Market Snapshot

Market Snapshot is a weekly view from our portfolio managers, offering sharp, thematic insights into the trends shaping markets right now.

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This week in numbers

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The all-time high on Japan 40-year government bonds.

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The decline in the US dollar over the past year.

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The amount of time taken for the price of gold to double.

Past performance is not an indicator of future performance.

This week’s Market Snapshot

The US Federal Reserve at a crossroads?

As the appointment of a new US Federal Reserve chair looms, investors are speculating on the implications for monetary policy and independence of the US central bank.

Fast reading

Trump nominates Kevin Warsh for Fed Chair as Powell faces a federal investigation.
US tech stocks tumble amid disappointing sales data from semiconductor groups.

Kevin Warsh, a former Federal Reserve governor, has been nominated as the next chair of the US Federal Reserve (the Fed), President Donald Trump announced last Friday. Assuming the nomination is approved, it will place Warsh at the helm of the Fed during a period of concern about the independence of the US central bank and the wider implications for monetary policy.

Warsh previously sat on the Fed’s board of governors between 2006 and 2011, notably navigating market stress during the 2008-09 Global Financial Crisis (GFC) and represented the central bank at various international forums.

Trump’s endorsement of Warsh comes as current Chair Jerome Powell – who has held the role since 2018 – faces a federal investigation amid ongoing tensions between Powell and Trump over the pace and trajectory of monetary policy.

Warsh, once a noted hawk, has recently moved toward supporting lower rates, aligning with the administration’s push for easier policy and raising fears that political influence could overshadow data‑driven central bank decision‑making.

“While Warsh’s nomination had initially reassured markets, concern has grown because Warsh – once a noted hawk – has recently moved toward supporting lower rates, aligning with the administration’s push for more aggressive policy easing and raising fears that political influence could overshadow data‑driven central bank decision‑making,” notes Charlotte Daughtrey, Investment Director – Equities at Federated Hermes.

Filippo Alloatti, Head of Financials (Credit) at Federated Hermes, says the upcoming Congressional approval process should provide further insights on Warsh’s thinking, adding that a number of things are already clear.

“[Warsh] has been critical of the extensive use of the Fed’s balance sheet which has led to asset price inflation. He has also said that he would prefer the central bank to focus on a narrower list of core financial objectives,” Alloatti says.

A brief history of rates

Since the Fed was established more than a century ago¹, monetary policy has fluctuated dramatically – from early 20th-century stability to double-digit rates in the 1980s, followed by many years of decline towards near-zero, and then the recent sharp reversal to higher rates.

Arthur Burns (1970–1978) Inconsistent, rising rates to fight inflation.
Paul Volcker (1979–1987) Aggressive tightening, rates exceeded 19% (at its peak) to break stagflation.
Alan Greenspan (1987–2006) ‘Soft landing’ of the 1990s, tightened in mid-2000s to cool housing inflation.
Ben Bernanke (2006–2014) & Janet Yellen (2014–2018)Slashed rates to 0.00-0.25% to provide liquidity after the GFC.

Jerome Powell (2018–2021) Maintained near-zero rates during the Covid-19 pandemic.
Jerome Powell (2022–2023) Aggressive rate hiking cycle to combat 40-year-high inflation, reaching 5.25-5.50%.
Jerome Powell (2024–present) Begins to lower rates in late 2024, reaching 3.5-3.75% in early 2026.

The Federal Open Market Committee (FOMC) opted to keep the federal funds rate within a 3.5-3.75% range at its meeting last week, amid a more positive outlook for growth. Other leading central banks followed suit this week with the European Central Bank holding its benchmark interest rate at 2% for the fifth meeting in a row and the Bank of England’s Monetary Policy Committee voting five to four to keep its key rate unchanged at 3.75%.

Elsewhere…

It has been a bumpy week for equity markets led by a sell-off in tech stocks as investors fret that the AI boom may be losing momentum, amid disappointing sales data from semiconductor groups AMD and Qualcomm.

The tech-heavy Nasdaq Index tumbled this week, down 3.61% from Monday to Thursday. The blue-chip S&P 500, meanwhile, was down 1.7% over the same period².

“Investors are no longer treating AI‑related capex as an automatic positive but are increasingly focused on whether that spending is translating into tangible revenue growth and a credible path to returns whilst balancing profitability,” says Daughtrey. “As a result, share‑price reactions have been more differentiated, with results and guidance on investment intensity and payback proving more influential than headline earnings alone.”

Too much Fed news

Spreads, value and our credit outlook

Powell takes a stand

¹ The US Federal Reserve was established on 23 December, 1913, with the signing of the Federal Reserve Act. While the Fed has influenced interest rates through discount window operations since the 1920s, formal, consistent daily reporting of the federal funds rate began in 1928.

²Week open to Thursday close, as at Google Finance, 6 February 2026.

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This month’s Market Snapshot

A cartwheel week for commodities, trade and currencies

Gold, silver and copper hit an all-time high.
The EU signs a landmark free trade deal with India.
Japanese long-dated bonds sell off.

Commodities, trade and currencies were front of mind for investors this week as a precious metals rally, an EU-India trade deal and a decline in long-dated Japanese government bonds all made headlines.

Gold hit a record high on Thursday, breaking through the US$5,300 per troy ounce mark for the first time on Wednesday (28 January) after a sustained rally that has seen the yellow metal surge in value by almost 30% month to date. Silver, copper and other metals have also taken wing over the past year (see Figure 1).

Figure 1: Metal shows its mettle

Thursday and Friday’s trading saw a sharp reversal of prices but for Louise Dudley, Portfolio Manager, Global Equities, the rally in precious and industrial metals is a symptom of a broader shift in the market.

“The rally has been striking, fuelled by bullish sell-side views, sustained central bank buying, and a sense among investors that they remain under-allocated to the asset,” she says. “At the same time, the traditional relationship between gold and industrial metals is less clearcut than it once was, raising questions about whether gold still acts as a reliable hedge in a risk-off environment.”

Dudley highlights how increased accessibility has broadened the investor base for gold, reinforced by the recent momentum. “While some worry that gold is now drifting into the broader risk-on trade, much of the enthusiasm reflects its strong performance and confidence that demand will persist,” she adds. “Geopolitical uncertainty adds another layer of support, with gold still regarded (at least in part) as a safe haven asset.”

We expect India’s labour-intensive industries to gain significantly, with tariffs of up to 10% set to be removed on nearly US$33bn worth of exports

A trade milestone

In other news, this week saw the signing of a landmark trade deal between India and the European Union. It is the bloc’s second major trade deal this month following an earlier agreement with South America’s Mercosur nations to create one of the world’s largest free trade zones after 25 years of negotiations.

Yasmin Chowdhury, Senior Investment Analyst for Global Emerging Market Equities, says the EU-India trade deal should eliminate or reduce tariffs on almost all goods traded between the union and the world’s fifth largest economy.

“We expect India’s labour-intensive industries to gain significantly, with tariffs of up to 10% set to be removed on nearly US$33bn worth of exports,” she says. “While the deal protects sensitive sectors in India, it will allow unprecedented access to its tightly protected auto industry, enabling up to 250,000 European-made vehicles to enter the country at preferential duty rates.”

According to Chowdhury, India’s textiles, apparel, leather, footwear, marine products, gems and jewellery, handicrafts, engineering goods and autos should all see improved competitiveness in European markets.

“The agreement could take a year to come into force, delaying any uplift to GDP – but it will provide a near-term tailwind to sentiment and has the added benefit of creating a hedge against US trade uncertainty,” she adds.

The yen/dollar question

A further twist in the week’s news came in the form of continued uncertainty in Japan’s bond and currency markets following Prime Minister Sanae Takaichi’s decision to call a snap general election on 8 February.

Following the announcement, the yield on Japan’s 40-year sovereign bond rose above 4% for the first time on fears that unfunded campaign promises could trigger higher inflation.

This, in turn, prompted speculation that Japanese investors could begin to repatriate capital in response to high domestic interest rates. Since Japanese investors are the largest foreign holders of US Treasuries, it sparked renewed concern around the long-term trajectory of the US dollar.

John Sidawi, Senior Portfolio Manager for Global Fixed Income, notes that the incessant selling of the US dollar from December into this year has had investors searching for an underlying motif. “But, while market participants have been quick to turn to a tired ‘Sell America’ refrain, recent data releases show no convincing evidence of any abrupt rotation out of US Treasuries or equities,” he says. “Instead, what foreign investors do appear to be doing is hedging their American holdings rather than selling them outright. This has been one of the cornerstone considerations for our ongoing bearish outlook on the US dollar.”

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New trade war fears unsettle markets

The ‘sell America’ trade made a comeback on Tuesday, as threats of a US takeover of Greenland intensified.

President Trump’s sabre-rattling sparked a sell-off in US assets.
The threat of a trade war with the world’s largest economy hit European stocks.
Markets rallied after the US president appeared to then walk back threats of military action and tariffs.

US President Donald Trump ramped up his demands for Greenland to become part of the US on Tuesday. The resulting volatility led to the S&P 500 closing down 2.1%, wiping out 2026 gains. The yield on 10-year US Treasuries rose to a four-month high of 4.29%¹.

Trump has previously said the US would acquire Greenland “one way or the other”² and refused to rule out using military force in a press conference on Tuesday³. The US dollar weakened 0.3% against a basket of major currencies in the wake of the escalation⁴.

The sell-off in US assets recalled the so-called ‘sell America’ trade observed last year. Global investors acted on concerns over exposure to US assets⁵ following the implementation of the “Liberation day” tariffs (Figure 1) in April 2025.

The escalation in rhetoric followed an announcement on 17 January that saw the US outline an extra 10% tariff on Denmark, the UK, Finland, France, Germany, the Netherlands, Norway and Sweden. Beginning on 1 February, the tariffs were set to increase to 25% on 1 June and apply until such time that the sale of Greenland was confirmed.

The prospect of another potential trade war hit European markets and investors sought out less volatile assets. The Stoxx Europe 600 index closed 0.7% down on Tuesday, while the Vix index – a measure of short-term volatility – leapt to its highest level since November. Gold – widely viewed as a safe haven asset – passed US$4,800 per troy ounce to hit a record high⁶

What we learned in 2025 is that the Trump administration often uses tariffs as a leveraging tool for negotiating

However, global markets rebounded on Wednesday after Trump announced he had reached the framework of an agreement with Nato Secretary General Mark Rutte and would drop the tariffs scheduled for 1 February. The S&P 500 added 1.2%⁷ on Wednesday, while the Stoxx Europe 600 index rose 1.1% in early trading on Thursday.

Damian McIntyre, Head of Multi Asset Group at Federated Hermes urged investors to not overreact to short-term market volatility and emphasised the importance of looking beyond headlines when assessing the longer-term impact of this week’s events.

“The tariff threats over the weekend created fear and confusion among investors. But what we learned in 2025 is that the Trump administration often uses tariffs as a leveraging tool for negotiating,” he says.

In the event that the US economy strengthens in 2026, and US companies deliver strong earnings reports, market volatility could create further buying opportunities for investors, McIntyre says.

Valuations remain quite stretched in the US and the likelihood of a sell-off is present, says Louise Dudley, Portfolio Manager at Federated Hermes. “The volatility we have seen this week won’t have helped the situation, but we are optimistic about the longer-term outlook,” she adds.

“We are focused on the stimulus measures – which include sweeping tax cuts – that are coming because of the ‘One Big Beautiful Bill’ signed last year. It should reinforce consumer confidence in the US and will likely sustain the 2026 outlook for companies.”

¹ Source: Bloomberg

² President Trump and Greenland: Frequently asked questions – House of Commons Library

³ Press Secretary Karoline Leavitt Briefs Members of the Media, Jan. 20, 2026 – The White House

⁴ Source: Bloomberg

⁵ Powell takes a stand | Federated Hermes Limited

⁶ Source: Bloomberg

⁷ Ibid

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Japanese PM gambles on snap poll to shore-up economy

The country’s first female prime minster, Sanae Takaichi, is looking to convert a high public approval rating into a parliamentary majority for her ruling LDP party.

The snap election in Japan follows a choppy start to 2026 that has seen the US capture Venezuelan leader Nicolás Maduro and violent unrest break out across Iran, amid further concerns about the independence of the US Federal Reserve.
However, the Vix index – Wall Street’s so-called fear gauge – has shown only a modest increase since the start of the year, suggesting investors remain optimistic.

Japanese Prime Minister Sanae Takaichi called a snap election this week as she seeks to convert her high public approval ratings into a parliamentary majority for the ruling Liberal Democratic Party (LDP). The vote is expected in February.

Takaichi – Japan’s first female prime minister – took office in October after winning an internal LDP leadership vote. The general election will be Japan’s second in less than 18 months after the LDP lost its majority in the lower house of parliament in 2024.

“The new prime minster wants to leverage her current sky-high approval rating – which stands at more than 75% – to gain seats for the LDP, regaining control in the lower house over an unprepared Democratic Party for the People opposition party,” says Martin Schulz, Group Head of International Equities at Federated Hermes.

Figure 1: Can the Nikkei maintain its rise?

The Nikkei 225 has risen 4% over the last week¹– driven by sectors such as aerospace, defence, and nuclear – amid speculation about a snap vote and expectations that Takaichi’s popularity might help the LDP to regain its majority and provide a mandate for further fiscal stimulus for the economy.

Japan’s 10-year government bond yield has climbed 4.7% since the start of the year, while the Japanese yen has fallen more than 6% against the US dollar over the last six months amid concerns about rising public spending².

Figure 2: Fiscal concerns loom large in Japan

“Uncertainty on the political front highlights the existing structural headwinds the country faces, including negative real yields and an already large debt burden,” says Schulz, adding that Chinese export restrictions, and increasing inflationary pressures could negatively affect Japanese households and business confidence in the near-term.

Uncertainty on the rise, do investors care?

The snap election in Japan follows a choppy start to 2026 that has seen the US capture Venezuelan leader Nicolás Maduro, the outbreak of violent unrest across Iran, and further concerns about the independence of the US Federal Reserve. However, the Vix index – Wall Street’s so-called fear gauge – has shown only a modest increase since the start of the year, suggesting investors remain unruffled.

Figure 3: The Vix Index has seen only a modest rise YTD

“Geopolitical headlines can often create short-term volatility in the market. While this can create fear and confusion for investors, it’s important to discern whether a headline could impact long-term economic growth, or if it’s merely noise,” says Damian McIntyre, Head of Multi-Asset Solutions Team at Federated Hermes. “The 2026 market has the potential for both a strong economy and strong earnings, therefore we look at periods of volatility as an opportunity to increase equity allocations,” he says.

It’s important to discern whether a headline could impact long-term economic growth, or if it’s merely noise

On Sunday, it was announced that the US Department of Justice had launched a criminal probe into Fed Chair Jerome Powell over testimony he gave to a Senate committee about renovations to Federal Reserve buildings. Powell and US President Donald Trump have endured a difficult relationship in the past year.

“The investigation into Chair Powell raises uncertainty for investors ahead of January’s Federal Open Market Committee (FOMC) meeting and, in our view, increases the probability that the next rate cut will not take place before Chair Powell’s term ends,” says RJ Gallo, Deputy CIO for Fixed Income at Federated Hermes.

¹ Bloomberg as at 15 January 2026

² Bloomberg as at 15 January 2026

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The US Federal Reserve at a crossroads?

This week in numbers

The US Federal Reserve at a crossroads?

Fast reading

Warsh, once a noted hawk, has recently moved toward supporting lower rates, aligning with the administration’s push for easier policy and raising fears that political influence could overshadow data‑driven central bank decision‑making.

A brief history of rates

Elsewhere…

Too much Fed news

Spreads, value and our credit outlook

Powell takes a stand

A cartwheel week for commodities, trade and currencies

We expect India’s labour-intensive industries to gain significantly, with tariffs of up to 10% set to be removed on nearly US$33bn worth of exports

A trade milestone

The yen/dollar question

New trade war fears unsettle markets

What we learned in 2025 is that the Trump administration often uses tariffs as a leveraging tool for negotiating

Japanese PM gambles on snap poll to shore-up economy

Uncertainty on the rise, do investors care?

It’s important to discern whether a headline could impact long-term economic growth, or if it’s merely noise

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