Federal Reserve Governor Stephen Miran made a volatile call by expecting 150 basis points of rate cuts for 2026, triple the market consensus of just 50 basis points, arguing that monetary policy remains excessively restrictive and is stalling job creation as the unemployment rate gradually creeps upward from 4.4% to 4.6%. Miran's stance would bring the federal funds rate down to 2.00%-2.25% by year-end, while most bond market participants expect only 50 basis points of cuts with a 45% probability of the first one by April. This creates uncertainty that coincides with a current market rotation where investors are abandoning last year's tech darlings in favour of previously beaten-down sectors, with energy and defence stocks rising while megacap technology names struggle to maintain momentum. The extreme valuations are finally snapping back toward equilibrium, as money pours out of overextended positions in stocks like Nvidia and into sectors positioned to benefit from geopolitical tensions and energy transition dynamics. Defence contractors like Northrop Grumman have rallied over 10% on U.S. budget plan, while the broader market suffers from chipmaker weakness and software sector downturn.
EQUITY
Stocks were mixed after losing momentum the day before as investors rotated out of technology stocks into defence and energy sectors after President Trump proposed a $1.5 trillion military budget for 2027, lifting Lockheed Martin and Northrop Grumman by over 3-4%, while Exxon and Chevron enjoyed the residual. Market sentiment remained cautious around Federal Reserve rate cuts, scrutiny of AI spending sustainability, and Friday's critical jobs report.
GOLD
Gold prices face near-term volatility from major commodity index rebalancing, triggering an estimated $6–7 billion in combined gold and silver futures selling to reduce their elevated weightings after 2025’s record gains. Despite this technical pressure, gold holds steady near $4,470/oz, with Indian gold ETFs recording a record $1.25 billion in December inflows.
OIL
Crude benchmark gained almost 4% to secure the third consecutive weekly gain with heightened supply disruption risks after U.S. seizures of Venezuela-linked tankers, Trump’s demands for control over Venezuelan oil exports following Maduro’s capture, and renewed tensions in Iran warning of supply constraints from key producers. Polymarket also reported an account with a 100% win rate just bet on another Israeli strike on Iran by January 31st, which could be on a bigger scale than the previous attack.
CURRENCY
The US dollar is climbing steadily to a near one-month high, supported by better economic data including a dip in December job cuts to a 17-month low, resilient jobless claims, and a 16-year-low trade deficit. The yen fell on broad dollar strength and escalating China-Japan trade tensions. Signs of easing inflationary pressures in Europe had dragged its currency lower in parallel though equity soared.
