Market Commentary 5th January 2026 – from Naigil Johnson

The FTSE 100 briefly surpassed the symbolic 10,000-point mark on the first day of trading in the new year, reaching the milestone within the opening half hour. Although a slight pullback followed, 2025 proved a strong year for the index, delivering its best performance since 2009 and outperforming peers including the S&P 500.

The UK Nationwide House Price Index recorded a year-on-year growth of 0.6% in December, below market expectations and easing from the previous month’s stronger gain. On a monthly basis, prices fell slightly after adjusting for seasonal effects, marking the first monthly decline in four months and signalling the softest annual growth since spring last year.

In France, the HCOB Manufacturing Purchasing Managers’ Index (PMI) returned to expansion in December, rebounding from three months of contraction and marking the strongest improvement in over three years. Production volumes nearly stabilised after a sharp slowdown in November, underpinned by a surge in new export orders, particularly from Eastern and Southern Europe, North America, and parts of Africa.

In contrast, Germany’s manufacturing sector continued to contract, with the PMI signalling the steepest decline in ten months. Output fell for the first time following a prolonged period of growth, weighed down by weaker demand. New orders also declined, with export sales falling at the fastest pace since the end of 2024.

Minutes from the Federal Reserve’s December meeting indicated that most policymakers expect rate cuts to be appropriate next year, provided inflation eases gradually. However, the committee remained divided over the risks, with some members warning that inflation could become entrenched, potentially meaning higher borrowing costs, while others preferred a more substantial easing to support a softening labour market.

In the labour market, initial jobless claims fell during the week ending late December, recording the lowest level since the start of the year, excluding the typically volatile Thanksgiving period. The decline came well below market expectations, signalling continued underlying strength in the US jobs market despite seasonal fluctuations.

Officials at the Bank of Japan broadly agreed that further interest rate increases and a gradual reduction in monetary accommodation are appropriate to achieve sustainable price stability, according to the Summary of Opinions from the December meeting. Policymakers expressed growing confidence that Japan can maintain a virtuous cycle in which moderately rising wages and prices support the baseline outlook for economic growth and inflation.

In China, the RatingDog General Manufacturing PMI returned to expansion in December, rebounding from a four-month low and surpassing market expectations. Factory activity showed a modest increase, supported by higher inflows of new work, although new export sales declined slightly. The improvement in demand was largely driven by the domestic market, which appeared to reflect government efforts to stimulate spending at home.

GBP / EUR – Current 1.1484 Previous 1.1467

The pound weakened 0.30% against the US dollar last week but rose 0.15% versus the euro. Trading remained subdued over the Christmas and New Year period, with activity expected to pick up in the coming weeks. Recent moves in the currency have been driven by easing market concerns around the UK budget outlook and Bank of England policy.