The Policy Backdrop

The current administration’s increasingly public tension with the Federal Reserve around interest rates introduces uncertainty around the future path of monetary policy. Markets have recently pulled back from pricing aggressive rate cuts, but the direction of policy still matters. If rates ultimately move lower while inflation remains sticky — a scenario markets have experienced before — investors historically begin shifting toward stores of value. Gold has often been one of the primary beneficiaries of that shift.

There is also a straightforward portfolio dynamic at work. When economic growth slows, dividends compress, or real yields decline, the opportunity cost of holding a non-yielding asset falls. In that environment, gold’s lack of income becomes less of a disadvantage relative to other assets. Lower interest rates also tend to weaken the U.S. dollar, which has historically supported higher gold prices.

Beyond monetary policy, a deeper structural trend is also emerging. Since the Russia/Ukraine conflict, central bank gold purchases have accelerated to near-record levels. The logic is straightforward. Gold remains one of the few reserve assets that sits outside the modern financial system and outside the direct control of any single government.

What Investors Actually Own

A second issue that receives less attention is the structure of the gold market itself.
The global gold ETF market is currently valued at roughly $559 billion. That sits on top of a physical gold market estimated at approximately $29 trillion in above-ground value. In other words, the ETF layer represents only a small fraction of the underlying asset.
More importantly, many ETF investors do not actually hold gold as they believe.
Consider the largest gold ETF, GLD, which holds roughly $147 billion in assets. The trust stores gold through HSBC as its primary custodian, with the potential for additional sub-custodial arrangements. Investors purchasing shares in the ETF are buying an interest in the trust rather than a direct title to specific bars of gold.
In normal market conditions, that structure functions well as a trading instrument. But it is important to understand the difference between price exposure and physical ownership. Most individual investors cannot redeem ETF shares for allocated bullion.
Below the ETF market sits something even larger: the futures market. COMEX in New York handles the majority of global gold futures trading. Open interest reached roughly $261 billion in late 2025. Yet fewer than three percent of those contracts ultimately result in physical delivery. Most are simply financial contracts tied to the price of gold rather than claims on the metal itself.
Periods of market stress occasionally reveal the difference between those layers. During the market disruption in March 2020, premiums on physical coins rose sharply while electronic gold prices remained relatively stable. When financial markets experience strain, paper claims and physical metal can move in different ways.
That possibility is not hypothetical. It is precisely the type of environment gold is meant to hedge.

Most investors access only the upper layers — price exposure, not physical ownership.

Perspective for Investors

It is important to be clear about what this note is and what it is not. This is not a recommendation to buy gold today. Markets move in cycles, and gold itself has experienced long periods of both strength and weakness.
The purpose of this note is simply to encourage investors to understand what they actually own in their portfolios.
Too often in our industry, conversations about assets drift toward buzzwords and narratives. Investors hear the same themes repeated across television, conferences, and publications like Barron’s, but the underlying structure of the investment is rarely examined closely.

For investors evaluating gold exposure, ownership structure matters.
Allocated physical bullion stored in segregated vault storage represents the most direct form of ownership. A bank safe-deposit box is frequently misunderstood; in certain bank failure scenarios, the holder may still be treated as an unsecured creditor.

For investors seeking exchange-listed exposure while maintaining a clearer claim to physical metal, the Sprott Physical Gold Trust (PHYS) offers a different structure. The trust stores allocated bullion at the Royal Canadian Mint and publishes serial numbers for individual bars. The structure avoids derivatives and allows for the redemption of shares for physical metal under defined conditions.

Exchange-traded funds such as GLD and IAU remain useful instruments for investors seeking price exposure. The challenge arises when those instruments are assumed to represent direct physical ownership.
Before allocating capital to gold, investors should ask several structural questions:

If those questions cannot be answered clearly, the investor may be gaining price exposure rather than the systemic hedge gold is often intended to provide.
Gold has always played a role in portfolios because it sits outside the financial system. But that protection only exists if what you own is actually gold. Understanding that distinction is where serious investing begins.

CrossLight Global Investments
This article is strictly for informational purposes only and does not constitute investment advice. CrossLight Global Investments is a registered investment adviser. Past performance is not indicative of future results.

Copyright © 2026 CrossLight Global. All rights reserved.

By CrossLight Global Investment Partners on March 16, 2026.

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Exported from Medium on March 23, 2026.

Why Gold, Why Now: Structure, ownership, and the macro case for the world’s oldest reserve asset

Gold rose more than 60% in 2025. Since March 2024, it has even outperformed NVIDIA by more than 30 percentage points. Price moves of that magnitude attract attention quickly, but the current case for gold is less about momentum and more about the macro environment in which portfolios now operate.
Anyone who has spent time on a trading desk knows that moves like this usually tell you something about the environment investors are navigating.

The Policy Backdrop

The current administration’s increasingly public tension with the Federal Reserve around interest rates introduces uncertainty around the future path of monetary policy. Markets have recently pulled back from pricing aggressive rate cuts, but the direction of policy still matters. If rates ultimately move lower while inflation remains sticky — a scenario markets have experienced before — investors historically begin shifting toward stores of value. Gold has often been one of the primary beneficiaries of that shift.

There is also a straightforward portfolio dynamic at work. When economic growth slows, dividends compress, or real yields decline, the opportunity cost of holding a non-yielding asset falls. In that environment, gold’s lack of income becomes less of a disadvantage relative to other assets. Lower interest rates also tend to weaken the U.S. dollar, which has historically supported higher gold prices.

Beyond monetary policy, a deeper structural trend is also emerging. Since the Russia/Ukraine conflict, central bank gold purchases have accelerated to near-record levels. The logic is straightforward. Gold remains one of the few reserve assets that sits outside the modern financial system and outside the direct control of any single government.

What Investors Actually Own

A second issue that receives less attention is the structure of the gold market itself.
The global gold ETF market is currently valued at roughly $559 billion. That sits on top of a physical gold market estimated at approximately $29 trillion in above-ground value. In other words, the ETF layer represents only a small fraction of the underlying asset.
More importantly, many ETF investors do not actually hold gold as they believe.
Consider the largest gold ETF, GLD, which holds roughly $147 billion in assets. The trust stores gold through HSBC as its primary custodian, with the potential for additional sub-custodial arrangements. Investors purchasing shares in the ETF are buying an interest in the trust rather than a direct title to specific bars of gold.
In normal market conditions, that structure functions well as a trading instrument. But it is important to understand the difference between price exposure and physical ownership. Most individual investors cannot redeem ETF shares for allocated bullion.
Below the ETF market sits something even larger: the futures market. COMEX in New York handles the majority of global gold futures trading. Open interest reached roughly $261 billion in late 2025. Yet fewer than three percent of those contracts ultimately result in physical delivery. Most are simply financial contracts tied to the price of gold rather than claims on the metal itself.
Periods of market stress occasionally reveal the difference between those layers. During the market disruption in March 2020, premiums on physical coins rose sharply while electronic gold prices remained relatively stable. When financial markets experience strain, paper claims and physical metal can move in different ways.
That possibility is not hypothetical. It is precisely the type of environment gold is meant to hedge.

Most investors access only the upper layers — price exposure, not physical ownership.

Perspective for Investors

It is important to be clear about what this note is and what it is not. This is not a recommendation to buy gold today. Markets move in cycles, and gold itself has experienced long periods of both strength and weakness.
The purpose of this note is simply to encourage investors to understand what they actually own in their portfolios.
Too often in our industry, conversations about assets drift toward buzzwords and narratives. Investors hear the same themes repeated across television, conferences, and publications like Barron’s, but the underlying structure of the investment is rarely examined closely.

For investors evaluating gold exposure, ownership structure matters.
Allocated physical bullion stored in segregated vault storage represents the most direct form of ownership. A bank safe-deposit box is frequently misunderstood; in certain bank failure scenarios, the holder may still be treated as an unsecured creditor.

For investors seeking exchange-listed exposure while maintaining a clearer claim to physical metal, the Sprott Physical Gold Trust (PHYS) offers a different structure. The trust stores allocated bullion at the Royal Canadian Mint and publishes serial numbers for individual bars. The structure avoids derivatives and allows for the redemption of shares for physical metal under defined conditions.

Exchange-traded funds such as GLD and IAU remain useful instruments for investors seeking price exposure. The challenge arises when those instruments are assumed to represent direct physical ownership.
Before allocating capital to gold, investors should ask several structural questions:

If those questions cannot be answered clearly, the investor may be gaining price exposure rather than the systemic hedge gold is often intended to provide.
Gold has always played a role in portfolios because it sits outside the financial system. But that protection only exists if what you own is actually gold. Understanding that distinction is where serious investing begins.

CrossLight Global Investments
This article is strictly for informational purposes only and does not constitute investment advice. CrossLight Global Investments is a registered investment adviser. Past performance is not indicative of future results.

Copyright © 2026 CrossLight Global. All rights reserved.

Silver isn’t a commodity. It’s a risk asset — just ask the IMF.

KEY TAKEAWAYS

● Consumer resilience continues to be supportive of US growth

● Rotation by sector and geography reflects theme of defensiveness and diversification

● Deleveraging concerns in risk assets are a key market factor to watch

MARKET RECAP

Financial markets ended a volatile week off the lows after a sharp Friday rebound in risk assets.

● Precious metals and cryptocurrencies had another roller-coaster week, marked by key price breaks amid concerns about deleveraging. Silver plunged -20% on Thursday, ahead of a COMEX hike in margin requirement to 18% from 15%. Bitcoin briefly touched a 15-month low of $60,000 and finished the week down 12%.

● Bonds were mostly firm amid a retreat in risk assets. The 10-year Treasury yield closed at a 10-day low of 4.21%, as weak labor market data offset solid consumer sentiment. Markets are pricing in two rate cuts this year, despite Fed Chair nominee Kevin Warsh’s reputation as a balance sheet hawk.

● Equities saw flows rotate out of technology into defensive and value plays (consumer staples, industrials, and energy). The Dow Jones Index advanced +2.5% to print above the 50,000 level for the first time, while the S&P ended flat on the week. Outside the US, Europe, India, and Japan rallied, while Australia, China, and South Korea consolidated.

● Major currencies took a breather from the weak-dollar theme. The Japanese yen lost -1.6% ahead of this weekend’s snap elections, while the Euro pared losses by 0.3%. However, EM FX generally outperformed, led by the Indian rupee (+1.5%) and the Mexican peso (+1.1%).

LOOKING AHEAD THIS WEEK

The upcoming week is relatively quiet on the data front, except for the delayed release of the January non-farm payroll report (consensus +69k) on Wednesday, due to the brief government shutdown, and the January CPI (consensus +2.5% yoy) on Friday. The annual Munich Security Conference takes place on February 13–15, providing a timely forum for discussing global security issues, including military conflicts and cybersecurity.

FOCUS THEME: Every Rout has a Silver Lining?
Silver volatility recently spiked to its highest level since 1980. After reaching an all-time high of $121.65/oz on January 29, the price of silver plummeted 26% the next day, marking the largest single-day decline. After a brief respite, silver dropped a further 20% on February 5. These drastic corrections coincided with a similar pullback in cryptocurrencies and other precious metals.

Like gold, spikes in silver volatility are usually a symptom of underlying market stress, as seen during the 2008 credit crisis and the 2020 pandemic (see chart below). However, unlike gold, which primarily serves as a store of value, silver is used as an essential input in a wide range of manufacturing processes. Additionally, for the same dollar value, storage costs are much higher for silver than for gold. Furthermore, the silver stockpile tends to be inelastic, as most of its supply is a byproduct of mining other base metals. In fact, demand has consistently outstripped supply since 2021. Consequently, silver has historically been more volatile than gold and is not classified by the IMF as a reserve asset.

Source: Bloomberg; XAGUSD 3 month at-the-money implied volatility

Some commentators point to the January 30 announcement of Fed Chair nominee Kevin Warsh, previously known as an inflation hawk, as the cause of the rout. However, we believe the latest bout of silver volatility has been fueled by a confluence of market factors — asset reallocation, animal spirits, and national strategy — that led to the severe price dislocations.

First, a buildup of geopolitical anxiety over the past year has bolstered the secular appeal of precious metals, an asset class long overlooked. Given stretched equity valuations, tech bubble fears, and weak-dollar expectations, strategic year-ahead allocations from both institutional and retail investors likely fueled the inordinate price gains in December and January.

Second, silver has drawn momentum-based flows. Surging leveraged plays in China have led to new price breaks during Asian hours. However, the market frenzy has unintended consequences. In the past week, a Shenzhen-listed silver futures fund suffered multiple trading halts as staggering inflows drove its premium well above its underlying assets.

Third, silver has emerged as a strategic resource for the modern economy. Its use has increased in the production of electric vehicles, solar panels, and consumer electronics. Similarly, AI data centers and defense supply chains have boosted silver consumption. Last November, the US declared silver a critical mineral. China has tightened restrictions on silver exports through the end of 2027.

In the longer term, a combination of industrial demand and supply bottlenecks should underpin silver prices. Nevertheless, from an investment perspective, our view is that silver will remain prone to boom-bust price swings, given its smaller market cap, the absence of a central bank bid, and the dominance of footloose investors. Accordingly, silver should be allocated only to high-risk portfolios and not treated as a safe-haven asset.

HEARD THROUGH THE GRAPEVINE

This week’s Heard Through the Grapevine reflects a market that looks stable on the surface but feels less certain underneath. Fewer recessions, greater policy intervention, and longer cycles have pushed asset prices higher, leaving less margin for error. That strain is starting to show in the dollar, in cross-border capital flows, and in how investors are reassessing concentrated exposure to US tech and AI. Add in a geopolitical backdrop that markets are largely discounting, and the common thread is not panic but growing sensitivity to credibility, diversification, and downside risk.

The Downside of Staving Off Recessions (Financial Times): Modern economies have experienced fewer recessions as governments and central banks have become more aggressive in stabilizing growth. That stability has come at a cost: it has encouraged excessive leverage, inflated asset prices, and weaker productivity, as inefficient firms are kept alive. The danger is that with debt already high and policy tools stretched, the next downturn may be harder to contain and more damaging when it arrives.

U.S. Dollar Rebound to Be Cut Short by Rate Cut Bets, Doubts Over Fed Independence (Reuters): A Reuters poll of FX strategists suggests the dollar’s recent rebound is temporary, with most expecting it to weaken again later this year as markets continue to price in US rate cuts and question Federal Reserve independence. Despite inflation remaining above target, investors largely expect easier policy under political pressure, which would push real yields lower and weigh on the dollar. Strategists see choppy trading in the near term and a gradual depreciation over the medium term, with net-short dollar positioning likely to persist.

Europe, Asia Lead Global Equity Fund Inflows as Investors Cut U.S. tech exposure (Reuters): Global equity funds attracted $31.5bn in inflows, led by Europe and Asia, as investors diversified away from volatile U.S. technology stocks. European equities saw their strongest demand since April as markets hit record highs, while tech funds experienced net outflows amid sector rotation. At the same time, investors increased allocations to bonds, money markets, and gold, signaling a broader shift toward diversification and risk management rather than outright risk-taking.

How to Hedge a Bubble, AI Edition (The Economist): As massive AI spending revives fears of a tech-led bubble, investors are seeking protection without sacrificing upside. Traditional hedges, such as government bonds, may no longer be effective if inflation or policy instability causes stocks and bonds to move in tandem. Options-based hedging can be costly and erode long-term returns. Historical evidence suggests that the most effective hedge may be to remain invested and shift toward lower-volatility, higher-quality equity strategies, rather than attempting to time an exit or relying on traditional safe havens.

China Warns US Arms Sales to Taiwan Could Threaten Trump Visit in April (Financial Times): The US is preparing a major new arms package for Taiwan, potentially worth up to $20bn, prompting Beijing to warn that the move could jeopardize a planned Trump–Xi meeting in April. US officials view the warning as a pressure tactic and cite long-standing legal obligations under the Taiwan Relations Act. China’s unusually blunt stance highlights rising tensions as Washington signals continued support for Taiwan’s defense.

MARKET DASHBOARD

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

WEEKLY PERSPECTIVES

February 1, 2026

KEY TAKEAWAYS

· Asset price volatility is likely to persist amid evolving geopolitics and technical factors

· Fed chair pick and sticky producer prices suggest limited scope for near-term easing

· Outside the US, countries are seeking to reengage with trade partners

MARKET RECAP
Global assets ended January mostly higher, though returns masked sharp, event-driven volatility across markets.

· Precious metals saw the most dramatic swings. After surging to record highs earlier in the month, gold and silver plunged on January 30 (-9% and -26%, respectively), marking the steepest single-day declines in decades. Despite the selloff, gold finished January up +13% and silver +19%.

· Equities posted mixed leadership. US stocks rose +1.4%, with the S&P briefly reaching a new high, but non-US markets continued to outperform. Korea led (+24%), with Colombia, Brazil, and Taiwan also delivering double-digit gains, while Indonesia lagged (-3.7%) amid MSCI downgrade concerns.

· Bond markets were unsettled. The US 10-year Treasury yield ended January at 4.24%, up 7 bps, driven by European fund outflows and firmer producer-price data. Japanese bonds sold off after Prime Minister Takaichi announced snap elections for early February.

· Currency and energy markets reflected shifting policy and geopolitical risk. The dollar strengthened late in the month following President Trump’s selection of Kevin Warsh as Fed chair, though the DXY still fell 1.2% in January. Commodity currencies outperformed, while energy prices surged — natural gas rose nearly +40% during an Arctic cold snap, and crude climbed +14% on heightened Iran-related tensions.

LOOKING AHEAD THIS WEEK

This week’s focus is on the January nonfarm payrolls report (consensus +68k), which should offer further clarity on the trajectory of the US labor market. A partial government shutdown began over the weekend, though passage of a Senate-backed funding bill early this week is expected to reopen the government.

On the policy front, the Reserve Bank of Australia is expected to deliver its first rate hike in two years on Tuesday, raising the cash rate by 25 bps to 3.85%, while the ECB is likely to leave rates unchanged at Thursday’s meeting.

Geopolitical risks remain elevated. The US–Russia New START treaty expires on February 4 with no extension in place, ending formal nuclear constraints for the first time since the 1970s. At the same time, speculation around a potential US strike on Iran persists amid a visible buildup of military assets in the Gulf.

FOCUS THEME: Revisiting the Plaza Accord

The Japanese yen rebounded 1.3% against the dollar in January, snapping a multi-month depreciation that had pushed it near its weakest level in 36 years. The move was driven largely by speculation of coordinated support involving Japan’s Ministry of Finance and the New York Fed.

Market confidence in Japan, however, remains fragile. On January 20, Japanese government bonds experienced a “Liz Truss–style” shock following ambitious fiscal spending signals, with long-dated yields jumping nearly 30 bps in a single session. While yields have since retraced, the 30-year JGB still sits near all-time highs at 3.63%, a stark contrast to just 0.05% a decade ago.

These developments have revived comparisons to the Plaza Accord of September 1985, when the G5 nations jointly intervened to weaken an overvalued US dollar. After the dollar fell sharply, the Louvre Accord followed in 1987 to stabilize currencies. Despite surface parallels, we see important differences that make a modern-day replay unlikely.

First, dollar strength ahead of the Plaza Accord was far more extreme. The DXY nearly doubled between 1980 and 1985 amid aggressive monetary tightening that pushed the effective fed funds rate above 20%. Today’s dollar strength reflects a slower, structural appreciation since the global financial crisis rather than a sharp cyclical overshoot.

Second, the current geopolitical environment is far less conducive to coordinated action. The original intervention targeted multiple currencies, yet recent unilateral efforts by Japan to support the yen — in 2022 and again in 2024 — have had limited and short-lived impact.

Third, the Plaza Accord addressed severe US trade imbalances with its largest partners. Replicating such an effort today would require China’s participation, given the size of the US-China trade deficit. Given Japan’s experience with prolonged stagnation and China’s own structural challenges, a policy-engineered currency revaluation appears politically and economically implausible.

HEARD THROUGH THE GRAPEVINE

The World Economy Is Hooked on Government Debt — Governments are increasingly carrying global growth through deficit-financed spending, masking weak private demand but raising long-term risks as debt-service costs rise in a higher-rate world. (WSJ)

Xi Jinping calls for China’s renminbi to attain global reserve currency status — Beijing is making its clearest push yet for the renminbi to play a larger role in global finance, though capital controls and limited convertibility remain significant barriers to reserve status. (FT)

OPEC+ agrees to keep oil output unchanged as tensions with Iran boost prices. OPEC+ held production steady in March despite rising crude prices, underscoring producers' caution amid geopolitical risks that add a fresh inflation premium to energy markets. (Reuters)

What will Kevin Warsh’s Federal Reserve look like? — Kevin Warsh’s nomination signals a Fed skeptical of quantitative easing and more politically exposed, raising questions around independence even as markets take comfort in his institutional experience. (The Economist)

Gold and Silver Prices Fall Sharply as Trump Picks Warsh as Fed Chair. Here’s Why. — Precious metals sold off sharply after Warsh’s nomination boosted the dollar and triggered profit-taking in crowded “Fed credibility” and debasement trades. (Barron’s)

MARKET DASHBOARD

Thank you for reading CrossLight’s Weekly Perspectives. This note is strictly for informational purposes only and does not constitute investment advice for the reader.

KEY TAKEAWAYS

● Global growth prospects remain sanguine, despite elevated geopolitical risks

● Debt sustainability concerns around the world are fuelling bond vigilantes’ activity

● Technical shifts in investor positionings could exert influence on asset prices

MARKET RECAP

Global markets finished mixed amid geopolitical tensions.

● Precious metals continued their blistering rally, with silver surpassing $100/oz for the first time. Poland’s central bank approved an additional purchase of 150 tonnes of gold, targeting a 28% increase over its current holding of 543 tonnes.

● Crude and energy also posted remarkable gains. Natural gas soared over +60% from a week ago in response to this weekend’s extreme winter storm.

● In FX, the week’s theme was broad-based weakness in the US dollar, except for the Indian rupee, which depreciated to a new low of 92 against the greenback. The Japanese yen advanced +1.7% on Friday to its strongest level in a month, on market speculation of a possible joint intervention between Japan’s Finance Ministry and the New York Fed.

● In equities, US stocks partially recouped early losses, while Europe underperformed. Stock indices in Brazil, Colombia, South Korea, and Taiwan reached new highs.

● In fixed-income markets, the 10-year Treasury yield briefly touched a 5-month high of 4.30% on news of Danish Pension’s divestment of $100 million in Treasury bonds, before stabilizing to close the week at 4.23%. Japan had a “Liz Truss” moment last Tuesday as markets reacted to proposed fiscal expansion plans. The 30-year government bond yield spiked 27 bps to an all-time high of 3.92% in a single day, before retracing to finish the week 14 bps higher.

LOOKING AHEAD THIS WEEK

The Fed is expected to keep the policy rate unchanged at 3.75% at this Wednesday’s FOMC meeting. Market attention will be on Fed Chair Jerome Powell’s press briefing, his first public address since the DOJ’s subpoenas earlier this month. President Trump’s choice for the new Fed Chair continues to hold market participants in suspense, as BlackRock executive Rick Rieder recently leapfrogged other contenders to be the top candidate.

On geopolitics, news reports of US naval vessels being dispatched from Asia to the Middle East, alongside a decision by a slew of commercial airlines to suspend flights to the Gulf, have fuelled speculation of a possible military operation against Iran. Keep an eye on market reaction following President Trump’s threat yesterday to impose a 100% tariff on all Canadian exports to the US should the China-Canada trade deal take effect on March 1, 2026.

FOCUS THEME: From Multilateralism to Plurilateralism

Plurilateralism refers to subsets of countries forming bespoke trade agreements rather than broad multilateral pacts.

In mid-January, two transpacific bilateral trade agreements presented a stark contrast to a tariff spat across the Atlantic. First, the US pledged to lower tariffs on goods from Taiwan in exchange for new US tech investments. Second, in a reset of strategic partnership, Canada committed to slashing import tariffs on Chinese electric vehicles, while China will resume inbound shipments of canola and add Canada to its list of nearly 50 countries for visa-free entry. Meanwhile, the US announced new tariffs of up to 25% on eight NATO partners, but rescinded the plan just days later, purportedly after both sides agreed to a Greenland framework.

To be sure, trade and politics have always been inextricably intertwined. In the 1990s, the end of the Cold War and the imminent rise of China as an economic powerhouse provided fresh impetus for global cooperation. By contrast, recent developments are part of a proliferation of customized trade accords outside a rules-based multilateral system, which has come under severe strain due to shifting geopolitics, rising nationalism, and the WTO’s institutional limitations.

Nostalgia aside, the post-WWII record of multilateralism is not as robust as widely believed. The GATT, the predecessor of the WTO, existed only as a provisional treaty on goods trade. Instead, collective partnerships began in the neighborhood, underscored by the inception of the EEC (1957) in Europe, ASEAN (1967) in Southeast Asia, Mercosur (1991) in South America, as well as the US-Canada FTA (1989) and NAFTA (1994) in North America. Crucially, FTAs do not imply zero tariffs. Rather, they seek to establish predictable import barriers, with members committing to reducing them over time. FTAs, therefore, are meant to be contractually binding in spirit and letter.

Going forward, the surgical rewiring of trade linkages is likely to push global trade toward plurilateralism, in which overlapping subsets of countries commit to bespoke trade arrangements. In this regard, a few market and economic observations are worth noting.

First, the trend of expanding and diversifying trade partnerships to mitigate the risk of market access will likely continue. This is especially true for small, open economies that have less political clout in bilateral negotiations and are therefore more vulnerable to hegemonic interests.

Second, an emerging patchwork of operating ecosystems for cross-border trade could facilitate the coexistence of multiple currencies as mediums of exchange. In fact, virtually all bilateral trade between China and Russia is now invoiced in either of the two countries' currencies.

Third, trade disputes and diplomatic rows could trigger retaliatory responses through portfolio capital flows. The spat over Greenland has prompted a Danish pension operator to sell its Treasury holdings, while a Greenland pension is reportedly considering divesting US equities.

Fourth, the reshoring of manufacturing production, particularly in technologically sensitive industries, reverses the decades-long trend of offshoring to take advantage of lower costs. All else equal, the structural inflationary impulse could prove sticky over the long term.

HEARD THROUGH THE GRAPEVINE

Gold Records Best Week Since 2008 as Greenland Crisis Rattles Dollar — Gold surged nearly 8%, and silver broke above $100/oz as the Greenland standoff and tariff threats triggered a flight from the dollar into safe havens, producing gold’s strongest weekly gain since the 2008 crisis and the dollar’s weakest week since May. Investors and central banks have already been diversifying away from U.S. assets, but the crisis has accelerated concerns about political risk, policy reliability, and the dollar’s institutional credibility. Strategists say the episode strengthens the case for continued dollar hedging and depreciation as the Fed cuts rates and global investors seek alternatives. (FT)

US Investment-Grade Credit Spreads Reach Lowest Level This Century — Investment-grade credit spreads tightened to just 73 bps over Treasuries — the lowest since 1998 — as investors aggressively bought high-quality corporate bonds despite volatility triggered by Trump’s tariff threats. Strong demand reflects a preference for “all-in yield” at higher rates, as well as the view that blue-chip corporate credit now looks comparatively safer than U.S. government debt amid political uncertainty. Issuance has surged to its fastest start since 2020, underscoring how little macro drama is disrupting credit markets. (FT)

Business Activity Picks Up in Parts of Europe and Asia — Global PMIs showed early-year momentum, with business activity accelerating in India, Japan, Australia, and parts of the eurozone as export orders stabilized after last year’s tariff shock. The IMF and World Bank have raised growth forecasts on the back of U.S. AI-driven investment, though both warn the rebound remains fragile and tariff-sensitive. Europe continues to lag the U.S. and China, while U.S. firms reported the sharpest drop in overseas orders since Trump’s tariff escalation. (WSJ)

Niall Ferguson: How Trump Won Davos — Ferguson argues that, contrary to European claims, Trump backed down over Greenland. He also argues that Trump “won Davos” by dominating the agenda, shaping the narrative, and using the forced Greenland issue as deliberate misdirection. He suggests Trump never intended to annex Greenland or impose new tariffs, but used the threat-bluff to divert European attention from U.S. plans in the Middle East and Ukraine. The episode reflects a shift toward hard-power realism — “the strong do what they can, the weak suffer what they must” — with Trump using maskirovka to keep counterparts off balance. (The Free Press)

Trump Threatens 100% Tariffs on Canada if It Seals Trade Deal With China
After Canada resolved trade barriers with China over EVs and canola, Trump warned Ottawa that it would face deeper economic ties with Beijing — accusing Canada of becoming a conduit for Chinese products into the U.S. and threatening tariffs on “all Canadian goods” if it pursued a duty-free path. The threat fits Trump’s pattern of late-night tariff salvos followed by walk-backs and comes amid U.S. use of North America to skirt U.S. levies under USMCA. Ottawa denies that a review of the China free-trade deal is underway, but business leaders warn the dispute risks spilling into the USMCA review and broader U.S.–Canada relations. (FT)

A Chilling, Yet Plausible Scenario: What If Putin Wins? — German strategist Carlo Masala sketches a scenario in which a forced ceasefire in Ukraine and a U.S. pivot to Asia allow Russia to regroup, rearm, and later test NATO by seizing a small Estonian city — calculating that Western leaders will avoid escalation and thus hollow out Article 5. The scenario underscores how political fatigue, populism, and U.S. unpredictability could erode deterrence faster than battlefield outcomes. The broader warning: if Europe doesn’t invest in its own defense, adversaries may conclude the West no longer defends its interests. (The Economist)

The Medicare Charge That’s Taking a Bigger Bite Out of Social Security Checks — Rising Medicare Part B and D premiums — especially IRMAA surcharges — are offsetting Social Security COLAs for higher-earning retirees, with IRMAA projected to rise ~30% between 2026–2030. Because premiums track medical costs, not inflation, net benefits can fall even as COLAs rise. IRMAA thresholds are steep, retroactive to income from two years prior, and offer limited mitigation via MAGI management or qualifying-life-event refunds. (WSJ)

Why Fentanyl Deaths Are Falling — After driving overdose deaths to a historic peak, fentanyl-related fatalities have declined more than 20–30 percent since mid-2023 due to widespread availability of Narcan, declining fentanyl purity, and the introduction of adulterants that dilute potency. Demand-side factors — fewer new users, “saturation” among existing users, and a grim survivor effect — have also contributed to fewer overdoses. Experts caution the trend may not persist, as treatment rates remain low and the market could shift toward even more potent synthetics. (The Free Press)

MARKET DASHBOARD*

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is strictly for informational purposes only, and does not constitute investment advice for the reader.

KEY TAKEAWAYS

• Geopolitical wrangling and policy uncertainty obscure the underlying US strength

• Multilateral trade gives way to bilateral ties; diversify into non-USD assets

• Lack of Fed clarity fuels term premium; continue to avoid long-dated bonds

MARKET RECAP

US markets had a listless week. In fixed income, US Treasuries initially shrugged off news of the Justice Department’s subpoenas to the Fed but sold off into Friday’s close amid increased odds of Kevin Warsh as Fed chair. On the week, the ten-year Treasury yield rose 5 bps to a four-month high of 4.22%, while US stock indices pared roughly half a percent, weighed down by financials given the proposed 10% credit card cap. Foreign equities continued to outperform, led by Japan (+5.5%) and Korea (+5.6%), but the dollar stood firm against the majors. Volatility in precious metals persisted, with silver finishing the week up nearly 13%.

A flurry of trade-related matters dominated headlines. China posted a record $1.2 trillion trade surplus last year. Canada inked a trade deal with China that paves the way for the import of Chinese electric vehicles. The US reached an agreement with Taiwan to lower the tariff rate to 15% in exchange for $500 billion in tech investments. President Trump announced new tariffs of up to 25% on European countries that deployed troops to Greenland. The move followed a US-Denmark-Greenland meeting at the White House that failed to achieve a breakthrough. The SCOTUS ruling on Liberation Day tariffs was delayed for a second time.

LOOKING AHEAD THIS WEEK

As the World Economic Forum in Davos kicks off on January 19 under the theme “A Spirit of Dialogue,” President Trump’s presence will draw attention to the future of global cooperation. On Wednesday, the Supreme Court will hear oral arguments in Trump v. Cook, a case that could affect Fed independence. In Japan, Prime Minister Takaichi will reportedly call for a snap election to consolidate support for her fiscal expansion plans.

FOCUS THEME: Does Fed Independence Matter?

On January 10, the Justice Department subpoenaed the Fed amid a threatened indictment related to its headquarters renovation project. Despite President Trump’s denial of involvement, the move was seen as a response to the Fed’s year-long pushback against aggressive rate cuts and revived public discourse on central bank independence. In an unprecedented show of support for Fed Chair Jerome Powell, a group of sixteen foreign central bankers issued a statement highlighting central bank independence as “a cornerstone of price, financial and economic stability.”

The notion of central bank independence came to the forefront in the early 1980s, following the success of Fed Chair Paul Volcker in combating inflation through aggressive rate hikes, despite intense public and political opposition. Empirical evidence from around the world over the next two decades further strengthened the case for central bank independence in controlling prices, although the formal adoption of inflation targeting also helped. Statutory independence has been progressively granted to central banks in Norway (1985), New Zealand (1990), the UK (1997), Japan (1998), South Korea (1998), Sweden (1999), Switzerland (2004), and most recently Brazil (2021). Turning to the Fed, concerns over its independence are not without basis for three reasons.

First, market faith in the Fed’s ability to achieve its policy mandate is paramount, especially during a period of leadership transition. While the Fed exerts significant control over short-term interest rates, long-term rates, which matter more for the real economy, are determined by market forces. Without anchoring inflation expectations, a reduction in front-end money-market rates may not be reflected in a corresponding decline in long-term rates.

Second, the tug-of-war between monetary conservatism and fiscal largesse has intensified worldwide after a prolonged period of hibernation during global QE. In the US, the national debt-to-GDP ratio has risen sharply from 30% in the early 1980s to 120% today. Subordinating monetary policy to fiscal dominance is unlikely to be a lasting way to reduce debt service costs and could prove counterproductive in the absence of fiscal consolidation.

Third, the Fed’s institutional autonomy might not be as robust as widely believed. Founded by Congress under the Federal Reserve Act of 1913, Congress could, in theory, constrain the Fed’s powers and responsibilities, dissolve it by repealing the Act, or reabsorb it into the Treasury. The President selects the seven Fed Board members, including the Chair and Vice Chair, and has the authority to remove a Board member “for cause.”

From a strategic perspective, with interest rate volatility likely to rise amid uncertainty about the Fed’s leadership change in May, we would avoid long-end Treasury exposure. Based on the timeline of the last succession in February 2018, President Trump could announce his choice for the next Chair around mid-February. However, a Senate confirmation vote could be complicated by the ongoing Justice Department’s Fed investigation. Conversely, a decision by Chair Powell to serve out his term as a regular Governor on the Board through January 31, 2028, should bolster market confidence in policy continuity.

HEARD THROUGH THE GRAPEVINE

The economics of regime change — Political ruptures can reset a country’s economic trajectory, but only when households and firms believe the rules have changed for good and will endure. Serbia restored credibility; Tunisia layered new politics onto old economics; Libya collapsed entirely; and Venezuela today relies on borrowed credibility that sustains trade but not long-term investment. (The Economist)

Trump to hit Europe with 10% tariffs until Greenland deal is agreed — The White House plans to impose 10% tariffs on major European economies next month, rising to 25% by June, until they support a U.S. deal to acquire Greenland, escalating a geopolitical standoff. Protests and EU threats to stall a trade deal highlight how tariff pressure is reshaping transatlantic relations ahead of a Supreme Court ruling on presidential tariff powers. (FT)

Niall Ferguson: The Myth of Revolution in Iran — Ferguson argues Western observers misread Iran’s upheaval as revolutionary rather than counterrevolutionary, aimed at overturning the 1979 Islamic regime and restoring a more normal Iran. Successful counterrevolutions are rare and require elite defection, external support that doesn’t delegitimize the opposition, a restoration figure, and fractured security forces — conditions not yet present. (The Free Press)

AfCFTA accelerates implementation amid global trade uncertainty — The AfCFTA Business Forum in Marrakech concluded with a push to fast-track implementation amid rising global tariffs, prioritizing customs modernization, rules of origin, digital payments, industrial policy, and youth and SME participation. The shift from negotiation to execution aims to insulate against external volatility and positions Africa as a unified $3 trillion market attractive to global investors. (AfCFTA Secretariat)

The Fed Race Is Entering the Endgame — A criminal probe into Fed Chair Powell has hardened bipartisan support for Fed independence and pushed the administration to seek an off-ramp ahead of a Supreme Court ruling on Trump’s attempt to fire Governor Lisa Cook. With loyalty as the key criterion for the next chair, the shortlist has effectively narrowed to Kevin Warsh, with a decision expected around Trump’s Davos speech. (Barron’s)

Home Sales in December Jump 5.1%, Biggest Gain in Nearly 2 Years — Existing-home sales jumped 5.1% in December amid easing mortgage rates and slower price gains, but 2025 still ranked as one of the weakest housing markets in decades. Economists expect a gradual, affordability-driven recovery rather than a pronounced surge. (WSJ)

Soaring Electricity Costs Are Now a Hot Political Issue — Electricity bills are up 6.7% year-over-year and nearly 40% since 2020, making power costs a new election-year flashpoint as data centers, grid stress, and rate cases collide. Rising prices are drawing bipartisan scrutiny and could shape midterms, yet structural factors suggest no quick fix. (WSJ)

The Fight Over Making Data Centers Power Down to Avoid Blackouts — Rapid AI and cloud buildouts are straining U.S. grids, prompting proposals to curtail or disconnect data centers during peak demand to avoid blackouts. Texas and other regions are adopting conditional interconnection models that offer faster grid access for centers willing to curtail or self-supply power. (WSJ)

Thank you for reading CrossLight’s Weekly Perspectives. If you would like to discuss any of these themes, please reply to this note. This note is for informational purposes only and is not investment advice or a recommendation to buy or sell any security.

WEEKLY PERSPECTIVES

January 11, 2026

KEY TAKEAWAYS

• US growth stays close to trend, alongside stubborn inflation and sluggish job market

• Fed likely on hold through mid-year; avoid long-dated Treasuries

• Geopolitical risks poised to heat up; add time-tested safe haven assets like gold

MARKET RECAP

Global financial markets held firm in a week laden with headline-grabbing developments. In geopolitics, markets digested news of the US raid on Venezuela, with investor anxiety shifting to potential next-in-line targets (Greenland and Iran). On the domestic front, investors shrugged off a lackluster labor market report, even as the SCOTUS postponed its ruling on Liberation Day tariffs to mid-January. Meanwhile, in a bid to lower the cost of home ownership, President Trump proposed a ban on single-family home purchases by large institutional investors and directed Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds. Separately, the White House announced plans to withdraw from 66 international organizations, of which 31 are UN entities. Elsewhere, a majority of EU member states endorsed an extensive trade deal with Mercusor (a South American trade bloc led by Argentina currently), despite opposition from France and Poland.

In terms of market performance, global equities rose 2%, while the US dollar advanced on diminished hopes of near-term rate cuts. Crude oil advanced 2.5% on abating fears of an imminent supply glut; ExxonMobil’s statement that Venezuela remains “uninvestable” underscores business skepticism. After last year’s blockbuster performance, precious metals overcame the recently imposed increase in margin requirements by the Chicago Mercantile Exchange to extend their outperformance. Silver, platinum and palladium posted double-digit year-to-date gains.

LOOKING AHEAD THIS WEEK

This week’s data focus centers on Tuesday’s release of the December CPI (consensus 2.7%). A declining but sticky print that remains above the Fed’s inflation target of 2% likely points to a pause in rate cut through Q2 2026. The SCOTUS verdict on tariffs could be released before the end of this week. According to Treasury Secretary Scott Bessent, President Trump may announce his choice of the new Fed chair before he leaves for Davos to attend the January 19 -23 World Economic Forum. Geopolitics remains a near-term focal point, given President Trump’s latest remarks regarding Greenland and Iran. With Venezuelan opposition leader Maria Corina Machado scheduled to meet President Trump in Washington, D.C., later this week, the outcome could throw a wrench into the works for the newly installed Rodriguez team.

FOCUS THEME: Flashing Amber on Greenland

Following a successful US military operation in Venezuela on January 3, President Trump has ramped up rhetoric over other Western Hemisphere territories. Greenland, a semi-autonomous Danish territory about three times the size of Texas, now appears to be a top priority. Various US officials have cited national security as the key reason, given Greenland’s strategic importance for aerial and maritime approaches to the Arctic.

To be sure, US interest in Greenland is not new. In 1946, Denmark turned down President Harry Truman’s offer of $100 million in gold. During President Trump’s first term in 2019, he had likened it to “a large real estate deal.” Over the last twelve months, the Trump administration has revived its acquisition efforts. In March 2025, Vice President JD Vance made a brief stop at a US Space Base in Pituffik. Last month, President Trump appointed a special envoy to Greenland. Most recently, the White House is reportedly considering a $100,000 cash offer per Greenlander to sweeten the annexation deal.

Across the Atlantic, European leaders have joined Denmark in a diplomatic pushback against an American takeover. A joint statement on January 6 made clear that “it is for Denmark and Greenland, and them only, to decide on matters concerning Denmark and Greenland.” According to a January 2025 survey, 85% of Greenlanders oppose joining the US.

Rather paradoxically, the American footprint in Greenland has dramatically shrunk in the post-Cold War years, from a peak of 17 military bases with 10,000 troops to just one, presently in Pituffik, with 150 personnel. Importantly, under a 1951 defense pact with Denmark, the US retains extensive rights in military operations in Greenland.

Beyond national security, the strategic access to the largely untapped natural resources in Greenland is likely behind American interest. These include rare-earth elements, which are essential to modern technology, as well as hydrocarbons.

Crucially, a US military operation (“always an option”, according to the White House) will likely spell an end to the post-WWII Western alliance. Under Article 5 of the NATO treaty, Denmark would expect NATO’s collective defense mechanism to activate against the aggressor, which, ironically, is a founding member of the alliance. Europe would thus be confronted with the choice of defending the rules-based order or acquiescing to concessions made for the most powerful member of the alliance. Neither scenario bodes well for global stability.

From an investment viewpoint, elevated geopolitical risks will continue to underpin the outperformance of precious metals, particularly gold. Consider exposure to European defense-related ETFs, such as EUAD, as NATO fragility will likely spur increased military spending to deter Russian aggression.

HEARD THROUGH THE GRAPEVINE

Global equity markets rally despite macro crosswinds — Major U.S. equity benchmarks climbed sharply, with the Dow surpassing 49,000 and broad sector participation, reflecting investor optimism amid mixed economic data and geopolitical risk. The rally hints at continued risk appetite and confidence in early 2026 growth prospects, though analysts caution that high expectations may be vulnerable to economic disappointments. (Wall Street Journal)

Weak U.S. jobs data dims hopes for immediate Fed rate cuts — December payrolls missed expectations by a wide margin, marking the weakest job growth since the pandemic and reducing the odds of near-term rate cuts. Softer labor trends and downward revisions add uncertainty to the macro-outlook. (The Guardian)

Yellen Warns of Growing ‘Fiscal Dominance’ Threat to US Economy -Economists warn rising U.S. debt risks “fiscal dominance,” where the Fed cuts rates to fund Treasury deficits rather than fight inflation. With a $1.9tn trillion deficit and debt approaching 118% of GDP, panelists see pressure for cuts and little appetite for reform, raising the odds of a future fiscal crisis. (Bloomberg)

Trump Calls for One-Year Cap on Credit Card Rates at 10% — Trump proposed a one-year 10% cap on credit-card rates as an affordability measure, but offered no enforcement mechanism. Banks warn such a cap would restrict unsecured credit, push borrowers to shadow lenders, and shrink rewards programs. Notably, populists on both the left (Sanders) and right (Hawley) have signaled support, suggesting rate-cap politics are moving toward the center of the 2026 campaign debate. (Bloomberg)

Welfare Grift From Minnesota to Mississippi — Republican-led hearings on welfare fraud in Minnesota and Mississippi have highlighted deep abuses in federal safety-net programs. The Editorial Board argues that outrage should translate into durable policy reform, not performative oversight.

Beyond exposing misuse of TANF funds, the piece urges structural changes — counting all benefits as income for eligibility, converting programs into block grants to improve state accountability, and conditioning benefits on work or rehabilitation — to realign incentives and curb wasteful spending.

Political theater risks eclipsing the need to fix the system’s perverse incentives. (WSJ)

In Donald Trump’s world, the strong take what they can — Trump’s seizure of Nicolás Maduro showcased raw American hard power and a new hemispheric doctrine rooted in resources and coercion rather than democracy. But it also revealed limits: Maduro’s apparatus remains intact, Venezuela is ungovernable from afar, and oil companies show little interest in a 19th-century imperial project in a 21st-century market. The bigger risk is systemic: bullying neighbors without a values-based attractor pushes countries toward China and Russia, erodes U.S. alliance credibility, and nudges the region toward spheres of influence that ultimately weaken rather than consolidate American power. (The Economist)

How Donald Trump Could Take Control of Greenland — Trump’s advisers are exploring ways for the

U.S. to gain major influence or even control over Greenland, from expanding military basing rights to a Compact of Free Association that shifts sovereignty without “buying” the island. Danish officials worry Washington is quietly encouraging Greenlandic independence to create that opening, while U.S. officials say a U.S. security umbrella is needed to block Chinese and Russian leverage in the Arctic. The tail risk — acquisition by force — is militarily trivial but would blow up NATO and the post-WWII European security order, which is why Copenhagen is seeking a face-saving off-ramp that preserves sovereignty. (Financial Times)

The Ayatollah’s Regime Is Crumbling — Iran is facing its most sustained nationwide protests in years as currency collapse, shortages, and state-capacity breakdown accelerate. Analysts argue there is no plausible scenario in which the Islamic Republic reaches 2026 with power intact. The piece outlines three endgames — collapse, military strongman, or muddling through — all of which leave the regime weaker, fragmented, and more dangerous externally due to residual missile, nuclear, and proxy capabilities. Bottom line: Iran’s crisis has shifted from episodic unrest to systemic state f ailure. (The Free Press)

Can the ‘Donroe Doctrine’ Make South America Better Off? — Trump’s Venezuela intervention signals a shift from U.S. soft power to hard power in Latin America. Though the region’s struggles are primarily domestic, this coercive approach risks fueling anti-American politics and driving governments toward China even as it creates openings for reform. The central question is whether U.S. strategy will embrace partnership and market-building or return to extraction and coercion. (The Free Press)

Venezuela presents a big headache for big oil — Trump’s Monroe-Doctrine-style push for U.S. majors to rebuild Venezuela’s oil sector runs into the reality that today’s supermajors are capital-disciplined, risk-averse, and not in the business of subsidizing geopolitical projects. With crude prices soft, demand possibly peaking this decade, and Guyana offering far lower breakevens, Venezuela’s heavy sour barrels — break-even above $80 with large upfront capex — screen poorly for shareholders. The broader point: unlike the 1950s, the White House can’t will a petrodollar revival without legal, contractual, and security guarantees; capital will otherwise flow to jurisdictions that are easier to underwrite. (The Economist)

How Rubio Won — Marco Rubio has emerged as the most influential figure in Trump’s second-term foreign policy apparatus, consolidating an unusually broad portfolio — State, National Security Advisor, USAID (now shuttered), and effectively Venezuela — through competence, loyalty, and strategic alignment rather than ideological grandstanding. Once overshadowed by VP J.D. Vance and MAGA’s isolationist wing, Rubio has repositioned himself as a hawkish realist who matches Trump’s willingness to use hard power without committing to open-ended nation-building, a stance that has proven decisive in the Venezuela operation. The piece frames Rubio as the second-most-powerful man in Washington and a likely kingmaker for 2028, not by opposing Trumpism but by adapting to it. (The Free Press)

MARKET DASHBOARD*

Thank you for reading CrossLight’s Weekly Perspectives. If you wish to talk through any of these themes, please reply to this note. This note is for informational purposes only and is not an investment advice or a recommendation to buy or sell any sec

Week of January 4, 2026

This Week In One Paragraph
Global risk assets ended the year on a strong note, overcoming episodes of market volatility induced by geopolitical events and tariff fears. US stocks finished near their all-time highs, posting a third consecutive year of double-digit gains. However, non-US equities hogged the limelight, generating even stronger returns; their last bull-market outperformance versus the US was in 2017. Fixed-income markets echoed a similar outturn, with EM debt returns outpacing US bond returns for the first time in eight years. But the asset class that stole the show was precious metals, generating outsized full-year returns. By contrast, crude oil was the notable laggard, a trend that could persist if the US military operation in Venezuela early Saturday bolsters medium-term oil supply projections.

Looking Ahead this Week
The December employment report (consensus +59,000) on Friday will be a litmus test on US growth resilience. The 15-member UN Security Council will convene an emergency session on Monday, but a resolution is unlikely given the veto power of the five permanent members, which include the US.

Year Ahead Strategy Thoughts

The macro themes of geopolitical reconfiguration and trade tensions suggest a continuation of ongoing market trends.

● Against all odds, the global economy ended the year on a firm footing. The worst of inflation fears arising from proposed US tariffs did not materialize. Indeed, given a benign price backdrop, central banks globally — with the notable exception of Japan and Brazil — embarked on an easing cycle. No major economy suffered a recession, thanks in large part to technology capex. Consequently, financial markets as a whole appeared bulletproof to cyclical risks. All else equal, global macro trends in 2026 could mirror the experience of the past twelve months.

● That being said, secular risks are the factors to watch as it relates to relative price differences among asset classes. The US-Venezuela conflict at the start of the year increases the likelihood of an escalation in geopolitical tensions, and at a time when the post-WWII Western alliance is facing its most severe challenge. On the economic policy front, US trading partners are still managing the tariff hangover, while the imminent Fed leadership change in May remains ambiguous.

● Under a scenario where these macro risks continue to simmer but stop short of boiling over, we expect non-US assets to maintain their outperformance versus US assets, primarily on account of technical factors. US exceptionalism in the past decade has led to crowded positionings among foreign investors. By the same token, the systematic under-allocation in non-US assets due to a protracted period of underperformance, has created value opportunities elsewhere, especially in the Asia-Pacific region. In addition, narrowing interest rate differentials could reignite the home country bias of foreign players, notably Japan. Furthermore, in the wake of Western sanctions on Russia, countries with large foreign reserves are paying more attention to ensure financial sovereignty.

● In a tail scenario of maximum volatility due to either geopolitics or economics, it is possible that the historical risk-off market outcomes of dollar strength and lower yields could break down. In this environment, we expect precious metals and the Swiss franc to appeal to investors in search of time-tested safe haven assets. In particular, gold stands out as an attractive store of value with central banks and sovereign wealth funds seeking diversification out of the dollar. Among developed market currencies, the Swiss franc is a compelling choice for capital preservation, given the country’s political neutrality. In equities, defensive sectors (utilities and consumer staples) should hold up better than cyclical industries.

News Highlights:

The United States has captured Venezuela’s dictator, Nicolás Maduro — The U.S. finally acted on years of threats and removed Nicolás Maduro by force. After months of quiet military buildup, American airstrikes and a special operations raid overnight captured Maduro and flew him out of Venezuela, leaving the regime leaderless and the country in limbo. What comes next is unclear, but this is outright regime change, not sanctions or pressure by another name. (The Economist)

Trump’s momentous second year — Trump’s first year back in office has been unprecedented in speed and scope, with power consolidated rapidly across the military, law enforcement, regulators, trade policy, and even the private sector, often with little resistance. Loyalists like Pete Hegseth, deal-makers such as Steve Witkoff and Jared Kushner, and allies in business and tech have blurred the line between governance and monetization, rewarding loyalty while sidelining traditional checks. As 2026 begins, courts and some lawmakers are pushing back, but with fewer internal restraints than in Trump’s first term — and the playbook of Project 2025 in mind — the real test of America’s institutions is still ahead. (Financial Times)

Threat of California Billionaire Tax Draws Criticism From Ultrawealthy — A proposed California ballot initiative would impose a one-time 5% tax on the assets of billionaires who were state residents as of Jan. 1, triggering loud backlash from ultrawealthy investors and quiet moves to establish residency or operations elsewhere. Critics like Bill Ackman, Peter Thiel, and David Sacks warn it amounts to asset confiscation and could accelerate capital flight, while supporters argue it’s a targeted way to shore up healthcare funding amid looming federal cuts. (Wall Street Journal)

US dirty money fines drop 61% this year — U.S. fines for money laundering and sanctions violations fell 61% this year, dropping to about $1.7bn from $4.3bn in 2024, reflecting a clear shift toward lighter enforcement under Donald Trump. With regulators like the Securities and Exchange Commission taking a more business-friendly stance — especially around crypto — 

Washington is quietly pulling back from its role as the world’s toughest financial cop, even as enforcement ramps up elsewhere. (Financial Times)

Foreign investment in the US — Houston has overtaken Miami as the top U.S. city for foreign multinationals, with Texas cities dominating the rankings thanks to business-friendly policies, strong logistics, and lower costs. The takeaway is straightforward: global capital is following talent, affordability, and predictability, and right now that means places like Houston, Dallas, and Austin rather than traditional coastal gateways like Miami. (Financial Times)

Gold tipped to extend record-breaking rally in 2026 — Gold had a monster 2025 (up about 64%), and an FT survey says most analysts think it keeps grinding higher in 2026 — roughly to $4,610/oz on average, with bullish calls up to $5,400. The main story is still the same: central banks (especially EM) buying, plus investors treating gold as the “trust hedge” when the dollar and policy credibility feel shaky. The catch is a lot of pros think the easy money’s been made, and 2026 could look more like choppy consolidation than another straight-line melt-up. (Financial Times)

Minnesota Fraud Scandal Challenges Gov. Tim Walz’s 2026 Re-Election Bid — A massive welfare-fraud scandal involving hundreds of millions (and possibly billions) in stolen public funds is emerging as a serious political liability for Tim Walz, giving Republicans a rare opening in a state long defined by “good government.” While Walz remains favored, the episode has dented trust, sharpened GOP attacks — including from figures tied to Donald Trump — and raised broader questions about oversight, accountability, and complacency in one-party states. (Wall Street Journal)

Americans Are Looking to the Midwest to Find Affordability — As housing and everyday costs squeeze families in coastal cities, more Americans are moving to the Midwest, where home prices sit well below the national median and wages have been rising steadily. Places like Appleton illustrate the appeal: lower housing, utilities, and insurance costs allow both locals and remote workers to buy homes and improve quality of life, even as increased demand is starting to push prices higher. (Wall Street Journal)

Listen to This: Some Audiobooks Are Outselling Hardcovers — Audiobooks have become one of the few real growth engines in publishing, with some titles now selling more in audio than in hardcover as listeners favor convenience, lower prices, and the emotional pull of strong narration, often by the authors themselves. Growth has slowed from its peak, but publishers see audio as structurally durable, even as questions loom around AI voices and what that means for authors and professional narrators. (Wall Street Journal)


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If you’d like to talk through any of these themes, reply to this note. This note is for informational purposes only and is not investment advice or a recommendation to buy or sell any security.

Emerging markets (EM) debt is regaining investor attention after a prolonged period of disinterest.

With strong year-to-date performance across EM currencies and equities — and a surprising resilience to global shocks — we believe the asset class is approaching a long-awaited turning point to regain eminence.

In this note, we revisit the evolution of EM bonds as an asset class, assess the factors behind the benign neglect in the past decade, and evaluate the arguments for an imminent revival.

How EM Debt Became Mainstream

Around the turn of the millennium, EM debt experienced a significant surge and solidified its status as a legitimate asset class. One cornerstone of its ascent can be traced to China, whose WTO accession in 2001 led to a quadrupling of its economy within a decade. Specifically, its infrastructure-centered expansion generated a positive ripple effect on commodity-heavy EM countries. The expansion of global trade, alongside thawing tensions post-Cold War, brought large EM nations to the forefront of the world stage. Russia was a member of the G8 between 1997 and 2014, while the acronym BRICS — referring to Brazil, Russia, India, China, and South Africa — found its way to the economist’s lexicon.

The liberalization of global trade had at least two implications for developed economies. First, low-cost EM producers helped drive down global inflation. Second, accumulated EM trade surpluses were recycled into safe-haven assets, particularly US Treasuries. Both developments, occurring alongside internal weaknesses in advanced countries — deflation in Japan and fiscal profligacy in peripheral EU countries — led to an extended period of low or negative yields. Bolstered by a resulting wall of global liquidity, the investment backdrop was thus ripe for risky assets, of which EM debt was one key beneficiary.

As it turned out, a confluence of factors — the adoption of currency flexibility, increased access to local bond markets, and wide interest rate differentials — served to reinforce the value appeal in EM. Favorable economic prospects bolstered the case for currency appreciation. In Asia, the unprecedented currency shock emanating from the 1997–98 financial crisis presented investors with opportunities to acquire assets at a discounted price. A revaluation of the Chinese Yuan in 2005, in tandem with the country’s vastly improved external balance, marked a formal abandonment of its peg against the US dollar. On the other hand, the high-rate environment in Latin America caught the attention of yield-hungry investors. Indeed, so massive were the foreign inflows into Brazil that a financial transaction tax — as high as 6% in 2010–13 — was applied at the point of purchase of local bonds.

Historically, the universe of EM debt was centered almost entirely on Latin America. Bank proprietary desks and fast-money traders were the main players. Opportunistic flows, typically aimed at attacking pegged exchange rates deemed overvalued, proved immensely disruptive to policymakers. The turning point came in the late 1990s, when the Asian financial crisis and the Russian default widened the catchment area. As the EM debt universe expanded, long-term strategic investors began to emerge, alongside the spawning of a family of benchmarks. From a high of 85% in 1994, the Latin American share of JPMorgan’s US dollar-denominated EM index has declined to 35% currently. With the investment thesis flipping from “short” bets to “long” allocations, EM debt was thus transformed into a mainstream asset class.

The end result was a win-win outcome. For investors, EM debt offered the benefit of international diversification at a time when the world economy was becoming more integrated. EM policy makers welcomed the shift in the investor base away from “tourist” flows that had exacerbated past boom-bust cycles. A combination of supercharged growth and minimal inflation was a goldilocks scenario for EM. With secular forces ostensibly on the side of EM, it was hard to resist the appeal of the asset class. Indeed, the lovefest proliferated in the aftermath of the global financial crisis in 2008–09, fueled by widespread disenchantment of developed markets.

When The Music Fades

However, market strength began to falter in the first half of the 2010s. At the risk of oversimplification, this can be attributed to three key developments for EM.

First, after President Xi Jinping took office in 2013, China downshifted its growth target and redirected its policy focus to addressing internal imbalances. To be sure, such concerns were hardly new. In 2007, then-Premier Wen Jiabao had characterized the country’s GDP growth as “unstable, unbalanced, uncoordinated, and unsustainable.” With the benefit of hindsight, extrapolating China’s breakneck expansion post-WTO into the future would inevitably overstate the country’s secular potential. Fears of an economic hard landing have been widespread in recent years, given policy crackdowns on housing and the pursuit of a zero-COVID strategy.

Second, the geopolitical landscape has deteriorated markedly, with Russia’s occupation of Crimea in 2014 marking a turning point. The market impact climaxed eight years later, when the Russia-Ukraine war led to sanctions by the West on Russia and Belarus. Since 2017, select US restrictions on financial transactions with Venezuela and military-linked companies in China have been in place. These changes have a deleterious impact on EM, as they pose operational challenges for affected securities and raise custodial concerns regarding local currency instruments. Concurrently, on the domestic political front, policy heterodoxy began to rear its ugly head in several EM countries, including Argentina, Lebanon, Sri Lanka, and Turkey.

Third, then-Fed Chair Ben Bernanke’s hint in 2013 at a reduction in its bond-buying program stoked investor anxiety; the subsequent spike in Treasury yields triggered significant capital outflows from EM. Figuratively speaking, the so-called taper tantrum pulled the rug out from under the EM smorgasbord, exposing the excesses of market fervor even as global growth decelerated. Notably, the impact was uneven, weighing on countries that were most vulnerable to higher US funding costs. In Latin America, Brazil was especially hard hit by high-profile scandals (state-owned oil company Petrobras) and a series of corporate defaults. The recovery process for foreign investors proved onerous in many instances, raising yet another red flag for the asset class.

It is therefore no surprise that EM developments over the past decade served to deepen skepticism of foreign investors. This has been especially so for US-domiciled investors, as the uninterrupted outperformance of domestic equities vis-a-vis the rest of the world reinforced the home country bias.

Could This Time Be Different?

At first blush, the incipient interest in EM seems odd, given the absence of critical ingredients for EM debt outperformance — strong growth, geopolitical stability, and easy liquidity. Global trade has been a lynchpin of economic prosperity for EM, since by definition, purchasing power emanates from advanced countries. Uncertainty surrounding the US trade policy will have a negative feedback loop on its EM trade partners. At the same time, international relations have become more intricate and unpredictable. On the monetary policy front, despite the post-COVID tightening being behind us, a reversion to ultra-low rates does not appear to be a plausible scenario, even if the Fed decides to loosen policy later this year.

The Case for Cautious Optimism

Our strategic call is premised on the conviction that a gradual drift toward a polycentric world order is underway.

One implication of this regime shift is that it renders previous assumptions less binding.

Admittedly, there are no winners in a trade war. However, the current US-initiated tariff hikes are not widely supported, and retaliatory responses thus far have been relatively restrained. Importantly, we believe key trading partners — particularly the EU, Japan and small open economies in Asia — will work around trade barriers. A case in point is the proposed 12-member Trans-Pacific Partnership (TPP), a regional grouping that was stillborn after the US withdrawal in 2017. But that did not stop the remaining countries from ratifying a modified agreement in the following year. The upshot is that, while there are challenges to a multilateral trading system, regional and bilateral negotiations remain a viable option for countries that rely heavily on free trade. Nowhere is this more evident than in EM countries.

A corollary implication is that, paradoxically, EM inflation risk could turn out relatively manageable. It is worth noting the prevailing deflationary forces in China, in the face of persistent supply glut and a lack of progress in lifting its own domestic consumption. As the world’s second-largest economy, China’s trade linkages with the Global South have increased markedly over the past decade. While the expansion is attributed to shipments of intermediate inputs to low-cost producing countries, rising incomes will position these economies as core consumer markets for Chinese goods in future years.

As it relates to the current standoff in US trade policy, the wild card, we believe, is in financial flows rather than goods exchange. To be clear, the US dollar will likely continue to maintain its dominance as a unit of account and a medium of exchange. However, as a store of value, the outlook for the US dollar has become less certain. Should diplomatic crosswinds persist, the so-called exorbitant privilege of the US dollar could be called into question. Indeed, significant offshore holdings of front-end US Treasuries suggest some degree of rollover risk. We view the recent strength in precious metals as motivated in part by the global search for alternatives to the US dollar.

More generally, the distinction between EM and developed countries is increasingly blurred. Historically, the EM narrative has been associated with policy heterodoxy, institutional weakness, and political instability. However, these attributes are now emerging in a growing number of developed countries.

As a case in point, in the area of public debt, few, if any, governments can now risk increasing spending without any regard for bond vigilantes, as depicted by the inordinate volatility in the UK Gilts market in 2022. Oddly enough, fiscal metrics in many EM countries have stabilized or even improved, having been subject to market discipline over the years.

Risks That Remain

What are some factors that could stand in the way of EM? We may underestimate the network advantage of the US dollar. Back in 2011, US Treasuries rallied despite the country losing its AAA rating from S&P. Should global tensions escalate further, the safe-haven attribute of the greenback could reassert itself. Investor distrust in EM could remain deep-seated enough to be overridden by opportunities closer home. Given a still-uncertain geopolitical outlook amid a global slowdown, fat-tail events in EM could include sovereign defaults, official sanctions, and custodial freezes. Indeed, for an asset class that spans over 70 countries, active monitoring is of paramount importance.

Conclusion: Reappraising EM Debt

Arguably, the non-monolithic nature of the asset class favors a customized approach that fits an investor’s mandate. With EM having fallen out of favor in the past decade, current investor positioning is light. We believe the time is ripe for reappraising EM debt at this point in the global cycle. Our conviction is that the long-term investor will benefit from relative value and international diversification that EM debt offers.

Market events following the Russia-Ukraine conflict in 2022 have stoked a debate regarding the future dominance of the US dollar. At first blush, such a discourse seems perfunctory. According to a Fed study, in the twenty years through 2019, the USD accounted for 96% of cross-border transactions in the Americas, and 74%, in the Asia-Pacific region. Based on a BIS survey in 2022, 88% of FX trades involved currency pairs with the USD on one side. The share of foreign currency debt issuance denominated in USD has remained steady at around 70% since 2010. Crucially, the Fed’s swap lines and repo facilities to select foreign central banks underscore the dollar’s central funding role in the global financial architecture. But proponents of the dollar’s demise highlight [1] the threat to its role as a medium of exchange, as reflected by the increased use of alternative currencies for trade settlement, especially for commodity transactions, and [2] its reduced appeal as a store of value, given secular trends in the composition of official reserve assets. Admittedly, there has been an increase in the use of EM currencies for settling energy trades. Estimates suggest at least one-fifth of global oil transactions are now invoiced in non-USD currencies. Russia, the second largest exporter of oil, presents a case in point. Among its buyers, China, India and Turkey now pay for Russian oil in yuan, ruble and dirham. Notably, 95% of bilateral shipments between China and Russia are settled in either yuan or ruble. Still, a breakthrough in the yuan as a reserve currency is not imminent, given minimal progress on capital account convertibility since its inclusion in the IMF’s Special Drawing Rights (SDR) basket in 2016. It is true that the USD share of FX reserves held by global central banks — involving mainly Treasuries — has witnessed a trend decline to 58% last year, down from a peak of 72% in 2001. Over the same period however, there has been a concurrent accumulation in higher-risk overseas assets by quasi-government agencies (e.g. sovereign wealth funds) and private institutions (e.g. insurance companies) around the world, Asia and Europe in particular. In an environment of quantitative easing, negative interest rates helped spur an insatiable appetite for yield. Given the breadth and depth of US markets, the overall dollar exposure of international investors likely remains significant, in both equities as well as credits. Our prognosis is that the dollar’s status is not at imminent risk of being displaced. While emerging alternatives might over time dilute the dollar influence at the margin, a lethal threat to its hegemony is not in sight. That said, currency dominance should not be conflated with currency strength . Indeed, from a strategy standpoint, the cyclical outlook for the dollar appears less constructive, in our view.

First, an extended period of US market outperformance has led to crowded allocations by international investors. The dollar is therefore subject to the whim of unfavorable technicals, should unhedged positions be cut. Such flows could reflect profit-taking, strategy change, or forced selling induced by mark-to-market losses. Specifically, inordinate FX movements — most recently in Taiwan — could trigger an unwind of carry trades, where purchases of dollar assets are funded by currencies with lower rates. Moreover, in US Treasuries, with more than 60% of offshore holdings concentrated in the front-end bucket of 0–5 years, the market could be vulnerable to liquidation upon maturity. Second, the fundamental theme of US exceptionalism seems to be faltering. The macro policy path has turned markedly less predictable, and has in fact fueled recession fears. Specifically, the lack of clarity on tariffs is likely to exert a toll on future investments, given the cross-border nature of production grids. In fact, it is likely that growth challenges extend beyond manufacturing, with services sectors like tourism and education potentially hard hit. In turn, weaker prospects could accentuate debt sustainability concerns, potentially leading to negative credit actions. Projections by the IMF suggest the US debt-to-GDP ratio could exceed 140% by the end of this decade. Third, geopolitical headwinds against the dollar are likely to persist. In the absence of creditable substitutes, traditional “safe haven” currencies like yen and euro stand to benefit most. The salutary effect could ripple onto select EM currencies as flight-to-quality proxies. Likewise, the diversification appeal for gold in reserve assets ought to gain more traction. On the other hand, the viability of new vehicles remains unclear in the foreseeable future. Crypto alternatives continue to grapple with issues of security and regulation. The proposed BRICS currency is likely to be more theatrics than substance, despite concerted attempts by EM nations to bypass the dollar. The upshot of our analysis is that, notwithstanding the emergence of potential challengers, the US dollar will maintain an undisputed lead as a reserve currency over the secular horizon. However, it faces severe near-term headwinds emanating from economic deceleration, geopolitical uncertainty and unsupportive technicals. With the laggard markets outside of the US poised to play catch-up, we see select non-USD assets as offering the twin benefits of value and diversification.

Ahead of the Golden Week holiday in early October, the Chinese central bank surprised markets by unveiling a smorgasbord of monetary stimulus that exceeded the magnitude of easing in response to the Covid outbreak in 2020. In addition to deploying macro levers via cuts in policy rates and banks’ reserve requirements, the authorities introduced several measures to stabilize the housing market, including relaxing the mortgage burden and expanding an existing program to buy up unsold housing. Perhaps the most headline-grabbing part of the policy toolkit was the war chest of CNY 800 billion ($114 billion) earmarked for bolstering the stock market. In the five trading days after the announcement, the CSI 300 index surged by 25%. Fiscal measures are reportedly in the cards as well.

Without a doubt, the latest stimulus package presents a cyclical spark to the Chinese economy, a welcome move given persistent sluggishness in the post-Covid years. More pertinently, it sends a powerful signal regarding Chinese policymakers’ resolve to do whatever it takes to turn the economy and asset markets around. Alongside declining rates in the US and Europe, macro stability in China presents a constructive global backdrop for risk assets, including EM.

Indeed, parallels are being drawn with China’s colossal spending program in November 2008 in response to the global financial crisis. Nevertheless, we believe there are several interrelated differences that are worth highlighting. First, the initial conditions are distinctly different. In 2008, China was in the midst of a multi-year post-WTO liftoff; its announced policy initiatives had a salutary effect on global growth. In comparison, the current package is entirely domestic-oriented and seeks to counter its own economic deterioration. Second, international trade has since flipped from liberalization to protectionism, fueled in part by rising geopolitical headwinds. Third, the 2008 expenditure program was centered on the country’s infrastructure build-out, which directly benefited commodity exporters. By contrast, bolstering portfolio investment is one key feature of the current package. Given a low stock market participation rate, the wealth effect from the equity rally on consumption — already dragged down by the housing slump and aging demographics — is uncertain.

The upshot of these developments is that the way the Chinese economy interacts with the rest of the world will continue to evolve over time. Specifically for EM countries, the economic impact emanating from China going forward will likely be less synchronized in a generalized sense and more differentiated to reflect idiosyncratic factors. Put in another way, a rising tide in China is less likely to lift all boats in EM, as it did in the past. As a case in point, commodities might exert less cyclical influence than before, given the nature of current policy stimulus, notwithstanding China’s ongoing quest for its long-term security needs. On the other hand, shifting geopolitics and supply chain considerations will push MNCs to diversify their production away from China to alternative lower-cost locations. Despite becoming the world’s second-largest economy, China remains predominantly a producer instead of a consumer. Accordingly, some EM countries may view China as more of a competitor than a customer.

Consequently and as it relates to EM debt investing, CrossLight views the non-monolithic nature of EM as underpinning the case for active management. Instead of a wholesale index-based approach to the asset class, we see the benefit of customization to reflect different strokes for different folks. CrossLight is committed to partnering with strategic investors in identifying unique subsets that are relevant to specific mandates within EM, and subject to specific parameters such as credit quality, risk tolerance, and concentration limits. As the global easing cycle progresses, we expect interest rate differentials to play an active role in driving EM asset prices and spawning long-term value opportunities.