Global Markets Outlook January 2026 Christian Mueller-Glissmann, CFA Kamakshya Trivedi Head of Asset Allocation Goldmans Sachs International christian.mueller-glissmann@gs.com Chief FX and EM Strategist Goldmans Sachs International kamakshya.trivedi@gs.com George Cole Head of European Rates & Strategy Goldmans Sachs International george.cole@gs.com +44-20-7774-1714 +44-20-7051-4005 +44-20-7552-1214 This report is intended for distribution to GS institutional clients only. Investors should consider this repo ...

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Summary of Key Points from Conference Call Industry Overview - **Focus on Global Markets Research**: The conference call primarily discusses trends in foreign exchange, particularly in Asia excluding Japan, the Euro Area, and Europe, with a specific emphasis on the USD directionality and its implications for currencies like CNH and AUD [1][4][10]. Core Insights and Arguments - **USD Directionality**: There is a potential emergence of USD directionality, with expectations that a weak September Non-Farm Payroll (NFP) report could lead to a downward move in the USD and negative sentiment in US equities [4][8][10]. - **NFP Expectations**: The consensus forecast for the September NFP is +54K job gains, which is significantly lower than August's +22K. A substantial miss could trigger a larger negative reaction in the USD and US equities [4][8]. - **Market Positioning Risks**: There is a notable buildup in carry trades that could be at risk if US equities experience weakness. This includes long positions in currencies like BRL and cross/JPY [9][10]. - **AUD and NZD Outlook**: The AUD is expected to strengthen due to factors such as improving US-China relations and a hawkish shift in the Reserve Bank of Australia's (RBA) stance. The target for AUD/USD is set at 0.6875 by the end of December [16][19]. Similarly, the NZD is viewed positively, with expectations of a macro recovery and a low probability of a rate cut by the RBNZ [17][18]. Additional Important Insights - **Equity Market Sentiment**: The call highlights the cautious sentiment among foreign investors regarding US equities, which could lead to further USD weakness if macroeconomic conditions deteriorate [10][20]. - **China's Economic Indicators**: Positive signs in China's balance of payments and a record high current account surplus of USD196 billion in Q3 2025 are noted, which could support the CNH [20]. - **Singapore's Economic Sensitivity**: Singapore's economy is highlighted as being particularly sensitive to global growth slowdowns, with expectations for the Monetary Authority of Singapore (MAS) to potentially ease its FX policy if negative equity sentiment persists [21][22]. - **India's Currency Dynamics**: The Indian Rupee (INR) is expected to underperform due to the Reserve Bank of India's (RBI) aggressive FX reserve selling and low inflation rates, which may prompt a rate cut [23]. - **Indonesia's Fiscal Concerns**: Indonesia faces risks of fiscal slippage and potential revisions to its budget deficit ceiling, which could impact the IDR negatively [24]. Conclusion - The conference call provides a comprehensive overview of the current state of global markets, particularly focusing on currency dynamics influenced by macroeconomic indicators and central bank policies. The insights suggest a cautious outlook for the USD, with potential opportunities in AUD and NZD, while highlighting risks in emerging markets like India and Indonesia.

Core Viewpoint - The Hong Kong dollar's peg to the US dollar will remain unchanged despite recent market volatility and a slight decline in the US dollar's dominance, as stated by John Greenwood, the economist behind the currency mechanism [1][4]. Group 1: Currency Peg Mechanism - The Hong Kong dollar has been pegged to the US dollar at HK$7.80 since 1983, with a trading band of HK$7.75-HK$7.85 introduced in 2005 [5]. - The currency board system has functioned as intended during a challenging year for the Hong Kong dollar, with Greenwood affirming that there is no intention to alter the current system [1][4]. - The linked currency system has successfully navigated market fluctuations for the past four decades, reinforcing the view that pegging to the US dollar remains the best option for Hong Kong [5]. Group 2: Market Dynamics - Earlier in the year, a liquidity surge from the Hong Kong Monetary Authority (HKMA) defending the currency peg led to a significant drop in Hong Kong interbank rates, creating a divergence between Hong Kong and US interest rates [2]. - This divergence prompted carry trades, resulting in the Hong Kong dollar reaching the weak end of its peg, which necessitated 12 interventions by the HKMA between June 25 and August 13 [2]. - Greenwood expressed confidence that the US dollar's value and role as a global currency will not see drastic changes, indicating stability in the current system [6].

Core Viewpoint - The Federal Reserve's shift towards cutting interest rates is expected to boost emerging-market bond rallies, particularly benefiting countries like Brazil, South Africa, and Hungary [1][3]. Group 1: Market Performance - A benchmark for domestic debt from developing-world governments has delivered a 15% return in dollar terms this year, marking the best performance since at least 2017 [2]. - The recent gains were driven by uncertainties stemming from President Trump's trade war and rapid policy changes, prompting investors to seek opportunities outside the U.S. [2]. Group 2: Investment Strategies - Fund managers are increasingly favoring local currency-denominated debt, which could see amplified returns if the dollar continues to weaken [4]. - Companies like DoubleLine Capital and JPMorgan Asset Management are focusing on emerging-market currencies and local bonds, while Bank of America Corp. highlights the attractiveness of EM carry trades [4]. Group 3: Investor Sentiment - There is a noticeable increase in interest for non-dollar allocations, with a resurgence in benchmark-aware strategies related to emerging markets [5]. - The Fed's easing policies are anticipated to further depress the dollar, enhancing the returns on bonds backed by appreciating currencies [6]. Group 4: Increased Exposure - T. Rowe Price Group Inc. has raised its exposure to bonds in emerging and frontier markets, betting on their higher yields to attract global funds [7]. - The firm suggests that capital inflows into emerging markets could create a virtuous cycle, improving fundamentals and attracting even more capital [8].