Saxo Market Compass
19 January 2026 (recap week of 12 to 16 January 2026)

Where markets have been — and where they’re heading.

Headlines & introduction

Markets navigated a dense mix of inflation data, earnings releases, and rising political noise. Equities briefly touched fresh highs before losing momentum as credit-card rate caps, tariff rhetoric, and questions around central-bank independence resurfaced. Volatility remained subdued on the surface, but options markets pointed to growing caution. By week’s end, attention shifted toward Davos, delayed inflation data, and a geopolitically charged outlook.

Equities

United States:

US equities cooled after fresh highs as policy risk met earnings reality.
US indices pushed to new record levels early in the week, supported by softer inflation signals and resilient consumer data. Momentum faded as bank earnings highlighted margin pressure and political headlines returned, particularly around proposed credit-card rate caps and uncertainty surrounding the Federal Reserve’s leadership. Financials and payments stocks underperformed, while semiconductors remained relatively supported following the US–Taiwan trade agreement and renewed investment commitments tied to domestic chip production. By Friday, equities stabilised as yields eased and focus shifted back toward earnings and inflation clarity.

Market pulse: US equities remain supported by growth themes, but leadership has narrowed and sensitivity to policy headlines has increased.

Europe and Asia:

Europe and Asia showed resilience, but dispersion widened across regions and sectors.
European markets largely held near record territory, with industrials, defence, and selected healthcare names offsetting weakness in luxury stocks amid downgrades and softer demand signals. UK equities were steadier as retail data highlighted ongoing consumer pressure, while Nordic and Benelux markets benefited from strength in renewables, defence, and healthcare. In Asia, Japan outperformed as yen weakness and snap-election speculation lifted exporters and chip-linked stocks. Hong Kong and mainland China rallied early on easing deflation fears before tighter margin rules triggered late-week caution in technology and growth names.

Market pulse: outside the US, equity markets are rotating internally rather than de-risking outright.

Volatility

Volatility stayed low, but hedging demand rose into key events.

The VIX remained anchored in the mid-teens throughout the week, yet short-dated volatility measures and skew pointed to persistent demand for downside protection around CPI, PPI, and earnings. Political noise, including renewed focus on the Federal Reserve and tariff threats, added a modest risk premium without triggering broader stress. Options pricing continued to imply relatively modest index moves, even as headline sensitivity increased.

Market pulse: calm conditions persist, but markets are positioned defensively.

Market sentiment based on options flow data

Options markets signal engagement, but with protection firmly in place.

Options activity over the past week suggests investors remained engaged with equity markets while actively managing downside risk. Rather than stepping away, participants increasingly used puts and structured strategies to hedge against potential pullbacks and sudden headline shocks, a pattern typically associated with conditional confidence rather than outright bearishness. This defensive positioning was visible both at the index level and in large-cap technology stocks that continue to drive overall performance. Importantly, the presence of protection does not imply expectations of an imminent sell-off. Instead, it reflects a preference for defined risk and resilience over aggressive upside exposure. In such an environment, gains can still materialise, but momentum is more fragile and reactions to negative surprises may be sharper.

Market pulse: cautious participation with downside protection front and centre.

Digital assets

Crypto tracked macro risk rather than crypto-specific drivers.

Bitcoin and ether oscillated within broad ranges, reacting primarily to interest-rate expectations, the US dollar, and broader equity sentiment. ETF flows into spot bitcoin and ethereum products remained a stabilising force, helping limit drawdowns during risk-off sessions. At the same time, delays around US crypto legislation capped upside enthusiasm and reinforced a selective tone across major tokens.

Market pulse: digital assets remain tightly linked to macro risk conditions.

Fixed income

Bond markets were pulled by Japan and Fed politics.

Japanese government bond yields surged to multi-decade highs on snap-election speculation and fiscal concerns, driving global rates higher earlier in the week. US Treasury yields initially followed before easing after softer inflation signals and a mild risk-off tone in equities. Credit markets remained firm throughout, with high-yield spreads tightening further despite the rise in political and macro uncertainty.

Market pulse: rate volatility shifted east, while US credit stayed confident.

Commodities

Hard assets dominated as geopolitical risk resurfaced.

Gold, silver, and copper reached fresh highs as investors sought protection against geopolitical tension, tariff threats, and fiscal uncertainty. Oil prices spiked on Iran-related headlines before easing as immediate supply risks faded. Agricultural commodities lagged, weighed down by ample supply expectations and improving crop outlooks.

Market pulse: commodities reflected hedging demand more than growth optimism.

Currencies

FX markets were driven by yields and politics rather than growth.

The US dollar swung with shifting rate expectations and Fed-chair speculation, while the Japanese yen remained volatile amid rising JGB yields and election chatter. European currencies were relatively stable but sensitive to renewed US tariff threats. Scandinavian currencies saw notable moves as local growth dynamics and rate differentials returned to focus.

Market pulse: FX volatility stayed selective rather than systemic.

Key takeaways

• Equities paused after testing record highs, driven by rotation rather than broad selling.
• Volatility stayed low, but demand for downside protection increased.
• Options flows point to conditional confidence, not outright risk aversion.
• Japan drove global rate moves, while US credit remained resilient.
• Commodities benefited from renewed geopolitical hedging demand.

Looking ahead (week of 19 to 23 January 2026)

• A holiday-shortened week still carries significant macro and geopolitical weight. Markets will digest delayed US PCE inflation data and the final reading of third-quarter GDP, both key inputs ahead of the next Federal Reserve meeting. These releases arrive at a time when policymakers remain divided over the pace and timing of potential rate cuts.
  
  
• Beyond data, geopolitics is set to dominate headlines. The World Economic Forum in Davos opens against a backdrop of heightened global uncertainty. According to the WEF’s own Global Risks assessment, economic confrontation, including trade restrictions and sanctions, has overtaken armed conflict as the most immediate threat to global stability. Investors will closely monitor speeches from political leaders and central bankers for signals on trade, industrial policy, and global coordination.
  
  
• Greenland-related rhetoric and trade tensions between the US and Europe remain a live risk. President Trump’s threat to impose escalating tariffs on several European countries has prompted emergency discussions within the EU, raising the prospect of retaliatory measures. Any concrete policy action could quickly spill over into equities, currencies, and commodities, particularly in Europe.
  
  
• Energy markets will also stay alert to developments in Iran, where tensions have eased temporarily but remain unresolved. The balance between diplomatic signals and renewed sanctions or military pressure will continue to influence oil prices and broader risk sentiment.
  
  
• Earnings provide another layer of potential volatility. Results from Netflix and Intel, alongside a broader slate of US and European corporates, will help shape sector leadership and test whether current valuations can be sustained in a more politically uncertain environment.

Market pulse: macro data, geopolitics, and earnings converge, leaving markets calm for now but exposed to headline-driven volatility.

Conclusion

Markets closed the week balanced between resilience and caution. Equity leadership remains selective, volatility subdued but alert, and investors increasingly reliant on macro clarity rather than momentum alone. With Davos, inflation data, earnings, and geopolitical flashpoints converging, the coming week is likely to test whether calm conditions can persist or give way to sharper reactions.