Outrageous Predictions
Executive Summary: Outrageous Predictions 2026
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London Quick Take - 28 Jan - Starmer risks Trump ire with China trip, dollar tumbles, gold record high as investors look to possible US-Iran escalation
Neil Wilson
Investor Content Strategist
Note: This is marketing material. This article is not investment advice, capital is at risk.
Are we really in a world where all anyone wants is stocks, gold and the Swiss franc? Maybe that’s a more normal world than we got used to since the 1980s? Certainly, there does seem to be a reassessment of the dollar and this latest signal that Washington is happy to see it weaken is being taken at its word. And it reinforces the idea that the Fed is going to pursue easier monetary policy to please the administration. Last night Trump posted that he "will announce Fed chair soon; interest rates will come down after new Fed chair'. So that's pretty clear and feeds into the easier and less independent Fed story that has skewered the greenback for months.
The K-shaped economy in action: consumer confidence in the US fell to a 12-year low, according to the latest Conference Board survey. Yet GDP is estimated growing at +5%...primarily because the 10% of consumers who are responsible for 50% of spending are still only 10% of the consumer survey. And because America’s growth seems to be anchored in a productivity boom (+4.9% in Q3 ‘25). So, the K-shaped story means AI and productivity growth means the story of 2026 is faster-than-expected US GDP growth and greater dispersion among equities as the trade moves from AI enables to AI adopters. A weaker dollar, deregulation, massive fiscal expansion worth about 1% of GDP and lower oil prices also help.
Of course, inflation expectations are rising with 2yr breakevens up quite a bit since Dec– investors see the US economy running hot, and prices will reflect that. But the Fed is expected to be dovish and can look at the weakness in the labour market to reason more cuts. The risk is of course that it runs too hot, inflation surges and you have the makings of a rapid rise in Treasury yields that kills the story dead and sparks a major market correction. So the role of the next Fed chair is going to be a tricky one – how to please Trump (which I assume is why you’re being selected) and not allow inflation to run? There are signs that AI is already doing its productivity magic in this regard. Tariffs have also not shown up as inflationary to any real extent.
For now, if the stock market is the economy then it’s good shape, no? The S&P 500 hit a fresh record high yesterday, rising 0.4% on some moves in big tech, while the Dow sank 0.83% thanks largely to a nearly 20% decline for UnitedHealth. Health insurers were whacked as the administration signalled virtually no increase to Medicare payments to providers. UnitedHealth, Humana and CVS Health, the largest providers of insurance coverage, tumbled on the news. Salesforce just scored a $5.6bn, 10-year contract with the US Army. It’s rolling out tools that suggest it can defy the ‘AI is killing software narrative’, though shares fell a touch.
Tesla, Meta and Microsoft are due to report earnings after the close tonight, setting up a major test for the AI trade.
Elsewhere, ASML surged as its reported better-than-expected orders and guidance for 2026 that was ahead of analyst expectations on surging AI demand. The Dutch chip giant is expected to benefit as memory chipmakers increase capacity. On that, memory chipmakerSK Hynix of South Korea posted a 66% jump in revenues in the final quarter of last year., while profits rose 137%. It’s one of the big winners from booming memory prices and demand from generative AI chipsets.
European stock markets were broadly weaker with some earnings in focus. LVMH sank as it lagged peers to weigh heavily on the CAC, which fell 1% in Paris in early trade. The DAX was down about a third of a percent and the FTSE dipped 0.2%, with miners on the up thanks to commodity strength but sterling's strength is acting as a bit of a drag for some constituents who are dollar earners.
Mr Starmer heads to Beijing: UK prime minister Keir Starmer heads to China at the front of a delegation of business leaders. Executives from HSBC, AstraZeneca, GSK, Airbus are in tow. It’s coming at a big moment as geopolitical tensions remain elevated, particularly around the issue of trade. If Britain wants closer China trade ties expect a sharp rebuke from Donald Trump. Canada’s prime minister visited China earlier this month – Trump quickly warned his northern neighbour risked 100% tariffs on imports to the US should it do a trade deal with China. Meanwhile, watch Iran as the US 'armada' is now in position. Whilst Trump may chicken out over tariffs a lot (it's always a negotiating ploy), he tends to be good as his word when it comes to military action.
Looks like FX volatility is back. The US dollar sank to multi-year lows as President Trumps signalled the administration was comfortable with its slide. The dollar was already weakening Tuesday before Trump said, “I think it’s great...the dollar’s doing great”. The market took it as a cue to sell the buck further. He said he could make it “go up or go down like a yo-yo" and complained about China and Japan devaluing their currency. Trump tried to talk down the dollar in his first term before then Treasury Sec Mnuchin walked it all back - at Davos if I recall...but this is about leaning into an existing market narrative. If no one else believes in the strong dollar any more, then why seek to argue for a strong dollar policy? There are risks to this of course and big market swings and dislocations. We await to see if the administration seeks to walk it back - a weaker dollar should mean higher inflation for US consumers.
Sterling rallied north of $1.3866, its highest in more than four years, before trimming gains to trade just under the $1.380 round number this morning. The euro also rallied to its best since 2021 above $1.20, while the Swiss franc – the only real haven apart from gold – rallied to its best in more than a decade.
Did the comments from Trump reinforce the ‘sell America’ trade? Maybe, but just don’t tell stock pickers. The S&P 500 rallied to a fresh high. Treasuries meanwhile are pretty steady ahead of the Fed meeting today - no change expected. Gold was the big beneficiary from the move, with spot prices rising to a fresh record high above $5,200 and are pushing towards $5,300 this morning.
Looks like FX volatility is back. The US dollar sank to multi-year lows as President Trumps signalled the administration was comfortable with its slide. The dollar was already weakening Tuesday before Trump said, “I think it’s great...the dollar’s doing great”. The market took it as a cue to sell the buck further. He said he could make it “go up or go down like a yo-yo" and complained about China and Japan devaluing their currency. Trump tried to talk down the dollar in his first term before then Treasury Sec Mnuchin walked it all back - at Davos if I recall...but this is about leaning into an existing market narrative. If no one else believes in the strong dollar any more, then why seek to argue for a strong dollar policy? There are risks to this of course and big market swings and dislocations. We await to see if the administration seeks to walk it back - a weaker dollar should mean higher inflation for US consumers.
Sterling rallied north of $1.3866, its highest in more than four years, before trimming gains to trade just under the $1.380 round number this morning. The euro also rallied to its best since 2021 above $1.20, while the Swiss franc – the only real haven apart from gold – rallied to its best in more than a decade.
Did the comments from Trump reinforce the ‘sell America’ trade? Maybe, but just don’t tell stock pickers. The S&P 500 rallied to a fresh high. Treasuries meanwhile are pretty steady ahead of the Fed meeting today - no change expected. Gold was the big beneficiary from the move, with spot prices rising to a fresh record high above $5,200 and are pushing towards $5,300 this morning.
Are we really in a world where all anyone wants is stocks, gold and the Swiss franc? Maybe that’s a more normal world than we got used to since the 1980s? Certainly, there does seem to be a reassessment of the dollar and this latest signal that Washington is happy to see it weaken is being taken at its word. And it reinforces the idea that the Fed is going to pursue easier monetary policy to please the administration. Last night Trump posted that he "will announce Fed chair soon; interest rates will come down after new Fed chair'. So that's pretty clear and feeds into the easier and less independent Fed story that has skewered the greenback for months.
The K-shaped economy in action: consumer confidence in the US fell to a 12-year low, according to the latest Conference Board survey. Yet GDP is estimated growing at +5%...primarily because the 10% of consumers who are responsible for 50% of spending are still only 10% of the consumer survey. And because America’s growth seems to be anchored in a productivity boom (+4.9% in Q3 ‘25). So, the K-shaped story means AI and productivity growth means the story of 2026 is faster-than-expected US GDP growth and greater dispersion among equities as the trade moves from AI enables to AI adopters. A weaker dollar, deregulation, massive fiscal expansion worth about 1% of GDP and lower oil prices also help.
Of course, inflation expectations are rising with 2yr breakevens up quite a bit since Dec– investors see the US economy running hot, and prices will reflect that. But the Fed is expected to be dovish and can look at the weakness in the labour market to reason more cuts. The risk is of course that it runs too hot, inflation surges and you have the makings of a rapid rise in Treasury yields that kills the story dead and sparks a major market correction. So the role of the next Fed chair is going to be a tricky one – how to please Trump (which I assume is why you’re being selected) and not allow inflation to run? There are signs that AI is already doing its productivity magic in this regard. Tariffs have also not shown up as inflationary to any real extent.
For now, if the stock market is the economy then it’s good shape, no? The S&P 500 hit a fresh record high yesterday, rising 0.4% on some moves in big tech, while the Dow sank 0.83% thanks largely to a nearly 20% decline for UnitedHealth. Health insurers were whacked as the administration signalled virtually no increase to Medicare payments to providers. UnitedHealth, Humana and CVS Health, the largest providers of insurance coverage, tumbled on the news. Salesforce just scored a $5.6bn, 10-year contract with the US Army. It’s rolling out tools that suggest it can defy the ‘AI is killing software narrative’, though shares fell a touch.
Tesla, Meta and Microsoft are due to report earnings after the close tonight, setting up a major test for the AI trade.
Elsewhere, ASML surged as its reported better-than-expected orders and guidance for 2026 that was ahead of analyst expectations on surging AI demand. The Dutch chip giant is expected to benefit as memory chipmakers increase capacity. On that, memory chipmakerSK Hynix of South Korea posted a 66% jump in revenues in the final quarter of last year., while profits rose 137%. It’s one of the big winners from booming memory prices and demand from generative AI chipsets.
European stock markets were broadly weaker with some earnings in focus. LVMH sank as it lagged peers to weigh heavily on the CAC, which fell 1% in Paris in early trade. The DAX was down about a third of a percent and the FTSE dipped 0.2%, with miners on the up thanks to commodity strength but sterling's strength is acting as a bit of a drag for some constituents who are dollar earners.
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