor Cook (Supreme Court to hear Cook’s challenge on 21 Jan) highlight growing pressure on the Fed to ease policy.
We continue to see 75bps of Fed rate cuts this year, adding downside risks for the USD. We also see an opportunity to lock in yields on high quality 5-7-year USD bonds and short duration high yield debt. An oil shock, potentially from any escalation in Iran, is a key risk to this outlook. We hedge the risks through gold and gold mining equities, US inflation-protected bonds and by turning bearish on USD/CAD. A Supreme Court decision to strike down Trump’s tariffs or Cook’s challenge are other risks, especially to longer-maturity bonds, although the president is likely to use other means to reimpose some tariffs, if necessary.
Stalling US job market. The US job market contracted in Q4, the first such quarterly retrenchment since the COVID crisis in early 2020. In December, 50,000 non-farm jobs were generated net (vs. 70,000 expected) and prior two months payrolls were revised downward, extending a pattern of downward revisions throughout 2025. Tight supply of workers due to immigration curbs lowered the jobless rate to 4.4%, although the rate remains above the Fed’s long-run equilibrium rate of 4.2%.
Softer-than-expected US inflation. US December core consumer prices rose 0.2% m/m vs. 0.3% expected. On a yearly basis, core prices rose 2.6% y/y vs. 2.7% expected and unchanged from November’s four-year low. A soft job market, reinforced in the Fed’s latest Beige Book survey, is likely to sustain wage and shelter disinflation, while last year’s acceleration in productivity offsets the impact of tariffs on goods inflation. Barring a spike in oil prices (see below), we expect inflation to gradually decline this year, as is reflected in one-year inflation swaps which has fallen to 2.4%. Long-term inflation expectations also remain subdued (see chart above).
Jobs and inflation data, Trump’s pressure sustain Fed rate cut expectations. A stalling job market and moderating inflation suggests the Fed will remain on an easing bias, possibly with a 25bps rate cut to 3.5% as early as March and 3.0% by end-2026. Meanwhile, impending changes to the Fed’s policy committee in H1 lends a dovish bias to the rates outlook.
Opportunity to lock in US short-to-medium duration bond yields. US bond yields have traded within their four-month range after the jobs and inflation data. We see as an opportunity to lock-in yields on US 5-7-year government bonds and short duration high yield bonds. We prefer these over mortgage-backed bonds, despite President Trump’s recent order to US agencies to buy USD 200bn of mortgage debt (see page 4).
Bank earnings mixed; tech earnings in focus. US banks started Q4 earnings season on a mixed note, with those relying on investment banking and wealth management income outperforming (page 6). The focus turns to tech sector earnings which will determine the sustainability of the AI-driven boom.
JPY intervention risk: USD/JPY has pulled back from 159.45, its highest since July 2024, after Japan’s Finance Minister Katayama hinted at intervention to curb excessive moves. JPY’s weakness follows expectations PM Takaichi will call for snap elections in February. We expect authorities to intervene if USD/JPY rises above 160. A firm break below 157.8 is likely to test the next support at 156.2 (50-day moving average).
US intervention in Iran is a risk: The political unrest in Iran broadened this week. President Trump said he would intervene in the event of an escalation but later appeared to moderate his comments, leading oil prices to retreat. A similar geopolitical scenario related to Iran in the past year led to retreat in oil prices after a short spike. The global oil market remains oversupplied, capping any short-term price surge. We would hedge risks of an oil price spike through US inflation-protected bonds, gold, with a target of USD 4,800/oz, and gold mining equities. We also turn bearish on USD/CAD, with a target of 1.3640.
— Rajat Bhattacharya
The weekly macro balance sheet
Our weekly net assessment: : On balance, we see the past week’s data and policy as neutral for risk assets in the near-term
(+) factors: Stable US inflation, strong US consumer/business sentiment and China export growth
(-) factors: Cooling US job creation; elevated geopolitical tensions
US core consumer inflation remained unchanged at 2.6% y/y in December, slightly below estimates; both core goods and core services inflation fell
US core, core goods and core services inflation
Euro area Sentix Investor Confidence rose more than expected in January
Euro area sentix investor confidence index
China’s exports grew more than expected in December; trade surplus reached USD 114 billion, the third-highest monthly surplus on record
China exports and imports growth, trade balance
Top client questions
What do the US Department of Justice subpoenas to the Fed mean for US government bonds and the USD?
Our view: Volatility in US government bonds is likely to persist. We avoid long-tenor bonds and believe a bond portfolio with 5-7-year maturity offers the best balance between the positives from short-end rate cuts and longer-tenor interest rate volatility. The USD is likely to remain rangebound around 98.6-99.6.
Rationale: The US Department of Justice’s (DoJ’s) probe against the Fed has added to concerns about the central bank’s independence. The DoJ subpoenas stem from a non-financial-market, administration-related probe into the USD 700mn renovation cost overruns related to the Fed’s Washington headquarters. Continued escalation is likely to introduce political risk to US government bonds and lead investors to demand additional yield premium for holding longer-tenor US government bonds.
The USD Index (DXY) has held near 99 (its 50-day moving average) recently, showing little response to geopolitical uncertainty in Iran and Venezuela. Instead, it remains glued to the US 10-year government bond yield for direction. We expect the USD to remain rangebound until a new catalyst provides direction.
— Ray Heung, Senior Investment Strategist
Iris Yuen, Investment Strategist
Yield differential between long- and short-dated US government bonds are likely to increase if the Fed’s independence is put to further test
Yield differential of 30-year and 2-year US government bonds
US President Trump has instructed Fannie Mae and Freddie Mac to purchase USD 200bn in mortgage-backed bonds (MBS). How will this affect the bond market?
Our view: We see the purchase programme as bullish in the short term for agency MBS, while having an immaterial direct impact on the ABS market. However, without sustained action, the MBS market impact is likely to fade. We prefer using US government bonds over MBS to express interest rate views.
Rationale: Mortgage-backed Securities (MBS) Index credit spreads tightened by about 10bps before easing slightly following the announcement of a government-sponsored enterprise (GSE) purchase programme on 8 January, which represents roughly 2% of the overall MBS market. The programme aims to lower mortgage rates and improve consumer affordability. However, both Fannie Mae and Freddie Mac face portfolio caps of USD 225bn each, which limit their ability to retain or add MBS unless these caps are raised.
A sharp mortgage rate decline would increase prepayment risk, reducing the potential for further MBS spread tightening. Limited and indirect asset-backed securities (ABS) impact is expected, primarily through lower benchmark rates or liquidity spillover, as the programme excludes non‑home‑mortgage assets.
— Ray Heung, Senior Investment Strategist
US mortgage-backed bonds reacted positively to the news of USD 200bn purchase programme
Yield premium of mortgage-backed and asset-backed securities over US government bonds, MBS index and ABS index
Top client questions (cont’d)
Do you expect gold and silver to extend gains after their strong December rally?
Our view: Both gold and silver are expected to remain in a structurally bullish uptrend, with near-term pullbacks likely. We remain opportunistically bullish on gold mining equities.
Rationale: Silver’s 2026 rally has continued, reaching USD 90 after breaking the prior USD 84 resistance, with heightened geopolitical tensions lending near-term momentum. The gold-silver ratio has fallen below 51, approaching the low-50s range that has historically marked silver troughs, excluding the 2011 extremes. Thus, further silver outperformance’s scope increasingly requires gold to exceed our base case expectations. While momentum indicators confirm the broader uptrend remains intact, near-term positioning appears stretched, raising healthy consolidation risk. A pullback towards USD 82.5 would be constructive, allowing for rebound towards USD 96, consistent with gold-silver ratio at 50 and gold price at USD 4,800; a break below USD 82.5 would signal deeper consolidation.
Similarly,gold (XAU/USD) extended its strong year-to-date rally amid geopolitical tensions and concerns over Fed independence. Stretched positioning may cap near‑term upside. The next resistance level stands at USD 4,727/oz.
Our gold miners opportunistic idea has performed well, up over 30% since initiation in October 2025 and outperforming the gold price itself. We considered taking profit on our gold miners idea but decided to keep it open as we see further upside in gold prices.
— Anthony Naab, CFA, Investment Strategist
Iris Yuen, Investment Strategist
The gold-silver ratio is nearing levels that have historically coincided with more stable troughs, outside the 2011 extreme
Gold-silver price ratio
How does the situation in Iran affect your view on oil prices?
Our View: We maintain our three-month forecast of USD 61 on WTI, as past scenarios have led to retracements after a short spike. We would add US TIPS and are bearish on USD/CAD.
Rationale: Iran’s political developments lifted oil prices, despite no material disruption to physical supply. The US Energy Information Administration’s (EIA) projected surplus of around 3mn barrels per day for 2026 suggests near-term balances are not enough to drive a sustained oil rally. Material upside risks would require a broader escalation, notably heightened regional tensions, which could lift short-term prices towards USD 65. A major event is needed to move the needle on spare capacity and sharply higher oil prices.
We favour US TIPS as protection against oil-driven inflation risks and remain tactically bearish on USD/CAD, given the pair’s sensitivity to higher oil prices, and target a move towards 1.3640-1.3720.
— Anthony Naab, CFA, Investment Strategist
Recent event-driven shocks have caused short-lived spikes in oil prices
WTI prices
Top client questions (cont’d)
USD/CNH broke below 7 at year-end 2025. Do you see further downside?
Our view: USD/CNH downside is likely limited, with near-term support zone at 6.94-6.95.
Rationale: We see growing resistance to a strong currency from China’s authorities, as the country relies on exports to support growth and sees limited benefit from a strong currency for imports. Meanwhile, the volatility in the People’s Bank of China’s (PBoC’s) daily USD/CNY fixing is easing. A stronger currency will likely increase deflation pressures at a time when the country struggles to break out of a downward price spiral.
Aside from stepping up intervention via state banks, China’s authorities may intensify resistance to CNH appreciation via reliance on the counter-cyclical factor, liquidity measures, greater capital outflows, easing restrictions on overseas borrowing and further monetary easing. Technically, USD/CNH looks heavily oversold, while the pair may struggle to sustain any firm breach of the 61.8% Fibonacci retracement level (based on the price range from 2023 to date) around 6.94-6.95 in the coming weeks.
— Iris Yuen, Investment Strategist
USD/CNH is heavily oversold after breaking below 7.0; downside risk is likely limited
USD/CNH and technical levels
What are US bank earnings telling us? How would interest rate cap on credit card loans affect the banking sector?
Our view: The US financial sector is poised for healthy earnings growth and remains a core holding for us. Existing investors should retain their holdings, while those under-allocated to US financials can use the current pullback to build their exposure in tranches. Interest rate caps seem unlikely, given the current lack of support in Congress.
Rationale: US President Trump has proposed a one-year, 10% credit-card interest rate cap, starting from 20 January. If enacted, this would significantly impact credit card issuers’ earnings (including banks’), as most currently charge over 20%. However, the president lacks clear authority to enact such caps and would likely need Congressional approval. Even if enacted, card issuers would likely mitigate the earnings impact by tightening lending standards, increasing fees and reducing rewards.
Major US banks’ earnings have been mixed so far, with earnings generally beating consensus and revenue being missed only in some instances. Overall, bank earnings point to a stable US economy, supporting positive loan growth and controlled credit risk. A continued increase in capital market activity and a focus on efficiency will support healthy earnings growth in 2026.
— Fook Hien Yap, Senior Investment Strategist
US financials have pulled back with a mixed start to the earnings season and regulatory headwinds; the sector remains a core holding for us
MSCI US financials index over the past year
Market performance summary*
Our 12-month asset class views at a glance
Economic and market calendar
The S&P500 has next interim resistance at 7,047
Technical indicators for key markets as of 15 Jan close
Investor diversity has normalised across asset classes
Our proprietary market diversity indicators as of 15 Jan close
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Taiwan: SC Group Entity or Standard Chartered Bank (Taiwan) Limited (“SCB (Taiwan)”) may be involved in the financial instruments contained herein or other related financial instruments. The author of this document may have discussed the information contained herein with other employees or agents of SC or SCB (Taiwan). The author and the above-mentioned employees of SC or SCB (Taiwan) may have taken related actions in respect of the information involved (including communication with customers of SC or SCB (Taiwan) as to the information contained herein). The opinions contained in this document may change, or differ from the opinions of employees of SC or SCB (Taiwan). SC and SCB (Taiwan) will not provide any notice of any changes to or differences between the above-mentioned opinions. This document may cover companies with which SC or SCB (Taiwan) seeks to do business at times and issuers of financial instruments. Therefore, investors should understand that the information contained herein may serve as specific purposes as a result of conflict of interests of SC or SCB (Taiwan). SC, SCB (Taiwan), the employees (including those who have discussions with the author) or customers of SC or SCB (Taiwan) may have an interest in the products, related financial instruments or related derivative financial products contained herein; invest in those products at various prices and on different market conditions; have different or conflicting interests in those products. The potential impacts include market makers’ related activities, such as dealing, investment, acting as agents, or performing financial or consulting services in relation to any of the products referred to in this document. UAE: DIFC – Standard Chartered Bank is incorporated in England with limited liability by Royal Charter 1853 Reference Number ZC18.The Principal Office of the Company is situated in England at 1 Basinghall Avenue, London, EC2V 5DD. Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. Standard Chartered Bank, Dubai International Financial Centre having its offices at Dubai International Financial Centre, Building 1, Gate Precinct, P.O. Box 999, Dubai, UAE is a branch of Standard Chartered Bank and is regulated by the Dubai Financial Services Authority (“DFSA”). This document is intended for use only by Professional Clients and is not directed at Retail Clients as defined by the DFSA Rulebook. In the DIFC we are authorised to provide financial services only to clients who qualify as Professional Clients and Market Counterparties and not to Retail Clients. As a Professional Client you will not be given the higher retail client protection and compensation rights and if you use your right to be classified as a Retail Client we will be unable to provide financial services and products to you as we do not hold the required license to undertake such activities. For Islamic transactions, we are acting under the supervision of our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in the Islamic banking section. For residents of the UAE – Standard Chartered UAE (“SC UAE”) is licensed by the Central Bank of the U.A.E. SC UAE is licensed by Securities and Commodities Authority to practice Promotion Activity. SC UAE does not provide financial analysis or consultation services in or into the UAE within the meaning of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis. Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.