It’s been a tumultuous start to the year, with 2026 promising to be another noisy year, but financial markets are shrugging it off.
- Markets have been impervious to the geopolitical turmoil
- Oil markets haven’t responded to Venezuela and Iran, while bond markets haven’t taken fright at attacks on Jay Powell
- The US administration may be emboldened by markets’ passivity
The US administration has been quick off the blocks in 2026. Two weeks into the New Year and it’s already deposed the Venezuelan leader, threatened strikes in Iran and endangered the independence of the Federal Reserve. Yet with the exception of precious metals, markets have remained impervious.
“If 2025 is anything to go by, the one thing that might just stop the US President doing whatever he likes is global financial markets”
The oil price has barely moved in response to the incursions on Venezuela, despite Trump’s apparent hope that the seizure of Nicholas Maduro would be the first step in bringing more oil on stream. The US president has spoken of his ambitions for a $50 oil price. This would help solve the potential inflationary tailwind from tariffs and pave the way for interest rate cuts. Markets have made it clear that they don’t believe it will make any difference.
On the other hand, they don’t seem particularly bothered by the geopolitical threats either. They have remained relatively well-behaved in spite of Trump’s threats on Greenland and, since the start of this week, on Iran. While the rest of the world worries about the imminent breakdown of the global world order, the only apparent problem this week for markets has been the run of disappointing bank earnings.
Then there are the threats to the Federal Reserve Chair Jerome Powell. It has emerged that Federal prosecutors have opened a criminal investigation into Powell. While prosecutors are ostensibly impartial, Powell was clear on the real issue at stake: "This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions, or whether instead monetary policy will be directed by political pressure or intimidation," he said.
This should dent the credibility of the Federal Reserve. It should certainly dent the credibility of whoever comes in after Powell, who is likely to be seen as a Trump stooge. Yet bond markets apparently couldn’t care less. The US 10 year treasury yield is at the same level it was five days ago.
If 2025 is anything to go by, the one thing that might just stop the US President doing whatever he likes is global financial markets. However, they don’t seem inclined to respond. This may be because nothing has yet had a tangible impact on economic growth or the trajectory of interest rates. When it does, they may be less inclined to give him the benefit of the doubt. The worry is that the administration may keep pushing until markets finally flip, which may deliver an uncomfortable few months for
