Game of thrones (and oil and chips)

All about US

Geopolitical developments since the beginning of 2026 should be seen in the context of America’s approach to foreign policy as outlined in the National Security Strategy document published in November last year. It plainly set out that “America First” is the principle that drives US foreign policy. The intervention in Venezuela fits with greater influence over the western hemisphere; access to Greenland’s mineral deposits is aligned with economic security; and implicit risks to the future of NATO and exiting other international organisations could be interpreted as being consistent with the principles of “Primacy of Nations” and “Sovereignty and Respect”. As investors we need to be sensitive to the risk of shifting global power balances impacting markets, trade and investment flows. At the very least, manifestations of the US’s policy have the potential to impact investor sentiment and market volatility. Longer-lasting, more profound implications are also likely. 

Oil, always

There are numerous themes. Oil markets could be impacted by both US ambitions over Venezuelan oil reserves and the potential for political change in Iran, with each leading to shifting dynamics in global oil supply. A possible outcome could be lower oil prices. Extended from that are implications for inflation and interest rates, trade balances, government revenues in oil producing countries, and the relative economics of renewable versus fossil fuel energy sources. In the near term, events in Iran could lead to a knee-jerk increase in oil prices with knock-on effects to other markets.

Threats to the dollar

The dollar outlook is interesting too. Since the early 1970s, the petrodollar framework has underpinned the greenback’s role as the global reserve currency. Oil (and other commodities) priced in dollars ensured a huge global supply of the US currency to the rest of the world. Dollars were recycled into US Treasury bonds and other assets, ensuring the US could fund its current account deficit that resulted from high levels of consumption and government (defence) spending. The book Smart Money by Brunello Rosa outlines the threat to the dollar mostly coming from China’s global expansion. Through policies like its Belt and Road Initiative and the development of Beijing’s Central Bank Digital Currency (CBDC), China is slowly increasing the use of the renminbi in global payments for trade. Control of global supply chains and commodities goes hand in hand with global monetary hegemony.

There is a long way to go before the dollar’s reserve currency status is terminally threatened. However, the increased use of CBDCs alongside a more bipolar global power balance is a threat. Having influence over an increased share of global oil supply is an antidote to these risks, as is maintaining strategic relations with major oil producers, notably Saudi Arabia. But there are risks to the dollar, even beyond the geopolitical. The US’s deteriorating fiscal position, potential political influence over monetary policy and scope for global investors to respond to political and policy uncertainty by reducing US dollar allocations in global portfolios, should also be considered. The rise in the dollar price of gold, silver and platinum probably reflects geopolitical and US economic policy-related risks. For the US, the big threat is that reduced confidence in the dollar increases the cost of funding its twin deficits. Higher Treasury yields would be bad news for a stock market already trading on very elevated valuations.

Control the AI

The global power struggle between the US and China is no more evident than in technology. The National Security Strategy emphasises securing access to critical supply chains and minerals, as well as striving for energy dominance (but rejecting climate change), strengthening defence industries and preserving US financial sector dominance. It’s no surprise that commodity prices in general are rising as control of supply chains is a priority for global powers. As well as precious metals, prices for things like copper and aluminium are up massively over the last year. Securing rare earths and information technology components, notably semiconductors, is core to global economic dominance. As such, the future of Taiwan’s status remains a core geopolitical consideration for financial markets. 

Limits to conflict

All this is fascinating and has the potential to have profound implications for global economic trends. What probably stops the most catastrophic scenarios materialising as part of the realignment of the global order from multilateralism to a multi (or bi)-polar system is the element of MAD – mutually assured destruction. The nuclear options of wholesale dumping of US Treasuries, or China absorbing Taiwan, would likely lead to global economic chaos, or worse; there would be no immediate winners. So, we will continue to worry about those tail risks but the danger is that we miss the slower moving implications of geopolitics on markets.

Real and strategic

In this evolving world, there is a strong case for investing in real and strategic assets. Gold and silver are proving that now, but other commodities should too, and I would stretch this to assets involved in food production and distribution, energy and water. Defence is clearly a winner, as we have seen. Artificial intelligence’s (AI) shift in focus, from build-out to adoption, is likely to be more important too as the use of AI will ultimately be more important than having the most data centres or today’s best Large Language Model. Underpinning many of these trends are national security interests, on both sides of the bipolar global order (Russia is important too but is aligned with China under the terms of their “no limits” agreement signed in 2022).

Cyclically, the consensus outlook remains benign

Aside from looking at markets though a strategic, geopolitical prism, the economic cycle remains key to short-term investment performance. Despite recent developments, markets in 2026 are continuing along the same trends they were on in 2025. Equities have hit new highs already, bond yields are stable, and credit spreads remain tight. The consensus is for stable and resilient growth with inflation remaining somewhat above central bank targets. December’s US consumer prices report confirmed that for now, with headline inflation at 2.7%. Central bank interest rate expectations are stable. Of the major currencies, only Japan’s yen shows any sign of a trend (weakening) with other exchange rates stable. 

Markets rich and sanguine

As such, a carry focus in fixed income remains the most attractive strategy. With little sign of any structural deterioration in credit conditions, high yield bonds are the purest play on healthy corporate credit conditions. At the end of 2025 we concluded that rates volatility should remain low as the easing cycle simultaneously comes to a finish this year - but that this might be accompanied by further steepening of yield curves. Fiscal and potential inflation concerns could accelerate this steepening move at times. Equities remain supported by the ongoing AI theme (the upcoming earnings season will be instructive as to whether the hyperscalers remain committed to massive capital spending), but generally earnings expectations are solid against a backdrop of positive economic growth. The fourth quarter US corporate earnings reporting season has got off to a good start with the major banks beating expectations with very strong equity trading revenues being a key profit driver. On that note, however, President Donald Trump’s comments about the need to cap interest rates on credit cards have held back the share price performance of US banks. Another example of why policy uncertainty will remain a key theme. 

Growth without job growth?

The one area of downside risk to growth is the US labour market. Last year saw the smallest number of new non-farm payroll jobs created (584,000) since 2009 (excluding 2020 when the pandemic shut down the global economy). In fact, there have only been 11 years in the last 50 that job creation has been lower. All those observations were during recessionary periods. The mitigation is the unemployment rate remains relatively close to estimates of full employment. But consumer and some business confidence indicators are weak, tariffs are still having an effect, and the political climate is tense. Common thinking is that AI is cutting jobs; the US is not inclined to create more government jobs; and the ISM manufacturing index has remained below 50 (indicating contraction) for the best part of three years now. Where is an acceleration of jobs going to come from? Even with inflation closer to 3% than 2%, the pressure is for lower interest rates. How we get there – either through political suasion or decelerating economic growth – will be profoundly important for the rates curve and for the US dollar. 

Performance data/data sources: LSEG Workspace DataStream, ICE Data Services, Bloomberg, BNP Paribas AM, as of 15 January 2026, unless otherwise stated). Past performance should not be seen as a guide to future returns.