US Tariffs Outweigh India's New Trade Deal Push

Oil prices advanced on Friday, with both Brent and U.S. West Texas Intermediate benchmarks seeing gains as investors weighed ongoing supply risks from political instability in Iran against signs that the threat of immediate U.S. military action is receding.

By 1000 GMT, Brent crude rose 50 cents, or 0.78%, to $64.26 a barrel, putting it on track for its fourth consecutive weekly gain. U.S. West Texas Intermediate (WTI) climbed 48 cents, or 0.81%, to $59.67.

Geopolitical Tensions Drive Market Volatility

Both oil benchmarks hit multi-month highs earlier in the week as protests flared up across Iran and U.S. President Donald Trump signaled the potential for military strikes.

The political upheaval continues to fuel uncertainty. "Oil prices are likely to experience greater volatility as markets digest the potential for supply disruptions," noted analysts at BMI.

However, fears of a direct conflict eased late on Thursday after Trump remarked that Tehran's crackdown on protesters was softening. Despite this development, analysts at IG cautioned that risks linked to Iran "remain significant, keeping the market nervous in the short term."

Focus on the Strait of Hormuz Chokepoint

A central concern for the oil market remains the potential for disruption to flows through the Strait of Hormuz. This critical chokepoint sees the passage of approximately 20 million barrels of oil per day. Analysts warned that any military escalation with Iran could threaten this vital supply route.

Ample Supply Outlook Could Cap Further Gains

While geopolitical tensions are providing short-term support, many analysts believe that higher global oil supply this year could create a ceiling for prices.

According to Phillip Nova analyst Priyanka Sachdeva, "the underlying balance still points to ample supply" despite the "steady drumbeat of geopolitical risks and macro speculation."

Sachdeva suggested that oil is likely to remain range-bound, with Brent crude trading broadly between $57 and $67 a barrel, unless there is a "genuine revival in Chinese demand or a meaningful bottleneck in physical barrel flows."

Iran is experiencing its longest and most severe internet shutdown on record, sparking fears of an intensifying state crackdown on protesters, even as officials have offered assurances to de-escalate punishments.

Activists and global monitors report that the nationwide internet blackout has now stretched into its eighth consecutive day. According to NetBlocks, a watchdog organization that tracks global connectivity, this shutdown has surpassed the duration of the one imposed during the 2019 demonstrations.

A Digital Iron Curtain Amid Violent Repression

The digital blockade persists despite authorities appearing to have largely suppressed the recent wave of protests through a violent response. The Oslo-based group Iran Human Rights reports that nearly 3,500 people have died and at least 20,000 have been arrested since the demonstrations began in late December. Other estimates suggest the death toll could be significantly higher.

The protests, which saw hundreds of thousands take to the streets, were initially triggered by a currency crisis. Iran's government completely cut off internet access on January 8 as the demonstrations escalated. Limited social media footage that has emerged from the country depicts scenes of shootings and killings as authorities moved to crush the unrest.

Iranian officials have publicly characterized the protests as a plot backed by the United States and Israel, accusing them of arming and directing terrorists to attack security forces and civilians.

US Military Posturing and Diplomatic Tensions

The situation has drawn sharp focus from Washington. After US President Donald Trump urged Iranians to continue opposing Supreme Leader Ayatollah Ali Khamenei and stated that "help is on the way," Iranian Foreign Minister Abbas Araghchi pledged on Wednesday that protesters would not be executed.

Araghchi's statement seemed to temporarily calm fears of an immediate intervention, with Trump noting he had been informed that "killing in Iran is stopping." However, the risk of military action has not disappeared.

White House spokeswoman Karoline Leavitt confirmed on Thursday that President Trump is closely monitoring the situation and keeping all options on the table. Citing military sources, Fox News reported that at least one US aircraft carrier and other military assets are being moved to the region to provide strike options.

Analysts at Eurasia Group noted in a report that the probability of a US strike will increase once the carrier group arrives between late January and early February, and will remain elevated through the first half of 2026. They argue that because Iran cannot fix the underlying problems causing the protests, new demonstrations could erupt, giving Trump a new reason to threaten military action.

Economic Crisis Fuels Unrest

The protests are rooted in severe economic distress. A sharp crash in the value of the Iranian rial was the initial catalyst for the widespread demonstrations.

The country continues to face a severe shortage of foreign exchange, which is expected to maintain pressure on the currency. This ensures that inflation, officially running at around 50%, will likely stay high in the coming weeks and months, further straining the population.

International Pressure and Sanctions Mount

In response to the crackdown, Western governments are increasing pressure on Tehran. European Commission President Ursula von der Leyen stated that the bloc is considering tightening its sanctions against Iran.

On Thursday, the United States also added several individuals and entities to its extensive sanctions list.

"They are weakening the regime," von der Leyen said during a visit to Cyprus on Thursday. "And the sanctions help to push forward that this regime comes to an end and that there is a change."

The French government has suspended parliamentary talks on its 2026 budget until Tuesday, escalating a political stalemate that could force Prime Minister Sebastien Lecornu to push the legislation through without a vote. This high-stakes maneuver would almost certainly trigger a no-confidence motion, putting the government's survival on the line.

Figure 1: French Prime Minister Sebastien Lecornu faces a political standoff as his government considers forcing its 2026 budget through parliament.

Deadlock in Parliament

After three months of negotiations failed to produce a compromise, the government is pointing fingers at opposition parties on both ends of the political spectrum. Budget Minister Amelie de Montchalin accused the hard-left France Unbowed (LFI) and the far-right National Rally (RN) of deliberately sabotaging the process.

"The extremes have methodically voted for amendments to make the budget unvotable," Montchalin stated in a Friday interview on France 2 TV.

In an effort to break the deadlock before talks resume, Lecornu is expected to propose an amended version of the budget bill. Montchalin acknowledged that some government proposals were not working and singled out "issues concerning local authorities" as a major concern that needs to be addressed.

Government Weighs Controversial Options

With a parliamentary agreement looking unlikely, a government source confirmed Lecornu is considering two constitutional options to pass the budget without a vote.

1. Article 49.3: This article allows the government to bypass parliament on a bill. However, Lecornu has previously pledged not to use this power, stating his preference for a negotiated agreement.

2. Article 47: This alternative involves using an executive order to pass the budget. The legal downside is that it remains unclear if this method would permit the inclusion of amendments made by lawmakers during the past three months of debate.

Using either option is a significant political gamble, as it is expected to be met with an immediate vote of no confidence from the opposition.

The Socialist Party's Critical Role

The success of a no-confidence motion could depend on the Socialist party. Their support hinges on whether the final version of the budget incorporates at least some of their proposed amendments.

Philippe Brun, the Socialists' lead on the budget, issued a stark warning, threatening to back a no-confidence motion "without hesitation" if the government attempts to pass the budget by executive order. This leaves Lecornu's administration in a precarious position, forced to choose between concessions and a potential government collapse.

Malaysia's economy closed out 2025 on a high note, posting stronger-than-expected growth that defied earlier forecasts. However, economists warn that the country's vital electrical and electronics (E&E) sector remains exposed to the looming impact of higher US tariffs, with significant risks expected to materialize in 2026.

Official estimates released by the Department of Statistics Malaysia (DOSM) show the economy expanded by 5.7% year-on-year in the fourth quarter of 2025, marking its fastest pace since the second quarter of 2024. This growth was largely driven by robust activity in the services and manufacturing sectors. For the full year, the economy is projected to have grown 4.9%, a slight moderation from the 5.1% recorded in the previous year.

US Trade Policy Casts a Shadow Over Export Outlook

Despite the strong performance in 2025, the export outlook for 2026 is clouded by uncertainty. According to Kenanga Research, the full effects of increased US tariffs have not yet been felt and could pose significant downside risks for export-heavy industries like E&E.

These concerns have been amplified by recent actions from the White House. Within the first two weeks of the year, US President Donald Trump reintroduced a 25% levy on certain advanced computing chips and announced a separate 25% tariff on countries conducting business with Iran.

While a temporary pause in the US-China tariff conflict until November 2026 may provide some breathing room for global trade, UOB Global Economics & Market Research still anticipates that Malaysia's economic growth will moderate to around 4.5% in 2026.

Domestic Demand Expected to Cushion External Headwinds

Economists broadly expect Malaysia's resilient domestic economy to buffer the potential fallout from trade risks. A broad-based expansion, particularly in the services and construction sectors, is forecast to provide a solid foundation for growth.

Several key factors are expected to support this domestic strength:

• Rising household incomes from civil service salary adjustments.

• A lower national unemployment rate.

• The realization of previously approved investment projects.

• Continued targeted cash transfers to households.

UOB also highlighted other catalysts, including a federal budget allocation of RM419.2 billion, which covers an RM18 billion second phase for the civil servants' pay hike in January 2026 and RM81 billion for development expenditure. The Visit Malaysia Year 2026 campaign and the continued rollout of national master plans are also expected to contribute positively.

The final, official GDP figures for Q4 2025, along with current account data, are scheduled for release by DOSM on February 13.

Bank Negara Malaysia Poised to Hold Interest Rates Steady

On the monetary policy front, the consensus is that Bank Negara Malaysia (BNM) will maintain the overnight policy rate (OPR) at 2.75% in its upcoming announcement. A Bloomberg survey of nine economists showed a median forecast of no change.

According to ANZ Research, the strong economic growth reinforces the view that BNM's next policy move will likely be a hike. However, with price pressures remaining benign, there is no urgency for immediate tightening.

Both UOB and Pantheon Macroeconomics see little reason for policy easing. They note that Malaysia has benefited from relatively competitive tariff treatment and ongoing exemptions for semiconductors. Furthermore, with the US Federal Reserve cutting its own rates, pressure on capital outflows has diminished.

Pantheon Macroeconomics concluded that BNM currently has the luxury of keeping rate cuts in its toolbox, ready to be deployed in the event of any new economic shocks.

Uganda's President Yoweri Museveni, leader of the ruling National Resistance Movement (NRM) party, addresses supporters during his final rally ahead of the general election, in Kampala, Uganda, January 13, 2026. REUTERS/Abubaker Lubowa

Veteran Ugandan President Yoweri Museveni held a commanding lead in early presidential election results announced on Friday as conflicting accounts emerged of violence reported after the vote.

Museveni, who is 81 and has ruled Uganda since seizing power in 1986, wants a decisive victory following a campaign marred by violence at opposition rallies.

Results announced by the electoral commission from Thursday's election showed Museveni with 76.25% of the vote based on tallies from nearly half of polling stations. His main challenger, popular singer Bobi Wine, trailed with 19.85% and the remaining votes were split among six other candidates.

Museveni had told reporters after casting his ballot on Thursday that he expected to win with 80% of the vote "if there's no cheating".

Wine alleged mass fraud during the election, which was held under an internet blackout that authorities said was needed to prevent "misinformation", and called on supporters to protest.

The U.N. human rights office said last week the election was being held in an environment of "widespread repression and intimidation", and recent political violence in neighbouring Tanzania and Kenya amplified fears about unrest in Uganda.

VIOLENCE SOUTHWEST OF THE CAPITAL

There were no reports of protests during voting hours, but violence broke out overnight in the town of Butambala, about 55 km (35 miles) southwest of the capital Kampala.

Agather Atuhaire, a prominent human rights activist, said soldiers and police had killed at least 10 opposition supporters who had gathered at the house of parliamentarian Muwanga Kivumbi to follow the early results.

Citing an account from Kivumbi's wife, human rights activist Zahara Nampewo, Atuhaire said the soldiers and police fired tear gas and then live bullets at people sheltering inside Kivumbi's compound.

Reuters was not able to reach Nampewo, who Atuhaire said was too shaken to speak to the media.

Lydia Tumushabe, a local police spokesperson, disputed that account. She said opposition "goons" organised by Kivumbi had attacked a police station and carried machetes, axes and boxes of matches.

She said the police had fired in self-defence and that there were fatalities and injuries, without saying how many.

Kivumbi could not be reached for comment, and Reuters was not immediately able to confirm the circumstances of the violence.

WINE'S PARTY SAYS HE'S UNDER HOUSE ARREST

Wine's National Unity Platform (NUP) party wrote on its X account late on Thursday that the military and police had surrounded Wine's house in the capital Kampala, "effectively placing him under house arrest".

Police spokesperson Kituuma Rusoke told Reuters he was not aware of Wine being placed under house arrest.

Security forces confined Wine to his home for days after the last election in 2021, in which he was credited with 35% of the vote. The United States said that election was neither free nor fair, a charge rejected by the authorities.

During the campaign, Wine's rallies were repeatedly interrupted by security forces firing tear gas and bullets. At least one person was killed in the violence and hundreds of opposition supporters were arrested.

The government defended those actions as a response to lawless behaviour by opposition supporters.

Source: Reuters

The Trump administration's legal challenge against the Federal Reserve is fueling speculation that Jerome Powell will remain on the Board of Governors after his term as chair expires in May. This sets the stage for a rival center of influence within the world's most powerful central bank, a dynamic Powell himself may not even want.

This unusual possibility gained momentum after the Department of Justice served the Fed with grand jury subpoenas last week. The move is widely seen as an unprecedented escalation of President Donald Trump's campaign to influence monetary policy.

While the legal outcome and Powell's final decision remain uncertain, those familiar with him believe he would only stay to protect the institution, not to act as a "shadow Fed chair."

Still, if Powell is provoked into staying, it would disrupt Trump's plan to fill the board with officials who favor his calls for aggressive interest-rate cuts. It would also establish a powerful counterweight to whoever the president selects as the next Fed chair.

The "Two Popes" Problem for Markets

While critics of the administration might welcome this development, analysts warn it could create significant confusion for investors trying to determine who truly holds sway over monetary policy.

"It really would set up, potentially, dynamics of having a 'two popes' situation where financial markets and the public may get a little confused about who's in charge," said Loretta Mester, former president of the Cleveland Fed.

Antulio Bomfim, a former adviser to Powell and now head of global macro at Northern Trust Asset Management, agrees that the optics would be unavoidable. He notes that a former chair with Powell's experience and record of defending the institution would inevitably be seen as an alternative voice.

"Knowing him, he would not aspire to be a shadow Fed Chair," Bomfim said. "But at the same time it is not under his control either."

Powell's Defiant Response

Until recently, most Fed watchers expected Powell to leave the central bank when his term as chair ends in May. The subpoenas have dramatically changed that outlook.

In a sharply worded statement released on January 11, Powell confirmed the subpoenas were related to his congressional testimony about renovations at the Fed's headquarters. He then placed the legal action in a much wider context.

"This should be seen in the broader context of the administration's threats and ongoing pressure," Powell stated. "The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."

It is this forceful defense of the Fed's independence that has convinced many that Powell now intends to stay on the board.

Trump's Plan to Reshape the Fed Hits a Snag

Powell was first nominated as Fed chair by Trump in 2018, but his underlying term as a Fed governor extends until January 2028. The president has already claimed to have chosen Powell's replacement, with front-runners rumored to be Kevin Hassett, director of the National Economic Council, and former Fed Governor Kevin Warsh.

Powell remaining on the board complicates these succession plans. Steven Kamin, a senior fellow at the American Enterprise Institute and a former Fed division director, noted that while the Federal Open Market Committee (FOMC) would likely try to cooperate with a new chair, a divisive appointee could change things.

"One could imagine that if the new chair were sufficiently divisive, a coalition of FOMC members could end up gravitating toward Powell," he said.

The political fallout is already visible. Senator Thom Tillis, a key Republican on the Banking Committee responsible for vetting Fed nominees, has pledged to oppose any of Trump's picks until the subpoena issue is resolved.

Administration officials and allies are also reportedly concerned that the escalation could galvanize sitting board members and regional Fed presidents, making it more difficult for a new chair to implement their policy agenda.

Implications for Monetary Policy and the Board

For now, the direct impact on monetary policy is limited. The Fed cut its benchmark interest rate three times last month but has since signaled a pause, citing a stabilizing labor market while awaiting more data.

The most immediate consequence of Powell staying is that it would delay Trump's ability to name another person to the seven-member board. The president has openly discussed his desire to have a majority on the board, which holds power over personnel, regulation, and other key decisions.

A board majority could also be used to remove the presidents of the regional Fed banks, who are not appointed by the president.

"If the FOMC is reluctant to do what the Trump-appointed chairman wants, and the presidents are the obstacle, then will President Trump start pressing the Board of Governors to fire one or more of the presidents?" asked David Wessel, director of the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution.

In a separate but related matter, Trump may find another path to reshape the board if he succeeds in firing Fed Governor Lisa Cook over allegations of mortgage fraud. That case, which could set a precedent for dismissing any Fed governor, is scheduled for arguments before the Supreme Court on January 21.