Inflation Relief, Fed-Political Risks Converge

France risks entering a fiscal "danger zone" with international lenders if its budget deficit surpasses 5% in 2026, according to a stark warning from European Central Bank policymaker Francois Villeroy de Galhau.

"I must say with some seriousness that with a deficit of more than 5%, France would be in the red zone, in the danger zone as far as international lenders are concerned," Villeroy said during an interview with BFMTV.

Figure 1: Bank of France Governor Francois Villeroy de Galhau details his concerns over the country's fiscal path.

Political Gridlock Weighs on Economic Growth

Villeroy, who also serves as the Governor of the Bank of France, highlighted that ongoing political uncertainty surrounding the budget is already costing the economy at least 0.2 percentage points of growth.

Despite these headwinds, he noted that the French economy, the second-largest in the eurozone, is demonstrating resilience. Citing the Bank of France's latest business sentiment survey, Villeroy stated that growth for the full year of 2025 is projected to be 0.9%.

Budget Deadlock Sparks Fiscal Concerns

The fiscal warning comes amid a tense political backdrop. French lawmakers failed to pass the 2026 budget by the end of last year, which necessitated the implementation of emergency stop-gap legislation.

Although legislators resumed their review of the budget on Tuesday, there is widespread speculation that the government may need to invoke special constitutional powers to bypass parliament and ensure its passage.

Gold and silver have kicked off 2026 with a powerful rally, building on spectacular gains from the previous year. Money managers are now betting that a perfect storm of supply constraints, geopolitical conflict, and questions surrounding central bank independence could push the precious metals to new heights.

The rally gained momentum on Monday when gold surged to a record high of over $4,600 an ounce. The move followed news that U.S. Federal Reserve Chair Jerome Powell is facing a criminal investigation linked to the $2.5 billion renovation of the Fed's headquarters. By Wednesday, spot gold had climbed further to approximately $4,633.46 an ounce.

Silver has seen even more dramatic action, breaking the $90 threshold for the first time on Tuesday. It was last trading 3.5% higher at $90.42 per ounce.

Geopolitical Tensions Fuel "Resource Nationalism"

Daniel Casali, a partner at wealth manager Evelyn Partners, confirmed on Tuesday that his team is bullish on both gold and silver, citing persistent geopolitical instability as a key driver. He pointed to events like Russia's 2022 invasion of Ukraine and U.S. President Donald Trump's "liberation day" tariffs in April as sources of uncertainty supporting prices.

According to Casali, these trade conflicts are creating an environment of "resource nationalism" that directly benefits precious metals.

"When Trump started to raise tariffs, China started to respond," Casali explained. "China responded [to liberation day] by restricting rare earth exports—and what the U.S. discovered is that those rare earths are absolutely essential for their defense, their technology, for AI, you name it."

He noted this pattern has continued with silver. "Fast forward a little bit, and we have export restrictions on silver. And again, silver is essential for AI technology, EVs, renewables, it's a critical part of industrial production in the U.S. and the West."

The market is now focused on a potential meeting between Trump and Chinese President Xi in April, where Casali believes export controls will be a central topic. The political stakes have been raised further in the first week of 2026 by a U.S. ousting of Venezuelan President Nicolas Maduro and White House discussions about potential military action to assert control over Greenland.

"Both presidents are positioning their countries to try and [gain] leverage," Casali said of the U.S. and Chinese leaders. He argued that while China uses its control over rare earths and silver, the U.S. is attempting to restrict resources flowing to China, such as Venezuelan oil. "There are all these geopolitical chess pieces going round, but I think the key message here is resource nationalism can force up gold and silver prices."

Price Forecasts: $5,000 Gold and $100 Silver?

The sharp ascent in prices has analysts forecasting even bigger moves. In 2025, spot gold climbed around 65%, while silver surged by 150%. So far in 2026, gold is up 7.1%, and silver has already gained an additional 26.6%.

Ned Naylor-Leyland, an investment manager at Jupiter Asset Management, told CNBC on Tuesday it was "absolutely" possible for gold to reach $5,000 and silver to surpass $100 this year. He stated that based on the current drivers, investors "should assume that that would definitely happen this year."

Naylor-Leyland expects gold to follow a similar trajectory to last year, with silver once again being the outperformer in 2026.

The Physical Silver Squeeze

A critical factor in the silver market is the physical supply shortage, which has been intensified by Beijing's export controls.

"Silver is basically disappearing now to China and India—there's about a $10 premium being paid in Shanghai," Naylor-Leyland said. He stressed that the market is now focused on physical bars, suggesting the price could go "substantially" higher as supply tightens.

"If we continue to see this very, very wide spread between the price paid in Shanghai and the price on the screen in the West, then the remaining physical silver... should continue to head east," he added.

Silver's role as an essential industrial component in computers, phones, cars, and appliances makes the supply situation critical. "The thing about silver is, if you don't have it, you can't build anything," Naylor-Leyland said.

Fed Scrutiny Drives Safe-Haven Demand

Beyond geopolitics, Naylor-Leyland noted that gold's rise is tied to a "debasement observation," with central banks expected to remain dovish. "We're in a rate-cutting environment with unconventional policies and chasing down chairman Powell," he said. "Unless we get policy reversal and they go hawkish and start hiking, you can expect gold to do pretty much what it did last year or more."

The investigation into Powell has amplified these concerns. Paul Syms, a product management head at Invesco, said the news has "increased concern about the independence of the Fed and US monetary policy and spurred further interest in Gold as a perceived safe haven asset and inflation hedge."

In a show of support, a dozen global central bankers, including the heads of the ECB and Bank of England, issued a statement of "full solidarity" with Powell and the Fed.

However, the supportive backdrop for precious metals appears locked in. "While Gold and Silver are close to all-time highs, there does not appear to be any catalyst in the near term that is likely to cause prices to drop," Syms concluded. He cited ongoing worries about the U.S. dollar, budget deficits, the prospect of lower rates, and increasing industrial demand for silver as factors likely to continue buoying the market.

Chinese automakers pushed vehicle exports up by a stunning 21% in 2025, a move largely driven by a cooling domestic market and an aggressive global expansion of electric vehicles. Industry data reveals a clear trend: as sales at home slow, Chinese car brands are increasingly looking abroad for growth.

Overall vehicle exports from China topped 7 million units for the year. The standout performers were new energy vehicles (NEVs), including EVs and plug-in hybrids, with shipments doubling from the previous year to hit 2.6 million units, according to the China Association of Automobile Manufacturers.

Domestic Sales Slump Pushes Brands Overseas

The surge in exports isn't just about pulling in new customers—it's also about escaping an intensifying price war and weakening demand in China, the world's largest auto market.

The slowdown was starkly visible toward the end of the year. Passenger car sales in China dropped 18% year-on-year in December, accelerating from a nearly 7% decline in November. This trend is expected to continue, prompting Chinese automakers to prioritize more profitable overseas markets.

Even the market leader, BYD, which surpassed Tesla as the world's largest EV manufacturer in 2025, felt the domestic pressure. The company reported 420,398 vehicle deliveries in December, an 18% drop from the previous year, citing weak local demand and rising competition.

Global Expansion Fueled by Profit and Policy

Analysts project that China's export momentum will continue. Deutsche Bank forecasts a 13% year-on-year increase in passenger vehicle exports for 2026, noting that overseas markets offer both faster growth and higher profitability for Chinese companies.

Several factors are aligning to support this global push:

• European Market Access: An agreement between China and the European Union to resolve a standoff over Chinese-made EV exports is expected to further boost shipments to the continent. Cui Dongshu, general secretary of the China Passenger Car Association, predicts that China’s EV exports to the EU could grow by an average of 20% annually between 2026 and 2028.

• Growing Revenue Share: While overseas markets currently account for less than 10% of revenue for most Chinese automakers, S&P Global Ratings expects this share to rise over the next two years.

• Key Export Hubs: Russia, Latin America, the Middle East, Europe, and Southeast Asia remain the primary destinations, representing about 70% of 2025's export volume.

However, the expansion is not without challenges. Major markets like the EU, the U.S., and Canada have imposed significant tariffs on Chinese EV imports, creating potential roadblocks for growth in those regions.

Domestic Headwinds Expected to Continue

Back at home, the outlook remains sluggish. Paul Gong, head of China Autos Research at UBS, anticipates that domestic passenger car sales will likely fall further in 2026.

A key factor is the evolution of government subsidies. While trade-in programs have historically encouraged EV adoption, some regional governments have recently cut or suspended these incentives. Furthermore, a nationwide shift in new car subsidies—from a flat-rate system to one based on vehicle price—is expected to add pressure on the sales of cheaper cars.

This is particularly significant given that vehicles priced below 150,000 yuan ($21,510) account for more than half of all new passenger car sales in China. According to S&P analysts, automakers will need to adapt by either enhancing product features or offering direct-to-consumer subsidies from their own pockets to secure sales.

The UK government has committed up to £45 billion ($60 billion) for a new rail infrastructure program designed to modernize transport across the north of England, a region historically hampered by underinvestment.

The plan, known as Northern Powerhouse Rail, aims to address long-standing productivity gaps between London and other British cities, which organizations like the OECD have linked to outdated and limited transport links.

A Three-Phase Rollout Plan

The government announced that Northern Powerhouse Rail will be delivered in three distinct stages:

• Phase One: Initial work will focus on improving connections between the Yorkshire cities of Sheffield and Leeds, Leeds and York, and Leeds and Bradford.

• Phase Two: This stage involves constructing a new railway line connecting Liverpool and Manchester, with a crucial stop at Manchester Airport.

• Phase Three: The final phase will enhance the rail connections between Manchester and the Yorkshire region.

Rail networks in the north, which is home to three of England's five largest metropolitan areas, are currently constrained by bottlenecks on lines that largely date back to the Victorian era.

Addressing Regional Inequality

Keir Starmer's Labour government, currently trailing the right-wing Reform Party UK in opinion polls, has identified reducing regional inequality as a primary policy goal.

UK Finance Minister Rachel Reeves announced the government's plan to reverse years of underinvestment in the region.

"If economic growth is the challenge, investment and renewal is the solution," said finance minister Rachel Reeves. "That's why we're reversing years of chronic underinvestment in the North."

Learning from HS2's Failures

While the spending is capped at £45 billion in constant prices, the majority of the investment is scheduled for the 2030s and 2040s. In a departure from previous projects, the government has set no binding opening dates for the new lines.

This strategy is a direct response to the troubled HS2 high-speed rail project. In October 2023, the then-Conservative Prime Minister Rishi Sunak cancelled the northern leg of HS2 after costs spiraled and the national infrastructure watchdog flagged fundamental problems with Britain's ability to manage such large-scale projects.

The government stated it is applying the lessons learned from HS2, which will now only run between London and a point just north of Birmingham, with its opening date pushed beyond the original 2033 target.

Looking ahead, officials also intend to build a new railway line between Manchester and the central English city of Birmingham after Northern Powerhouse Rail is completed. However, they clarified this would not be a "reinstatement" of the cancelled HS2 plans.

Top diplomats from Denmark and Greenland are preparing for a critical showdown in Washington to persuade the Trump administration to drop its demands for the Arctic territory, a move that threatens to fracture the NATO alliance.

Danish Foreign Minister Lars Lokke Rasmussen and Greenland's Foreign Minister Vivian Motzfeldt are scheduled to meet with U.S. Vice President JD Vance and Secretary of State Marco Rubio at the White House on Wednesday. The meeting comes just hours after Greenland's prime minister affirmed that, if forced to choose, the island would remain with Denmark.

The core objective for the Danish and Greenlandic delegation is to understand Washington's true intentions and argue that a U.S. takeover of the island is unnecessary.

President Donald Trump has refused to rule out using military force to acquire Greenland, which he has framed as a national defense imperative. While Rubio has suggested the goal is to purchase the territory, Denmark insists it is not for sale, and Greenlanders maintain their "national soul" cannot be bought at any price.

Denmark's Counter-Play and Diplomatic Paths

Copenhagen’s central argument rests on a comprehensive 1951 defense agreement that already grants the United States broad access to Greenland for military purposes, making a formal takeover redundant.

To counter Trump's claim that Denmark has failed to secure Greenland adequately, Copenhagen has several potential responses:

• Increase its military presence and investment on the island.

• Deepen defense coordination with the U.S. and other NATO allies.

• Offer Washington expanded access under the existing treaty.

While a sale is firmly off the table, another proposed "off-ramp" involves a minerals-for-security deal. In this scenario, Greenland could offer the U.S. access to its vast rare earth deposits in exchange for security guarantees. Such an agreement could allow President Trump to claim a commercial victory without pursuing annexation.

How a US Takeover Could Unfold

If diplomatic efforts fail and the U.S. insists on acquiring Greenland, two primary scenarios emerge.

The 'Soft' Occupation

The United States could leverage the 1951 defense agreement to deploy additional troops to Greenland. The treaty places few formal limits on expanding its military presence, requiring only notification to Copenhagen and Nuuk.

Once these forces are in place, they could shift from routine military activities to seizing control of key institutions and government functions. This change in mission, rather than the number of troops, would constitute a de facto occupation, allowing the U.S. to establish control with less friction than a conventional invasion.

Direct Military Force

In what is still considered the least likely scenario, the U.S. could invade Greenland and seize its key infrastructure. President Trump has previously authorized a bombing in Nigeria and a raid to extract Nicolás Maduro from Caracas, demonstrating a willingness to use such options.

While a U.S. military victory would be almost certain, Danish forces would be legally obligated to resist, creating a high risk of casualties and severe political fallout.

White House Dynamics and International Stakes

For European allies, the involvement of Vice President Vance is a major source of concern. He and Secretary Rubio are known for their different diplomatic styles; Rubio pairs Trump's aggressive stance with a willingness to negotiate privately, whereas Vance mirrors Trump's penchant for unpredictable and disruptive tactics.

Vance has a history of clashing with European leaders, notably lambasting the continent at last year's Munich Security Conference. He has also criticized Denmark for "not having done a good job by the people of Greenland" and played a role in a tense White House exchange with Ukrainian President Volodymyr Zelenskiy.

On Tuesday, President Trump bluntly dismissed comments from Greenland's Prime Minister Jens-Frederik Nielsen, who had ruled out joining the U.S.

"That's their problem. I disagree with them," Trump told reporters. "I don't know who he is. Don't know anything about him, but that's going to be a big problem for him."

Facing this pressure, Danish Prime Minister Mette Frederiksen is working to frame the U.S. approach as a threat to global stability, hoping to rally support from NATO and the European Union.

"We are standing up not only for ourselves, but for the world order that generations before us have built — our democracy," she stated at a press conference. "This is not just about Greenland or about the Kingdom. It is about the principle that borders must not be changed by force, that peoples cannot be bought. It is about ensuring that small countries do not have to fear the big ones."