Global markets are bracing for an exceptionally eventful week as January's volatile start continues, with investors preparing for a convergence of political developments, monetary policy decisions, and corporate earnings that could significantly impact market sentiment.

Davos Takes Center Stage

The World Economic Forum in Davos will command global attention from January 19-23, bringing together political leaders, central bankers, business executives, and technology leaders. The anticipated in-person attendance of U.S. President Donald Trump has elevated the stakes for discussions around geopolitics, trade policy, and economic strategy. Market participants will closely monitor any signals from Washington that could influence global risk sentiment, while artificial intelligence is expected to feature prominently in both formal sessions and informal discussions.

Federal Reserve Independence Under Scrutiny

A critical legal confrontation awaits in the United States as the Supreme Court prepares to hear a case linked to Trump's attempt to remove Federal Reserve Board member Lisa Cook. This development raises broader concerns about political pressure on the central bank and comes amid heightened scrutiny of the Fed following legal action involving outgoing chair Jay Powell. The case could test the boundaries of Federal Reserve independence, adding uncertainty for markets that remain highly sensitive to interest rate expectations.

Japan's High-Stakes Political Gamble

Japan faces a pivotal moment as Prime Minister Sanae Takaichi moves toward calling a snap election, despite her party's struggles in opinion polls. Markets have responded positively to the prospect, betting that an expanded parliamentary mandate could enable substantial fiscal stimulus measures. The political developments have driven Japanese equities to record highs while weakening the yen and longer-dated government bonds. However, the political drama may overshadow the Bank of Japan's policy meeting, where no immediate interest rate changes are widely expected following last month's hike.

China's Economic Performance in Focus

China will release fourth-quarter and full-year gross domestic product data, with expectations that Beijing has achieved its growth target supported by resilient exports despite ongoing trade tensions with the United States. The country posted a record trade surplus in 2025, highlighting the role of overseas demand in supporting economic growth. However, investors remain cautious about persistent challenges from the prolonged property downturn and subdued domestic consumption. Additional data on house prices and retail sales will provide crucial insights into the need for further policy support.

Corporate Earnings Momentum Builds

The U.S. earnings season gains momentum with major companies across technology, healthcare, and manufacturing sectors preparing to report results. Key reports from Netflix, Johnson & Johnson, and Intel are expected to shape market sentiment as investors seek guidance on demand trends and profit margins. While bank earnings have delivered mixed results to start the season, forward-looking commentary from corporate leaders will be critical in sustaining optimism built on expectations of stronger earnings growth in 2026.

With geopolitical tensions, central bank independence questions, electoral uncertainty, and corporate performance all converging simultaneously, this week presents markets with substantial challenges and opportunities that will likely set the tone for the remainder of January.

Global markets are entering a transformative phase where geopolitical factors, rather than technology trends, are expected to dominate investment decisions in 2026, according to market analyst Geoff Dennis in his recent discussion with ET Now. This represents a significant shift from 2025, which was largely defined by artificial intelligence-driven trading patterns.

Geopolitical Risks Take Center Stage

Dennis identifies 2026 as a year shaped by geopolitical developments, with multiple global flashpoints creating an complex investment landscape. Key risk factors include potential escalation involving Iran, rising China-Taiwan tensions, uncertainty surrounding US actions in Latin America, and the continuing Russia-Ukraine conflict. Despite this extensive list of geopolitical concerns, financial markets have maintained relative stability without experiencing panic-driven sell-offs.

Oil markets have responded to these tensions, with prices firming primarily due to concerns about Iran's oil exports and recognition that reviving Venezuelan supply will require substantial time and capital investment. However, risk assets have not exhibited the dramatic volatility typically associated with such geopolitical uncertainty.

Emerging Markets Defy Traditional Patterns

A particularly noteworthy development is the resilience demonstrated by emerging markets, which are defying conventional market relationships. Dennis highlights an unusual divergence where emerging market equities have gained nearly 5% year-to-date despite the US dollar index rising approximately 1%. This performance contradicts the traditional inverse relationship between dollar strength and emerging market returns.

This resilience stems from sustained capital inflows into emerging markets that began in late 2025 and have continued into 2026. Dennis characterizes emerging markets as "the flavour of the year," suggesting this momentum could persist for an extended period.

Federal Reserve Policy Outlook

Regarding US monetary policy, Dennis anticipates a cautious approach from the Federal Reserve throughout 2026. Despite recent inflation readings coming in slightly below expectations, persistent wage pressures and inflation levels above the Fed's target are expected to limit aggressive policy easing.

Dennis emphasizes that the Federal Reserve will prioritize maintaining credibility and independence amid political pressures and high fiscal deficits. He warns that excessive rate cuts could revive bond market stress if investors lose confidence in the Fed's commitment to inflation control.

Japan's Role in Global Capital Flows

Japan emerges as another critical factor influencing global capital markets flows. Expectations of fiscal expansion, regional geopolitical tensions, and political uncertainty surrounding elections have contributed to yen weakness. Dennis explains that a softer yen provides support for Japanese equities, enabling local markets to rally despite broader global uncertainties.

Market Outlook and Investment Strategy

Dennis maintains that the US economy remains fundamentally stable in 2026, providing the Federal Reserve with flexibility to implement modest easing measures while global investors continue finding value in emerging markets. Although geopolitical risks are escalating, markets appear willing to look beyond immediate concerns, creating selective opportunities rather than broad-based fear.

The analyst's assessment suggests that 2026 will be characterized by careful navigation of geopolitical developments rather than technology-driven momentum, with emerging markets potentially offering attractive investment opportunities despite traditional headwinds from dollar strength.