Top stories
- The geopolitical focus moved firmly onto Iran, with the US threatening to intervene to bring a halt to the violent suppression of protests across the country. The protests began in late December with shops closing in objection to rampant inflation and cost of living issues but have escalated to a point where questions over the stability of the regime have been raised. President Trump said the US was mulling military operations in Iran with the regime “starting to cross the threshold for an intervention” amid reports that at least 2000 people had been killed during a clampdown on anti-government protests. President Trump urged protestors in Iran to “take over” state institutions, promising that “help is on its way”. Trump said Iran’s leadership should “show humanity” in dealing with protestors, adding “they’ve got a big problem and I hope they’re not going to be killing people”. On Wednesday evening Trump claimed “the killing in Iran is stopping” and that the Iranian regime had “no plan” to execute anti-government protestors. Trump said he would “watch it” and “see what the process is” when asked if military action was off the table, saying he had been given a “very good statement” by sources “on the other side” that the government in Tehran would stop killing people involved in the widespread protests. With Iran supplying 4% of global crude oil supplies, the escalating tensions have been reflected in rising oil prices. Gold also saw record highs this week. Having risen 10% in the week to Wednesday, the oil price retreated almost 5% after President Trump’s suggestion he would wait and see before taking further action. Oil is still trading around 6.5% below the average price over the past twelve months.
- Earlier in the week President Trump said countries “doing business” with Iran will face new tariffs of 25% on trade with the US “effective immediately”. Trump’s social media post followed a White House announcement that it was considering strikes on Iran should diplomatic measures not suffice. Trump did not elaborate over the scope or implementation of the new levies and for now this remains a social media post rather than an executive order. China, the UAE, Turkey, the EU, Pakistan, and India are among Iran’s largest trading partners.
- Federal Reserve (Fed) Chair Jerome Powell issued a video statement strongly pushing back against a US Justice Department investigation into the Fed, relating to testimony he delivered to Congress last June about the renovation of the Fed’s headquarters. Powell said the “unprecedented action” was a pretext to influence the independence of the Bank. Powell stated “this new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings… the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President”. President Trump denied any knowledge of the indictment, saying “I don’t know anything about it, but he’s certainly not very good at the Fed, and he’s not very good at building buildings.” Powell said he would not quit over the investigation, saying “Public service sometimes requires standing firm in the face of threats…I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.”
By the numbers
- 2.7% – US inflation was unchanged at 2.7% year on year in December. Core inflation (which excludes food and energy prices) was also unchanged at 2.6% year on year, below expectations.
- 10% – US credit card companies underperformed after President Trump called for interest rates to be capped at 10%. US credit card debt stands at about $1.1 trillion, with an average interest rate of 20% according to the St. Louis Federal Reserve. Card companies and banks warned that the move – designed to ease cost of living pressures – could see credit availability decline for lower income and higher risk consumers. A 10% limit could face significant legal challenges and would likely need an act of Congress to proceed.
- 50,000 – the number of jobs added in the US in December, below expectations of 70,000. The unemployment rate fell to 4.4% in December from a revised 4.5% in November. Revisions saw November’s payrolls cut by 8,000 and a reduction of 68,000 to the October figure. For the full year of 2025, average payrolls increased by 49,000 a month, compared with 168,000 a month in 2024.
Market movers
China reported trade data this week for 2025 showing a surplus of $1.2 trillion for the year – a record high. China’s exports grew by 5.5% year on year while exports were flat. What is interesting was the impact of the US tariffs – exports from China to the US were down 20% year on year. However, China managed to offset the drop in trade with the US with exports to Europe up 8%, Asia up 13% and Africa up 25%. China is doing a good job in diversifying their overseas markets, though we have seen European politicians complaining China is ‘dumping’ goods elsewhere. The overall level of exports does also suggest that China’s trade led economic model remains in place and the shift towards domestic consumption still has some way to go. This is something that may well be addressed when the next five-year plan is published at the National People’s Congress in March.
The investment lens
News of the potential criminal investigation into the Federal Reserve would be expected to cause shockwaves in financial markets but the reaction this week to what appears to be another attack on the central bank’s independence failed to cause major moves – while gold moved higher, elevated geopolitical risks may well be the reason. President Trump continues to put pressure on the Fed to cut interest rates, but with the jobs market still in reasonable shape, albeit on a softening trajectory, and inflation above target and expected to stay above target all year, there is no immediate need for the Fed to shift from their ‘wait and see’ mode in the near term. Last summer Trump claimed rates should be three percentage points below the 4.25-4.5% level at the time. Since then, the Fed has cut by 0.75 percentage points but there is no urgency to reduce levels further, not least when the overall economy is still performing well. Indeed, the Atlanta Federal Reserve estimates that the US economy grew at an annualised pace of over 5% in the final quarter of last year. For the moment, aggressive rate cuts cannot be justified, not least when economic stimulus and tax cuts may well cause economic growth to accelerate. The battles between the Federal Reserve and the White House are not done… at least until the next Fed Chair is appointed.
