Top 3 Economic Stories This Week

The First Trading Days of 2026

We are into 2026! What were the happenings of the first trading days of 2026? Admittedly they were mixed, as investors leaned into the idea that growth will hold up as inflation is beginning to cool. Treasury yields saw an uptick - and the tone of the market largely suggested that there was no urgency to price any sort of early-2026 easing. As for the UK market, the FTSE 100 hit 10,000 as per the Reuters market wrap - becoming a key symbol of resilience entering 2026.

Global Commodities this Week

As many desks were lightly staffed in between the gap of Christmas and New Year, we saw geopolitical news having a greater impact on prices than usual. While the ongoing conflict between Russia and Ukraine didn't disrupt supply per se this week, markets did reassess existing geopolitical risks looking ahead to 2026. Prices were largely adjusted to reflect potential downside scenarios rather than reacting to any new events. From the prices and events we've seen, we'd argue that investors centred their attention on ongoing shipping constraints as well as such constraints in logistics. However, as the year came to an end, many traders looked past short term headlines and began making their predictions on what the oil market might look like in 2026. Many questioned the possibility of 2026 being a year of oversupply in oil markets as some traders suspect that Non-OPEC producers will continue to expand their output regardless of price movements - we shall see if that comes true.

On the topic of conversations, it was Non-OPEC supply that dominated the markets conversations this week, with U.S. shale remaining a key focus. For example, some market reporters have mentioned the efficiency gains and technological improvements in U.S. shale production allowing output to remain profitable even at lower prices. There has also been some discussion around increasing production from newer producers - specifically from regions such as South America. Onto the demand side of things - specifically focusing on China. Throughout 2025, analysts have continued to reassess the role that China plays in driving demand for global commodities. At Policy and Price, we would argue that China's demand for commodities is now viewed as less reactive to fluctuations than it has been previously. Therefore, we see that instead of acting as an absorber of excess global supply, China is now seen as a contributor to steadier but more limited demand growth. If China no longer plays that role of absorbing excess supply - what may happen? Well of course, oversupply cycles last longer before correcting and prices face downward pressure sooner. Furthermore, compared to in the past, when China's steady demand smoothed price swings, now prices will react more sharply to shocks. This idea, that commodity prices become more political and more volatile could be exemplified by the events mentioned above - as headlines mattered more this week. Let's not forget about the effect on Producers, as their possible assumption that if prices fall, China are likely to eventually step in, may now be weaker. Therefore, investment decisions become much more cautious and producers rely heavily on OPEC+ coordination as well as on supply cuts.

The Fed's Final Minutes of 2025 Provides Insight Into The 2026 Economic Outlook

On 30 December 2025, the Federal Reserve released their minutes from their December 9th-10th meeting, the last time they cut rates. This provided insight into how Fed experts see the 2026 economic outlook. Confidence among the cut certainly wasn't unanimous - despite the cut happening in the end. The minutes showed that some officials wanted tighter policy, while some wanted looser - and some could have supported holding rates instead. This is rare, and potentially exemplifies the complex economic situation that the U.S. finds itself in, as monetary policy looks to adjust to a constantly evolving fiscal backdrop. Let's remind ourselves why this Fed cut was so complicated and arguably conflicted. Most participants supported a rate cut as there was a slowdown in job creation in the U.S., and therefore it would help to stabilise the labour market. However, those that opposed the cut argued that economic data showed that progress toward the 2% inflation had stalled, making officials reluctant to ease too quickly.

Policy Pulse: Tariff Uncertainty

We saw tariffs resurface as a fiscal risk this week - with Reuters flagging tariff uncertainty as a key macro theme which will of course shape expectations for the 2026 economic performance. During the week, investors refocused their attention towards the idea that uncertain tariffs can raise costs for firm (as well as lower business confidence due to general uncertainty) and these costs are often passed onto consumers (especially for goods that have a price inelastic demand), which creates inflationary pressure without any sort of increase of demand (i.e., cost-push inflation). I spoke briefly about business confidence, but uncertainty around trade rules in an economy plays an undeniable role in the confidence that businesses will have going into 2026. Hypothetically, for example, if firms become more cautious about long term investment due to consumer base declining because of implemented tariffs; companies delay or scale back spending on capital. This could slow productivity growth throughout 2026 and beyond. I suppose this matters specifically at year-end because the final week of the year can often be the time when markets re-price medium term risks such as tariff uncertainty. If we look at the 3rd economic story this week, we can also argue that this is important because such re-assessment complicates the outlook just as markets were debating when and how quickly central banks might ease their policy. We can also consider how tariffs interact with monetary policy in its impact. For instance, even if central banks do lower interest rates gradually in 2026, some analysts have portrayed the concern that trade uncertainty can offset such easing.

Industry Spotlight: AI Investment Economics

I love this topic, and it turns out, many others do too. The discussion of tech hype and speculative bubbles has been huge in the last few months. Why has AI economics come under scrutiny again this week? Well, The Economist argued that 2026 could be a make or break year for OpenAI - not based on technological capability, but rather on financial sustainability. Some analysts have interpreted this as some sort of shift in discussion, however, realistically its the same question that many have been asking; nobody doubts how powerful the technology is, instead its the question of can the business model support the costs? Is there revenue potential? Coverage this week highlighted concerns around the scale of operating costs associated with AI models; with computing power, data-centre usage, energy consumption and model training all coming into the conversation. This matters beyond just the tech sector in the fact that the AI boom has driven a surge in capital spending across the economy (e.g., in data centre construction). I could go on about how if cash burn persists, then smaller AI firms (or those that are less well capitalised) will struggle to survive, but most already understand that and it has been spoken about many many times. I'd rather look at the macro link. AI is expected to raise productivity over time, but analysts continue to stress that such productivity gains are unevenly distributed, meaning that inequality will rise as uneven productivity tends to widen income inequality. However, that also raises the question of income distribution implications. So far, some would argue that we've seen AI investment boosting overall productivity, without increasing wages or employment. This undoubtedly raises significant economic questions, such as; Who actually benefits from AI-driven efficiency gains in the Labour Market? It's an important topic, and one we'll continue to cover with excitement and curiosity throughout 2026.