The desk interprets Standard Chartered's recent commentary as a reminder of potential market disruptions in 2026, emphasizing that while these scenarios are not predictions, their implications could be significant. Per the full note from Standard Chartered, Eric Robertsen outlines several unlikely events that could lead to substantial volatility across financial markets. This perspective aligns with our view that the current market is underpricing geopolitical risks and central bank policy shifts. As we approach the end of 2023, the market remains sensitive to these external shocks, which could redefine currency trajectories.
What the desk is arguing
The desk frames this as a crucial moment for FX traders to reassess their risk exposure in light of potential surprises that could emerge in 2026. Standard Chartered's Eric Robertsen highlights scenarios that, while not forecasted, could disrupt the status quo and lead to significant market movements.
The commentary suggests that the market may be complacent about geopolitical tensions and economic shifts, which could lead to volatility. For instance, Robertsen's scenarios could resonate with the current market dynamics, where positioning appears overly optimistic regarding central bank policies.
Where it sits in our coverage
Our consensus target for the EUR/USD is 1.075, with a range between 1.04 and 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)
This view aligns with jpmorgan, which is positioned at the upper end of our consensus range, while bofa represents a more cautious stance at the lower bound. The desk's outlook suggests a potential for upward adjustment if geopolitical risks materialize as outlined by Standard Chartered.
How other firms see it
Several firms, including jpmorgan and citi, share a more bullish outlook on the EUR/USD, anticipating a stronger euro against the dollar. Conversely, bofa and gs maintain a bearish stance, reflecting concerns over economic stability and potential rate cuts.
Watch the EUR/USD trajectory closely, as it may be influenced by the ECB's policy decisions and the Fed's approach to interest rates. These central bank actions will likely intersect with the scenarios presented by Standard Chartered, potentially amplifying market reactions.
What the calendar says
...
stanchart
Hello and welcome. I'm Manisha Tank and thank you for joining us for this special edition where we explore the 2026 Financial Markets Surprises Report. We are recording this on the 15th of December 2025.
We'll be discussing rare but plausible events that could shape financial markets in 2026. While excess global liquidity has driven the strongest market gains in a decade, uncertainty remains high. According to the Standard Chartered Global Research Team, tail risks may be underpriced.
And that's exactly what this report aims to address. By highlighting scenarios the market might be underestimating. So I'm joined by the author of this report, Eric Robertson, Standard Chartered's Global Head of Research and Chief Strategist.
A very warm welcome to you, Eric, as ever. How are you? I'm doing well, Manisha, and as always, looking forward to this surprises podcast with you.
We get to look beyond the realms of what we normally see on paper and to really exercise those brain cells a little bit about what could happen that could be impacting markets in the coming year. Why is it important to be especially alert for 2026? Whenever you are thinking about your forecasting or your business planning or your risk management for the year ahead, you've always got your baseline view or your consensus view.
And then you're thinking about what could really surprise you, both on the upside and the downside. It's finding that really delicate balance between those events which are completely outlandish and that you can dismiss and those which might be plausible. The more specific angle to this for 2026 is that I think we live in a time right now, both economically, politically, financially, where we have as much uncertainty as many of us have experienced in our careers.
And yet, if you look at a variety of different measures of whether it's financial risk or economic risk, these indicators all suggest a relatively low level of alarm. That disconnect between the uncertainty that we perceive and the uncertainty that is priced into markets is something that is going to have to be reconciled in the coming years. Before we look forwards, let's just look back briefly for a moment, because we were here doing this a year ago, talking about the potential surprises for 2025.
Which of those predictions that were on the list last year, for which can you say, yep, I called it? There's two that potentially stand out. The first of which is that we had a surprise on the list that the US dollar would fall 10%.
And we actually got that in the first half of the year. One, we thought that the market's overwhelming confidence in US exceptionalism was a little bit misplaced. We thought that the optimism that the US would remain resilient in the face of the expected tariffs coming out of the Trump administration was also misplaced.
And so that's one that was relatively clean. The other one that we nearly, quote unquote, got right was 30-year treasury yields moving up to 5.5%. And we did have a scare in the US treasury market early in the year as people were selling or reducing their positions in all US assets, including US treasuries.
So here we are looking forward to 2026. Now, let's start with this excess liquidity and global growth theme. Why might this be a trigger for a resurgence in global growth?
And what risks should investors be aware of? 2025 was marked by one of the more significant increases in liquidity that we've seen in a long time. Now, there's different ways you can measure that. But one way is to look at the number of times that central banks cut rates.
We had over 160 rate cuts from central banks in 2025. And if you go back two years, the number's over 300. That amount of monetary easing is on par with what we saw in reaction to the global financial crisis.
It highlights the amount of liquidity that the central banks have put into the system. If you add the weaker dollar over 2025, if you add the fact that credit spreads are tight and global bond yields are down, financial conditions more generally are extremely accommodative. The surprise that we wanted to explore is what if global growth next year re-accelerates rather than just stays in this 3.2 to 3.4 range that we've been stuck in.
If we were to see a re-acceleration in global growth, that would have all kinds of implications for inflation, commodity prices, bond yields, certainly. And I'm not sure the market's prepared for that. Well, thanks for the brilliant segue.
Let's get into commodities then. They're a big part of that global growth story, aren't they? Brent crude in 2025 actually fell sharply.
But your report, the surprises report, considers the possibility of a rally to $90 a barrel. Which are the factors that could drive prices higher against expectations? Our forecast for oil is for a mild increase in oil.
So we certainly acknowledge that the environment is pretty benign. But the market is also heavily skewed in that direction. Positioning, sentiment, no matter what measure you look at, I would say that the asymmetry in the oil market is for an expectation of a further decline in prices rather than the opposite.
And it got me thinking about how much of a threat an increase in oil prices could be. Say we had a geopolitical event or say some other series of events actually led to a significant restriction of supply. And the reason I got to thinking about it is with regards to Asia.
Asia, as a rule, is an importer of energy. In 2025, we've had low oil prices. We've had central banks in Asia easing monetary policy.
And the conditions generally have been favorable. And yet, if you look at the trade data, a number of economies in Asia are not getting the benefit from low oil prices that you would have expected. And that's part of the reason why currencies in Asia have performed poorly in the second half of the year.
What would happen if oil actually went to 90? I think that would be an unmitigated big problem for the economies and markets of Asia. And it's not being priced in anywhere.
Fiscal stimulus is a very hot topic for the coming year. But also, you flagged the possibility of rising U.S. inflation and the impact that could have, of course, on treasuries. What should investors watch for in 2026 on that front?
Let me touch on a point that the team made in our global economic outlook for 2026, which is this idea of a transition in the global economy away from a dependence on exports and to more of a focus on domestic demand, both the consumer and investment from the private sector. Our concern is that while global economic conditions are OK, they may not be strong enough to see this kind of a transition take place, especially if you combine that with political pressure in a number of economies where there may be elections. The U.S. has midterm elections about 11 months from now.
We think there's a real potential for a big shift away from monetary stimulus to fiscal stimulus. And I can see that happening in a number of places. In Germany, we're expecting a surge in fiscal stimulus.
But if you're the Trump administration and you're looking at the U.S. economy and you're thinking, OK, we've got midterms coming up in a year. The economy is doing OK, but it's got some challenges. You know what?
Let's just double down. Let's just throw the kitchen sink at this economy and really increase fiscal stimulus. I think there are a number of economies where that economic pressure could lead to more populist fiscal measures.
We're in a world where, frankly, with the amount of global debt outstanding, there's not a lot of market tolerance for big increases in fiscal stimulus, which imply a significant deterioration in the budget deficit. So this theme actually shows up in two of our surprises. One is U.S.
Treasury yields, especially for 30 years, rising to 6 percent. And the other is for 30-year yields in Japan, rallying to four and a half percent. And this idea that the bond markets may not be able to absorb the amount of supply that would come to fund this fiscal stimulus is an underpriced or underappreciated risk in 2026.
So Japan, for 2026, you flagged the possibility of Japanese government bonds surging. You were just alluding to it. What's behind that scenario then?
Most people have a view that there is a structural shift taking place in Japan that is at the margin going to push bond yields a little bit higher. Now, we've gone a step further and said we think there could be a shock here for a couple of reasons. One possibility is that this new prime minister says, you know what, we've had structural deflation or disinflation for decades.
We've had a lack of domestic investment. We've had a lack of spending. We've had excess savings.
And a majority of that excess savings has been invested overseas. Let's create conditions in our own economy that contribute to domestic-led growth supported by the government, i.e. fiscal stimulus. And if it means a higher level of inflation for a period of time, well, so be it.
And along with that is that there is an ingrained mindset in the market that the Bank of Japan, while tightening monetary policy, is always going to go very, very slowly and very, very cautiously. But if you were to see a big increase in fiscal stimulus, I think you would see the Bank of Japan act more aggressively. What's interesting about that, Manisha, is if you were to see a surge in domestically-focused stimulus, a surge in yields, and a steepening of the domestic bond curve, there's a chance that a lot of this excess savings from Japan, which has been invested overseas, could be repatriated.
And that's something that's always been in the background amongst macro investors. There would obviously be implications for the currency. The Japanese yen would strengthen.
But it's also a potentially volatility-inducing event because so much of this Japanese capital, which has been invested overseas, has contributed to and facilitated these carry trades, the funding of investments out of the yen into higher-yielding assets in Brazil, Turkey, Nigeria, etc. And an unwind of that could be quite destabilizing for markets. We have not had a big strengthening of the yen for a number of years.
The market is unprepared for that. I think that's a really good juncture to highlight the fact that each of these surprises, they're independent of one another, aren't they? They are.
The way I try to structure this report is I come up with a long list of potential scenarios, and then I try and come up with the eight that I think are the most plausible, but again, independent of each other. Now, what is a little unusual this year is that there were definitely some strong themes which played through the different scenarios. You mentioned liquidity at the start of our discussion.
This issue of fiscal stimulus and bond yields is also one. And then the issue of the dollar, I think, is also another interesting scenario. Yeah.
And that's the reason I wanted to pick that up because this is my next question, actually. One of the scenarios is that the dollar could surprise, especially against the euro. Yeah.
There's a couple of surprises on the dollar. One is with regards to the euro and the other is with regards to China. In both cases, there is, in my opinion, a little bit of complacency with regards to where the euro area and also where China's economy is in their current transitions.
With the euro area specifically, I see an enormous amount of optimism about this structural shift towards more fiscal stimulus, more military spending, more spending on domestic infrastructure, et cetera. And I think that is reflected in both an elevated currency, but it's also reflected in their bond yields and their bond spreads versus the U.S. And that, to me, seems as if it's a poor recognition of the risk.
If you look at the euro area, it's really only Germany that has the real financial flexibility to increase its domestic spending. But the rest of the euro area does not. France is an interesting contrast.
France does not have the fiscal flexibility that Germany has. It's equally in need of domestic infrastructure spending and it's equally in need of better growth. The concern that comes through in this surprise is that what if not only Germany, but all of the euro area really disappoints on this domestic investment and domestic spending agenda, there's real downside risks to European growth expectations.
I think there's downside risks to the euro. If you think about the technology sphere alone, we're not seeing a whole lot come through in the euro area. You're not seeing many tech or AI related unicorns in the European corporate landscape.
And some of those factors alone just make me worried that the market is overly optimistic about this positive transition that we're seeing in the euro area, which is at the end of the day really just a function of people being hopeful that military spending will spark growth. I think there's a real risk that doesn't happen. And if that disappointment comes in and the U.S. maybe outperforms expectations, you could see a 15 percent drop in the euro.
You mentioned China. So let's have a look at that U.S. dollar CNH cross, the Chinese one, the dynamics of V1 come 2026. So one of the things that I find interesting at the moment when I look at our forecasts, when I talk to clients, when I talk to people who are both investment and corporate participants in kind of the global economic arena, the pessimism with regards to China's economic outlook seems to have largely gone silent for the first time in a while.
I would argue the consensus around the dollar CNH exchange rate is for the dollar to weaken further and for CNH to appreciate further. It strikes me that the market is significantly unprepared for the opposite scenario. What could trigger that?
Consumer spending in China still looks extremely weak to me. A number of the tax incentives for people to buy electric vehicles are expiring and unlikely to be rolled over in 2026. I see the reemergence of economic headwinds that leaves the market vulnerable to a downside economic surprise from a growth point of view.
Now, where it gets interesting and maybe a little tricky is let's say the dollar starts to appreciate again, and let's say a number of currencies, especially in Asia, really start to depreciate. If China's currency does not weaken in a similar or commensurate fashion, it's going to increase or appreciate on a relative or trade weighted basis, and that will make it less competitive. I don't think China's policymakers have any tolerance for that from a regional point of view.
A move to seven and a half, which six months ago people thought was a baseline scenario, has all of a sudden become this out-of-left-field scenario, which is why I like it. Now, something that hasn't necessarily been particularly out-of-left-field has been this idea of an AI bubble bursting. One scenario that you've examined for the coming year is a 40% fall in the Nasdaq.
So my question is this, what signals should investors be watching out for and how real is this risk? There's been an enormous amount of ink spilled on the valuation challenges, the optimistic forecasts for AI, for data centers, for the tech sphere in general. I want to be very clear, I don't have a particular edge or an advantage or even especially strong knowledge that would give me the ability to say whether those arguments are right or wrong.
What I can observe is that we are seeing some lending practices in the tech space, the AI space, the data center space, which reminds me a little bit of the tech bubble in the late 90s and early 2000s when it burst. That's related to things like vendor financing and using technology equipment as collateral for borrowing. And these were some of the practices which, with the benefit of hindsight, really caused some problems in the tech story in the late 90s and early 2000s.
As we've talked about already today, liquidity is abundant, credit spreads are tight, there's easy financial conditions around the world. So maybe it's premature to worry about these lending practices, but if liquidity conditions were to tighten, you might see a scenario where people start to say, you know what, it makes absolutely zero sense that that particular AI company or data center provider is using its GPUs as collateral for borrowing. And you could start to see liquidity and lending really dry up.
Is 40% a realistic expectation for a decline in tech stocks? I have no idea. But it seemed something that would be off of people's radars in terms of the magnitude of the correction.
Finally, we have to talk about politics. There is so much that's in flux. So while US President Donald Trump didn't win a Nobel Prize, and that was on your list for last year as a possibility, you do suggest in the report for 2026 that the Republican Party could deliver a positive surprise in the year.
And I think specifically this would be the midterms, which people are already beginning to talk about. What might that actually look like then? Everything that I read, and I'm sure you're reading a lot of the same things, tells us already that it is a virtual guarantee that the Democrats are going to have a spectacularly successful midterm election.
Trump and the Republicans are going to do very, very poorly. They're going to lose their majority in Congress. Now, realistically, those forecasts are probably correct.
The historical precedent for how the incumbent party does during midterms is pretty well established. But if we all know this, then Trump and his team also know this. And it suggests to me that there's perhaps a possibility that they really do throw the kitchen sink at the problem, which is partially an economic one.
They really put the pedal to the metal in terms of growth. They pursue a number of strategies that maybe contribute to getting energy prices down, considering how much market sentiment is skewed towards the assumption that the Democrats will have a very good outcome. I think it's worth considering that there is an alternate scenario that could look very, very different from that.
Oh, for sure. And when it comes to politics, there are always surprises. Well, just to sum it up then, markets may be buoyed by this liquidity, but it is crucial to stay alert to the underpriced risks.
This is very much what we've been covering in this report. From commodities and currencies to politics and technology, it's always, what is it, a more than zero chance that it could happen. Very good to speak to you about all of that, Eric.
I think the overall message is stay informed and stay prepared, right? Absolutely. It certainly is.
Thank you again so much for your insights. And thank you, of course, to all of our listeners who have joined us for this special surprises podcast from Standard Chartered. If you have thoughts or questions, we'd love to hear from you.
But that's it from us for now, from me and Eric. Transcribed by https://otter.ai