Prospects for global financial market in 2026

Growth is generally seen as OK, with inflation a bit sticky but still providing room for more rate cuts, while riskier assets like equities and emerging markets are generally seen as performing well. But just whether these things come to pass may depend on whether any shocks occur.

Steven Barrow, Head of Standard Bank G10 Strategy, said some shocks are truly shocking, meaning that they cannot be anticipated in advance. But some shocks can be anticipated in advance, and that’s what we will be considering here. This list is by no means exhaustive, and we are not arguing that any or all will come to pass, but as they say, to be forewarned is to be forearmed.

The first is that Ukraine and Russia agree to a peace deal. It would be a shock, but clearly not totally unanticipated. Polymarket gives it odds of around 50:50 by the end of 2026. Such a shock would be unambiguously positive for risk assets and European currencies, especially those that sit close to the conflict. But even the likes of the euro and the pound, which sit a bit further away, would presumably rise against the dollar or the yen.

The outbreak of war in February 2022 was a huge shock and hit European currencies very hard. A peace deal won’t reverse that effect totally but will still be a positive influence all the same; it's probably worth a few percentage points of appreciation for these currencies against the dollar.

A second possible shock is that the US Supreme Court deems that the bulk of President Trump’s tariffs are illegal. The ruling should come in the early months of 2026, but this one would be less of a surprise, as Polymarket gives Trump only a 30% chance of success at the moment. With an illegal tariff ruling not a huge shock, and with other tariffs at Trump’s disposal to claw back revenues, such a shock is only worth a few percentage points of US dollar weakness against other major currencies in subsequent days and weeks. There would likely be a hit to other US assets as well, like treasuries, and this could reinforce pressure on the dollar.

Sticking with the US, another shock would be a dramatic bursting of the AI bubble. It is more difficult to put odds on this, but we suspect that it would be a significantly bigger shock than either of the first two that we have mentioned. This would be a more interesting one for the US dollar. While financial market shocks usually have a habit of generating safe-asset-related dollar strength, the concurrent plunge in stocks, bonds, and the US dollar during Trump’s tariff tantrum earlier this year questions the notion of the dollar’s safe-asset allure. Indeed, a big AI bust would send the dollar down—and probably by more than we’ve suggested in the first two scenarios.

While US shocks are certainly possible, so too are surprises elsewhere. In the UK, France and Germany, amongst others, it is possible to see scenarios where significant political change occurs. UK PM Starmer has experienced an historic fall in popularity, and, unless things start to improve, his removal by the Labour Party, alongside that of his Chancellor Reeves, could easily be on the cards. Sometimes the replacement of unpopular leaders might be expected to give the currency a boost, but not in this case if the result is a lurch to the Left.

In Germany and France, political factors could come to the fore as the German coalition teeters and France’s beleaguered government finally fails to drag out a budget victory from the jaws of defeat. Here, like the UK, political shocks seem more likely to undermine the euro (unlike the Russia/Ukraine shock we talked about earlier). “Away from Europe, we’d point to the possible shock of Japanese government bond market implosion should new PM Takaichi continue to push for more fiscal largesse, something that could weigh heavily on the yen”, said Steven Barrow.