2026 Begins with Divergence: What Markets Are Really Pricing In

Ahmad Mortazavi
Jan 3
4 min read

🌍 Big Picture

Markets opened the first week of 2026 with a constructive but cautious tone. The disinflation narrative remains intact, central banks are firmly in easing mode, and financial conditions have loosened modestly. However, early trading signals suggest that investors are becoming more selective rather than broadly risk-on. Equity leadership has rotated toward value and defensives, yields remain elevated relative to policy rates, and currency markets are increasingly driven by relative fundamentals rather than headline rate cuts.

At the same time, geopolitics has re-entered the macro equation through the energy channel. Over the weekend, the United States carried out military action in Venezuela and captured President Nicolás Maduro. While Venezuela’s oil infrastructure was reported to be operating normally, the market impact is not about physical damage but about supply risk, sanctions enforcement, shipping constraints, and policy uncertainty. Prior U.S. actions had already disrupted Venezuelan exports, which fell sharply from around 950,000 barrels per day in November, and the latest escalation reinforces uncertainty around near-term crude flows.

This development matters because it arrives in an oil market that is otherwise dominated by oversupply expectations. As a result, oil prices remain subdued, but upside volatility risk has increased. The broader implication is a market environment that still supports easing and risk-taking, yet is increasingly vulnerable to headline-driven shocks. In this regime, selectivity across assets, regions, and sectors becomes critical.

📊 Assets at a Glance

Equities

United States: U.S. equities started the year mixed. The Dow and S&P 500 edged higher, supported by value and defensive sectors, while the Nasdaq lagged as investors reduced exposure to high-duration growth.
Europe: European equities remain near record highs, led by technology, defence, and industrials, benefiting from easing inflation and relatively stable growth expectations.
UK: The FTSE 100 reached a new all-time high, briefly breaking the 10,000 level, supported by financials, energy majors, and defensive stocks.
Emerging Markets: EM equities advanced modestly. Latin America outperformed on commodity dynamics, while Asia remained mixed amid slower regional growth signals.

Fixed Income

U.S. Treasuries: The 10-year Treasury yield moved higher toward 4.19%, reinforcing a “rate cuts without yield collapse” environment and a modestly steeper curve.
Europe: Core euro-area yields rose, with German Bund yields approaching 2.9%, as markets reassessed the pace and depth of ECB easing.
UK: UK gilt yields remained elevated, reflecting sticky inflation risks despite expectations of gradual Bank of England cuts.
Emerging Market Debt: EM local-currency debt attracted selective inflows, supported by easing inflation trends and ongoing rate-cut cycles in several emerging economies.

Currencies

U.S. Dollar: The dollar stabilised after a weak 2025, with the DXY around 98.5, supported by resilient U.S. growth and policy credibility.
Emerging FX: EM currencies showed divergence rather than broad strength. High-carry currencies were mixed, while fiscally and politically sensitive currencies underperformed.

Commodities

Oil: Oil prices remained soft despite rising geopolitical risk. Brent traded around $60–61, and WTI near $57, reflecting oversupply concerns tempered by Venezuela-related uncertainty.
Gold: Gold traded near record highs around $4,300 per ounce, supported by lower real yields, central-bank demand, and geopolitical hedging.
Copper: Copper prices held close to multi-year highs, underpinned by structural demand and tight supply despite softer global growth signals.

Crypto

Bitcoin: Bitcoin consolidated around $89,000–90,000, continuing to behave as a macro-sensitive risk asset rather than an independent hedge.

📅 Key Events Next Week

Monday: UK GDP and Investment Data Stronger data would support sterling and reduce expectations for aggressive BoE cuts. Weaker prints would pressure GBP and support gilts.
Tuesday: U.S. Growth Indicators and RBA Minutes Stronger U.S. data would support the dollar and weigh on EM FX. Softer data would reinforce the easing narrative and support risk assets. RBA minutes will guide AUD and Asia-Pacific sentiment.
Wednesday: U.S. Jobless Claims Rising claims would reinforce Fed easing expectations and pressure the dollar. Lower claims would support yields and the USD.
Friday: Japan Inflation and Activity Data Stronger inflation would support the yen and trigger carry-trade unwinds. Weaker data would keep JPY soft and support risk assets.

💡 Investment Idea: British American Tobacco (LSE: BATS)

British American Tobacco stands out as a compelling value and income opportunity in an environment where rate cuts are improving the relative appeal of stable cash-flow businesses. As discount rates fall and market volatility remains elevated, investors often re-price defensive names with strong free-cash-flow generation and reliable shareholder returns.

BAT trades at a clear valuation discount relative to the broader market, while offering an attractive dividend yield supported by resilient operating cash flows. The company’s global footprint provides diversification, and easing financial conditions improve the relative attractiveness of income-generating equities versus bonds.

Why it works now

Falling rates increase the appeal of defensive income
Strong cash generation supports dividends
Valuation remains attractive versus market averages

Key risks

Regulatory and litigation pressure
Volume declines and illicit trade
Sensitivity to FX movements and emerging-market exposure

In a market transitioning from broad easing optimism to selective positioning, BAT offers a balanced way to capture income and stability while reducing exposure to valuation-sensitive growth segments.

Prepared by the Scientia Capital Management Team. This publication is based on verified market data and analysis. The views expressed are for informational purposes only and do not constitute investment advice. Scientia Capital Management combines market expertise with AI-driven intelligence to empower investors worldwide.