The Cold Winds of 2026
Elwin de Groot’s January 2026 Monthly Outlook from Rabobank, titled “Wear an Extra Vest,”1 opens with a chilling metaphor: "A cold Arctic wind may require an extra vest this year, too." His choice of phrase builds on December’s “Buckle up” and reflects an increasingly fragmented global order where “might is right” has supplanted rule-based cooperation.
This rhetorical overture sets the tone for a sobering but incisive assessment of economic, geopolitical, and market dynamics that shape the beginning of a volatile year. His outlook combines blunt geopolitical realism with nuanced market analysis—underscoring the dissonance between rising global tensions and eerily placid financial markets.
Geopolitics: Superpower Machinations & Market Apathy
The standout thematic insight: geopolitical power plays are intensifying, yet markets remain “numb.” De Groot chronicles a series of flashpoints:
- Venezuela: The US-led operation to remove President Maduro exemplifies America’s aggressive posture. "Trump’s interest in Venezuela’s oil reserves is obvious," de Groot notes, tying the intervention to broader goals of “hemispheric pre-eminence” and “energy dominance” as laid out in the National Security Strategy.
- Greenland: Trump’s bizarre but strategic fixation on Greenland resurfaces, with talk of a potential annexation or incentive-laden absorption. De Groot warns that this “could unsettle markets, raise risk premiums, and reshape NATO dynamics” and in the worst case “unravel the alliance”.
- Iran: On the verge of internal collapse, Iran’s crisis may provoke US intervention. Trump’s cryptic message to protesters—“Help is coming”—leaves room for market-impacting escalation.
Despite these tremors, equity markets surged into 2026, with de Groot lamenting that “the disconnect between geopolitical developments and markets isn’t new.” He offers a plausible reason: markets respond primarily to “physical constraints”—like sustained supply disruptions—rather than political noise.
The Federal Reserve: Threatened Independence, Rising Yields
The most potent financial risk may not come from bombs or sanctions but from institutional breakdown at home. President Trump’s DOJ issuing subpoenas against Fed Chair Powell triggered one of the few market jolts.
Powell’s unusually direct rebuttal is quoted:
“This new threat is not about my testimony last June... [it] is a consequence of the Federal Reserve setting rates on our best assessment of what will serve the public, rather than following the preferences of the President”.
The result? A rise in term premia and a steepening yield curve, reinforced by concerns over Trump’s unfunded military spending ambitions and tariff-based budget assumptions.
Fiscal math, Rabo notes, doesn't add up: tariffs cover barely half of Trump’s proposed $750bn increase in defense spending. Meanwhile, the House is pushing back, restoring Obamacare subsidies and increasing social outlays.
This toxic mix—fiscal indiscipline + compromised central bank independence—has Rabo strategists favoring a steeper curve and questioning the long end’s resilience.
Eurozone: Arctic Pressure, Domestic Fatigue
Europe’s vulnerability is made plain through two lenses:
- Strategic Deficit: The Greenland tensions underscore how “Europe’s deterrence options... are limited.” Even if no military conflict erupts, the continent faces hard decisions on defense spending, potentially raising long-end yields or depressing growth.
- Economic Soft Patch: PMIs point to weakening demand, especially domestically. Yet, hope glimmers via robust defense-related industrial orders in Germany and France—up triple digits in some sectors.
De Groot notes:
“The defense spending impulse appears to be gaining traction,” though not yet enough to offset general weakness.
His forward-looking forecast? Modest but stable growth in H2, helped by fiscal support and easing inflation pressures. The ECB, he argues, is “in for a long hold”, requiring “compelling evidence” before shifting its current stance.
The US Dollar and FX Outlook: Choppy, Not Collapsing
Despite worries over Fed credibility, Rabobank does not forecast a dollar freefall. Short USD positioning, strong US growth expectations, and AI-driven productivity gains offer the greenback resilience—but not immunity.
On Fed credibility:
“There is a spread of potential outcomes... which may imply the potential for some downside pressure on the USD without sending it into free-fall”.
EUR/USD is seen trading in choppy ranges, while EUR/GBP is expected to edge higher due to the BoE’s dovish tilt and ongoing UK malaise.
Energy: Supply-Dominant Narrative, but Underrated Volatility
Brent is forecast to average $57/bbl in 2026, with WTI trading even lower. While oversupply dominates, Rabobank rejects the bearish consensus that sees Brent diving into the $40s. Demand shifts (declining gasoline, rising diesel/petrochemical) and geopolitical flashpoints still offer risk asymmetry.
Notably, LNG markets are delicately balanced. Rabobank flags Asian demand as the swing factor:
“Its demand trajectory... will be the single most important determinant for global gas prices”.
UK: Cooling Labour Market, Imminent Rate Cuts
The BoE is likely to cut twice before mid-year, with base rate forecast to hit 3.25%. Inflation is falling, and:
“The UK lacks jobs, not job seekers,” de Groot’s team states—placing structural blame on weak demand, not supply constraints.
Political risk may stir long-end volatility, especially around the May elections.
Netherlands: Quiet Strength Beneath the Snow
Despite bad weather and political flux, the Dutch macro story is mostly positive. Strong wage growth, rebounding consumption, and an encouraging pension-driven boost in retiree income suggest stability and moderate upside. Manufacturing, while cooling, remains resilient relative to peers.
Highlights
1. Markets Are Rationally Ignoring Irrational Politics – For Now
The document reinforces a paradox: markets are logical creatures. Until geopolitics alters tangible variables—supply chains, inflation, or demand—traders will price what they can measure, not what they fear. This detachment could break abruptly.
2. Fed Independence is the Canary in the Coal Mine
While coups and conflicts grab headlines, the real macro rupture may come from within the US. Undermining the Fed could destabilize global capital flows and dollar leadership more profoundly than a drone strike.
3. Europe Must Choose: Idealism or Realpolitik
Greenland may be symbolic, but it lays bare Europe's underinvestment in defense and autonomy. The path forward involves uncomfortable trade-offs, and 2026 may be the year such choices crystallize.
4. Don’t Bet on a Dollar Collapse – Yet
The USD is wounded, not broken. Short positioning and strong fundamentals still support it. Investors should watch Fed appointment signals closely.
Key Takeaways for Advisors and Investors
🔹 Position for curve steepening: US fiscal blowouts and Fed threats point to rising long-end yields.
🔹 Watch Powell’s successor: Fed independence risks are priced shallowly. Political appointees could change that.
🔹 Stay wary of geopolitical risk complacency: Markets are dull to noise but can snap on real disruption—especially involving energy chokepoints or alliances (e.g. NATO fracture).
🔹 Avoid binary dollar views: USD won’t implode—but its safe haven appeal isn’t absolute either.
🔹 Eurozone rearmament has legs: Allocate selectively to industrials aligned with defense and infrastructure.
🔹 Gas markets are Asian-led: LNG volatility hinges on Chinese and broader Asian demand recovery.
Conclusion: Vest On, Eyes Forward
De Groot’s rhetorical call to “wear an extra vest” isn’t about dressing for weather—it’s about preparing for a world where institutional decay, geopolitical shifts, and fiscal overreach define the backdrop. For now, markets float. But the vest isn’t just for insulation—it’s for impact resistance.
Footnote:
1 de Groot, Elwin. Wear an Extra Vest: Monthly Outlook. RaboResearch Global Economics & Markets, 15 Jan. 2026. Rabobank
