Key Points

• U.S. Markets Cautious Ahead of Data and Earnings: U.S. stock futures traded flat to lower as investors weighed upcoming inflation data, bank earnings and renewed political pressure on the Federal Reserve, with financials underperforming and energy stocks lifted by higher oil prices.
• Oil Jumps as Iran Risks and Fed Independence Concerns Rise: Crude prices surged on escalating tensions around Iran, while softer-than-expected core U.S. inflation failed to reassure markets amid growing unease over perceived threats to central bank independence.
• Trump’s Iran Tariff Threat Clouds U.S.-China Trade Outlook: President Trump’s proposed 25% tariffs on countries doing business with Iran risk reigniting U.S.-China trade tensions, potentially undermining the fragile trade truce ahead of high-level diplomatic meetings.
• China Trade Surplus Hits Record as U.S. Trade Slumps: China posted a record $1.2 trillion trade surplus as exports beat forecasts, but trade with the U.S. fell sharply, highlighting ongoing tariff frictions and Beijing’s growing reliance on non-U.S. markets.

U.S. Markets Pause as Bank Earnings and Policy Risks Loom

U.S. stock futures were largely flat as investors looked ahead to a fresh round of bank earnings and additional inflation data, following a modest pullback from recent record highs. The S&P 500 and Dow ended Tuesday lower, pressured by weakness in financial stocks after softer investment banking results at major lenders weighed on sentiment. Energy shares outperformed as oil prices rose more than 2% amid renewed geopolitical tensions involving Iran. Markets also remain uneasy over policy uncertainty, including proposed caps on credit card rates and ongoing pressure on the Federal Reserve, contributing to cautious positioning ahead of key earnings and macro updates.

U.S. Stocks Ease as Oil Rallies on Iran Tensions and Fed Independence Fears

U.S. equities retreated from recent highs as a renewed spike in geopolitical risk and concerns over central bank independence unsettled investors, even after inflation data came in slightly cooler than expected. Oil prices jumped more than 2.5% after President Donald Trump halted engagement with Iranian officials and signaled support for protests in the oil-producing nation, raising fears of supply disruption. Core U.S. CPI showed easing price pressures, but markets were overshadowed by Trump’s renewed attacks on Federal Reserve Chair Jerome Powell, prompting global central bankers to publicly defend the Fed’s independence. The combination weighed on risk sentiment, while energy prices and volatility moved higher.

Tariff Threats Cloud U.S.-China Trade Outlook

President Donald Trump’s move to impose a 25% tariff on countries doing business with Iran has raised fresh risks for the fragile U.S.-China trade truce, adding uncertainty to global markets. Beijing, Iran’s largest trading partner, warned it would take “all necessary measures” to protect its interests, signaling the potential for renewed tit-for-tat escalation. Analysts cautioned that the policy could undermine U.S. agricultural exports and reopen trade tensions just months after tariffs were partially rolled back. With China heavily reliant on Iranian oil and the U.S. Supreme Court poised to rule on the legality of Trump’s tariff powers, investors are bracing for heightened trade volatility ahead of key diplomatic meetings later this year.

China Trade Surplus Swells as U.S. Ties Cool

China’s trade surplus surged to a record $1.2 trillion in 2025 as export growth in December sharply beat expectations, underscoring Beijing’s continued reliance on external demand amid weak domestic consumption. Exports rose 6.6% year on year in December, while imports climbed 5.7%, both well above forecasts, helping cushion the economy against deflationary pressures and a sluggish property sector. However, trade with the United States deteriorated markedly, with China’s exports to the U.S. down 20% for the year and shipments in December plunging 30%, reflecting sustained tariff frictions. As exports increasingly pivot toward Europe and Southeast Asia, global partners have raised concerns over imbalances, intensifying pressure on Beijing to rebalance growth toward domestic demand.

Conclusion

Global markets are entering a more delicate phase as solid economic data and resilient corporate earnings are increasingly offset by geopolitical risk and policy uncertainty. Rising tensions around Iran, renewed trade frictions between the U.S. and China, and concerns over the independence of the Federal Reserve have injected fresh volatility into asset prices, even as inflation shows signs of moderation and growth remains intact. China’s record trade surplus underscores shifting global trade dynamics and the persistence of imbalances. For investors, the backdrop argues for disciplined positioning, close monitoring of policy signals, and a balanced approach that recognizes both near-term risks and longer-term opportunities.

Investment Insights

• Position for higher volatility: Geopolitical escalation around Iran and renewed U.S.-China trade friction raise the risk of abrupt market moves, favoring diversified portfolios and selective exposure to defensive assets.
• Watch policy credibility closely: Continued pressure on the Federal Reserve could lift risk premiums on U.S. assets, supporting gold and other perceived hedges against institutional uncertainty.
• Be selective in financials: Strong earnings capacity is being offset by regulatory and political headwinds, suggesting dispersion within the banking sector rather than broad-based upside.
• Monitor China spillovers: China’s record trade surplus and weak domestic demand point to external growth reliance, increasing the likelihood of further trade tensions that could impact global cyclicals.

January Economic Calendar