​Since the beginning of 2026, geopolitics has increasingly moved back to the centre of financial-market risk, led by the escalation between the US and Iran. The conflict has shifted from a regional military confrontation into a broader threat to global trade infrastructure, with Iran using asymmetric naval tactics, including fast boats, vessel seizures and threats around the Strait of Hormuz, while the US has responded with a naval blockade and efforts to secure maritime corridors. Shipping traffic through the strait has fallen sharply, with reports indicating that only a few ships passed through the waterway in a recent 24-hour periods compared with a pre-war average of around 140, leaving hundreds of ships and thousands of seafarers stranded in the Gulf. This has reinforced the importance of strategic chokepoints as a macro-financial risk, as disruptions now feed directly into global shipping, insurance costs, supply-chain reliability and inflation expectations.
At the same time, US political risk has remained elevated, with trade policy again becoming a key source of uncertainty. The continuation of Trump’s tariff agenda has complicated corporate planning, strained relations with allies and reinforced concerns around policy unpredictability, while the unresolved legal and political disputes around tariff refunds have added another layer of uncertainty for large importers. From there, the trade-policy debate naturally extends to the broader US-China conflict, where tariffs, export controls, critical minerals, manufacturing reshoring and technology restrictions remain central points of tension. Trump’s China tariffs helped reduce the US goods trade deficit with China in 2025, but did not materially change China’s industrial policy, while renewed disputes in 2026 have kept the relationship fragile ahead of further negotiations.

Japan moved into focus following the high-stakes re-election of the lower house – a vote that was seen as politically risky but ultimately stabilising. Pre-election uncertainty had raised concerns about fiscal discipline and the policy coordination with the Bank of Japan, triggering short-term volatility in both equities and the yen. However, the successful re-election delivered continuity, preserving the reform agenda centred on corporate governance improvements, shareholder returns and gradual structural adjustments. For foreign investors, the outcome reduced near-term political tail risk while maintaining policy predictability. With political clarity restored, focus is shifting back to earnings momentum, currency stability and valuation support, bringing renewed attention to the trajectory of the Nikkei 225 and broader global equities.
Equity markets experienced a sharp but ultimately contained bout of volatility over the past two weeks, driven primarily by earnings dispersion rather than a deterioration in the broader macro backdrop. The correction was most acute within high-multiple software names, where listed SaaS companies declined by 32% from recent highs, as shown in Figure 1. While weaker forward guidance, elongating enterprise sales cycles and moderating net revenue retention were important catalysts, a deeper structural concern also emerged. Advances in generative AI may render parts of the traditional SaaS stack partially obsolete. Investors increasingly question whether AI-native platforms – capable of automating workflows end-to-end – could compress pricing power, reduce seat-based revenue models, or disintermediate legacy application-layer providers altogether.

​Throughout 2025, the US macroeconomic environment was characterised by a gradual normalisation following the post-inflation shock period of prior years. Inflation was largely brought under control, consistently hovering in a narrow 2-3% range - still above the Federal Reserve’s formal 2% target, but sufficiently contained to reduce its dominance in policy deliberations. As price pressures stabilised, the Fed progressively shifted its focus towards labour-market dynamics, with unemployment emerging as the marginal variable guiding monetary policy decisions. During the first half of the year, policymakers remained deliberately cautious, refraining from early rate cuts amid concerns that premature easing could reignite inflation, particularly given still-historically strong employment conditions, even as unemployment began to trend higher. This stance changed in the autumn and winter months, when a clearer softening in labour markets, combined with inflation remaining at tolerable levels, provided the Fed with sufficient confidence to pivot. Over this period, the central bank implemented three 25 basis-point rate cuts, signalling a controlled transition towards a more accommodative stance while maintaining credibility on inflation containment.

​US inflation has oscillated between roughly 3.5% and 2% since the beginning of 2025, reflecting a push-and-pull between easing goods inflation, slower shelter disinflation, and still-resilient services driven by wage growth and consumption, while energy and food prices added intermittent volatility rather than a sustained trend. Looking ahead, we expect headline inflation to average around 2.5% through 2025, with downside risks toward 1.5% if goods deflation accelerates and shelter inflation cools faster than expected, and upside risks toward 4% should wage pressures, energy prices, or renewed supply-side disruptions re-emerge. The labour market has begun to soften, with unemployment gradually rising but still remaining low by historical standards, signalling cooling rather than distress; we anticipate a further modest uptick before a stabilisation and subsequent decline into the 2026 midterm election cycle as policy easing and fiscal dynamics support activity. On monetary policy, the Federal Reserve delivered rate cuts across 2024 and 2025, bringing the policy rate to around 3.75%, though the easing cycle was notably delayed as policymakers prioritised confidence that inflation pressures were durably contained. Despite a more hawkish tone in recent communications, we expect up to three additional cuts in 2026 as growth moderates and inflation converges toward target, a year that will also be institutionally significant given that the leadership decision regarding Jerome Powell’s succession is scheduled for 2026, potentially shaping the medium-term policy outlook. Figure 1 summarizes the recent developments and expectations for 2026.