Daily Brief Macro: 2026 Politics: Nine Guesses & A Certainty and more

• In what promises to be another year fraught with uncertainty, politics and markets will again be dominated by the United States in general and Donald Trump in particular.
• Widely differing views of equity market prospects demonstrate this, i.e. the ‘bubble is about to burst’ doomsayers versus the bullish seeming consensus on Wall Street.
• However, the biggest challenge facing investors is focusing on what really matters amid the continuing ‘noise’ emanating from the Trump Administration in particular.

• Precious metals sub index has surged by 62% year to date, base metals are up 11%, oil has declined by 16%, and agricultural livestock index has been flat
• Forecasting broadly flat returns for 2026, with declines in energy offset by price increases in metals and agriculture
• Gold price expected to rise to $5,000 per ounce by end of 2026, driven by supply inelasticity, central bank demand, and investor inflows

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• The U.S. Administration has retreated from the heated rhetoric and trade initiatives at the beginning of its trade war.  U.S. officials’ conciliatory approach to China starkly contrasts to earlier policies.
• Going into next year’s midterm elections, the Trump Administration will seek to maintain stable markets and downplay its global trade war, benefiting China.
• Taiwan will continue to present headline risks for markets as the influential neocons use the issue to stoke tensions toward a cold war against China.

• Global gas prices often diverge sharply as Henry Hub and TTF respond to regional conditions, unlike WTI and Brent, which move together due to seamless global crude market integration.
• Recently, Henry Hub surged while TTF declined, highlighting how contrasting storage conditions, weather patterns, and demand fundamentals create major regional price disconnects in global natural gas markets.
• Although LNG links regions, slow arbitrage, infrastructure limits, policy differences, and contrasting demand mixes prevent price alignment, leaving Henry Hub and TTF shaped by distinct regional fundamentals.

• Asia’s forward PE and P/BV peaked in late October and are moderating now. Korea, Taiwan, China rerated the most. But viewed against ROE, Korea looks cheaper than 6 months ago.
• Going by PE viewed against forward EPS growth and P/BV against forward ROE, the well-known conclusion – Korea cheap, India expensive – remains unaltered. Onshore China appears slightly overvalued now.
• Persistent initiatives to improve corporate governance are boosting Korea’s and Taiwan’s valuation. Upward revisions in earnings estimates are getting broad-based, indicating the commencement of improving earnings momentum.

• Ending quantitative tightening will not eradicate pressure on bank reserves due to Treasury borrowing. Liquidity will be boosted in 2026 by depletion of the Treasury’s General Account at the Fed.
• The One Big Beautiful Bill Act (OBBBA) enacted retroactive tax breaks to 1 January 2025 without changes to withholding tax schedules, thereby ensuring large refunds in 2026 H1.
• The economic impact of the OBBBA’s tax breaks will be smaller compared to COVID-19 pandemic-related cheques because they favour households with higher propensities to save. Data-dependent Fed policy will continue.

• CAD for H1FY26 (Apr-Sep’25) was 0.8% of GDP. Despite the continued expansion of the services surplus, we expect a CAD of 0.2% of GDP in FY26 as US tariffs bite. 
• The 12mma of the fiscal deficit was 4.6% of GDP in Oct’25. The 12mma of corporate tax revenue troughed in Feb’25, income tax revenue in Jul’25; both have since rebounded. 
• Despite the fiscal stimulus via GST rate reductions, the recovery in direct tax revenue will likely ensure the fiscal deficit target (4.4% of GDP) will be comfortably achieved. 

• Crude oil futures were drifting lower Monday after initially consolidating at around two-week highs amid ongoing political tensions and expectations for a US rate cut on Wednesday.
• Front-month Feb26 ICE Brent futures were trading at $62.44/b (1957 GMT) versus Friday’s settle of $63.75/b, while Jan26 NYMEX WTI was at $58.80/b against a previous close of $60.08/b.
• Brent had climbed to the top end of the $60-$65/b trade range in place since the start of October, underpinned by a breakdown in the latest round of US-brokered talks to end the Russia-Ukraine conflict, along with brewing tensions between Washington and Venezuela.