WeekWatch

Is this the new normal for markets? 

Despite the stark geopolitical ruptures brought to the surface at Davos and the brief threat of further tariffs, markets ended the week little changed. 

The initial playbook was as expected. Investors reacted to President Trump’s threats of tariffs and force over Greenland by selling European shares and US stock futures (as Monday was a public holiday in the US). Yet by Wednesday, some of these fears dissipated as Trump announced the vague framework of a deal over Greenland. This helped markets rebound mid-week. Key indices on both sides of the Atlantic ended the week off their lows. One visible casualty over the week was the dollar, which delivered its steepest weekly decline since May against a basket of other currencies. 

The potential use of US tariffs in negotiations is something that investors have been alert to since last year’s Liberation Day tariffs. The mid-week recovery rewarded those who saw this as a “Trump always chickens out” (TACO) opportunity. Despite the spike in investor uncertainty during the week, the VIX “fear index”, an indicator of US market sentiment, ended the period at 16. This is well under the 20 mark usually associated with a stable market. One reason why markets recovered quickly last week may be they are already discounting the effects of geopolitical turmoil. Instead, they are concentrating on the economic and corporate fundamentals, which are easier to assess. Greg Venizelos, Fixed Income Strategist at SJP put it this way: “US administration policy has become so erratic domestically and internationally that investors may as well stay the course rather than try to react to each pronouncement by the President of the United States. Portfolio diversification and resilience is what will get portfolios through the next few years”. 

Such an approach offers up a more supportive backdrop. During the week, data showed that the US economy grew at an annual rate of 4.4% during the final quarter of the year, slightly ahead of expectations. At the same time, consumer sentiment and employment readings are proving benign.  

Despite these encouraging readings, elsewhere the latest inflation measure preferred by the Federal Reserve (Fed), the core personal consumption expenditures (PCE) price index shows why inflation remains a concern. On an annual basis, November’s reading of 2.8% remains well above the Fed’s 2% target. This suggests any near-term interest rate cuts by the Fed are not a done deal.  

Continuing to glitter

Gold delivered its strongest weekly return since 2008. Ending the period just below $5,000 a troy ounce, the price has doubled in the past 18 months. It continues to benefit from the more uncertain geopolitical backdrop and inflationary concerns highlighted above. The “debasement” trade, whereby investors see gold as a counter to unsustainable levels of government borrowings is a further catalyst supporting the price. 

During the week, Poland’s central bank announced plans to purchase up to 150 tons of gold, to add to the 550 tons it already owns. Not all central banks report their gold purchases, but Poland’s are the largest recently declared. While not giving a timescale to complete the transaction, the bank’s governor has called gold “the only safe investment for state reserves (during) difficult times of global turmoil and the search for a new financial order”. 

China makes it five times three

For the third consecutive year, China achieved the government-mandated 5% annual economic growth rate in 2005. Momentum slowed in the second half of the year, from an annual rate of 4.8% to 4.5% between the third and fourth quarters. Despite the imposition of additional US tariffs, China was successful in diverting its exports elsewhere. As a sign of the country’s exporting prowess, it reported a 2025 trade surplus of $1.2 trillion.

While the government has not yet set its annual growth target for 2026, reports suggest China will set a range of between 4.5% to 5%. This will be against an International Monetary Fund global growth projection of 3.3%. Yet should protectionism be taken up as trade policy by more countries, China’s reliance on exports increases its vulnerability. In response, many analysts expect the authorities to encourage a pivot to domestic consumption. Potential headwinds to achieving this include weakness in the property market and a weak jobs market.

Muddling through in the UK

There was mixed data in the UK, with another month of falling payrolls in the private sector and moderating wage growth which increased at a sub-4% level for the first time in about 3 years. Room for a rate cut? 

SJP’s Chief Economist Hetal Mehta commented that “as ever with the UK, the data is mixed. While wage growth has slowed, business sentiment data has picked up quite strongly, and we also had better than expected December retail sales. I think the Bank of England is likely to remain cautious on interest rate cuts, but with more of an easing bias, given the UK’s backdrop of subdued growth”.

Self-assessment deadline fast approaching

Those who have yet to file their online self-assessment tax return and settle any tax due have only a few days left to do so before facing a financial penalty. 

Any online tax returns submitted after 31 January will be subject to a late filing penalty from HMRC. People who fail to pay any tax owed by this deadline will also receive a penalty. 

According to HMRC in early January, 5.65 million people had yet to submit their self-assessment tax return. In contrast, 6.36 million people had made their submissions by then.¹ 

There is an initial £100 penalty for those failing to file their tax return in time, rising to £10 a day after three months. There are further charges of up to 5% if a return has still not been filed after six or 12 months. 

If someone fails to pay any tax due by 30 days after the 31 January deadline, they will face a penalty of 5% of the unpaid tax. If still unpaid then another 5% penalty will be levied at six months and a further 5% at 12 months, in addition to interest accrued on any unpaid tax.  

Tax returns are typically used by the self-employed, those in business partnerships, individuals who have to pay capital gains tax on assets sold, and in some cases those who have untaxed income such as from renting out a property or foreign income. 

Self-assessment tip: how to avoid fines 

• If submitting an online tax return to HMRC, set up a calendar reminder for mid-January to ensure the return is filed and any balance settled before the 31 January deadline. Paper tax returns must be submitted to HMRC by 31 October. 

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