Markets Navigate Rising Geopolitical Friction with Selective Risk Appetite

This market flash from Edmond de Rothschild Asset Management reviews how escalating geopolitical tensions and mixed macro signals are shaping asset allocation at the start of 2026.

• U.S. policy uncertainty is intensifying, with renewed tariff threats, Middle East tensions lifting energy prices, and a less-dovish Fed stance supporting higher yields and a firmer dollar.

• Europe shows early recovery signals as PMIs return to expansion and lending improves, though earnings volatility—especially in software—has resurfaced.

• Equity preference remains tilted toward Japan and emerging markets, while fixed income positioning favours short U.S. maturities and emerging sovereign debt.

How durable is this “risk-on, but selective” backdrop as politics and policy collide? The full note explores positioning implications in detail.