Weekly Market Recap

Bank of England Monetary Policy Committee member Alan Taylor publicly suggested that the UK’s central bank may make three more interest rate cuts in 2026, as inflation drops back to the 2.0% target.

Following the US Supreme Court’s ruling on tariffs last week, investors in the UK were encouraged by the Trump administration’s assurance that it intends to stand by the trade deal it struck with the UK in May 2025.

The Bureau of Labor Statistics reported that producer price inflation unexpectedly accelerated in January. The headline producer price index (PPI) increased 0.5% month over month (MoM), ahead of estimates for around a 0.3% rise and up from December’s reading of 0.4%. The upside was driven by service prices, which rose 0.8% for the month, the largest increase since July 2025. On an annual basis, PPI inflation was 2.9%.

Meanwhile, data from the Census Bureau showed that new orders for US factory goods dropped 0.7% in December, down from an increase of 2.7% in the prior month. A sharp decline in commercial aircraft bookings helped drive the overall contraction.

After declining in January, the Conference Board’s Consumer Confidence Index edged higher in February, increasing 2.2 points to 91.2. The MoM improvement was partially attributed to less pessimistic expectations about future business and labour market conditions, as well as a more positive outlook for future income. However, Conference Board Chief Economist Dana Peterson noted that the index “remained well below the four-year peak achieved in November 2024 (112.8).”

Elsewhere, applications for unemployment benefits during the week ended 21 February totalled 212,000, a modest increase from the prior week’s reading of 208,000 and in line with consensus estimates. On the other hand, continuing claims for the week ended 14 February declined to 1.833 million, down 31,000 from the prior week.

The Ifo Institute’s Business Climate Index rose to 88.6 in February, its highest level since last summer and up from 87.6 in January. Companies participating in the survey reported greater confidence around current conditions, while expectations about the next six months also improved. The strength was fairly broad, with both manufacturers and service providers reporting higher confidence.

The February reading of the main French business confidence indicator slipped to 97 from 99 in January, suggesting that there is little optimism about a potential economic recovery so far. The manufacturing component of the indicator nudged down to 102 from 105 last month.

French consumer prices rose by 1.1% year over year (YoY) in February, according to preliminary data released by INSEE, the country’s official statistics agency. In Spain, the initial reading for annual inflation edged up to 2.5% from 2.4%, with expectations of a slowdown to 2.3%. In contrast, inflation eased in Germany, with the annual inflation rate slowing to 1.9% in February from 2.1% last month.

Travel and spending data over the Chinese New Year, a key consumption period for China, provided mixed signals about consumer sentiment. Tourism spending rose to 803.5 billion yuan (USD 117.4 billion), 126.5 billion yuan higher than in 2025, although this year’s holiday period was a day longer. In total, domestic tourists made 596 million trips nationwide over the nine-day period, 95 million more than during the same period a year ago. However, per-trip spending dipped marginally, according to Bloomberg calculations, raising doubts about the sustainability of spending growth.

China’s financial hub Shanghai has relaxed homebuying rules, adding to recent measures to boost the property market. Non-residents who have paid social security contributions or income tax for one year will be eligible to buy a home in urban areas. Previously, non-residents had to wait three years. Shanghai will also allow non-residents who have made social security or income tax contributions for at least three years to purchase a second home.

The People’s Bank of China (PBOC) announced that it will cut the risk reserve requirement ratio for financial institutions conducting foreign exchange forward trading to zero from 20%, a move that analysts say signals efforts to ease the rapid appreciation of the renminbi. The PBOC said the adjustment took effect on 2 March and that it would aim to keep the yuan’s exchange rate stable at a reasonable and balanced level. The central bank’s move on Friday came as the Chinese currency hit a nearly three-year high against the US dollar on Thursday.

Stock markets appeared to take the latest tariff announcements from the US in stride, with Bank of Japan (BoJ) Governor Kazuo Ueda noting that the 15% global tariff matches existing levies for Japan and is unlikely to have a major impact on Japan.

The yen weakened to JPY 156.1 against the US dollar from the prior week’s JPY 155.1. The Japanese currency came under pressure as Prime Minister Takaichi nominated two economists perceived as dovish, Ayano Sato and Toichiro Asada, to the BoJ’s Policy Board to replace outgoing members. Some analysts interpreted the move as a signal that her government could favour a less aggressive approach to interest rate increases. This prompted some press speculation about a potential impact on the central bank’s monetary policy normalisation process. Ueda said that the bank would review incoming data at its March and April meetings and would raise interest rates if its economic and inflation forecasts were realised.

The yield on the 10-year Japanese government bond remained at 2.11% over the week. The Tokyo-area core consumer price index (CPI), a leading indicator of nationwide trends, rose 1.8% YoY in February, ahead of estimates of a 1.7% increase and compared with 2.0% in January. The slowdown in consumer inflation was largely due to renewed electricity and gas subsidies, but the reading surpassing consensus expectations lent cautious support to the BoJ’s rate-hike trajectory. Separate January data showed that retail sales beat expectations, while industrial production came in below forecast.

Australia's headline CPI increased 0.4% MoM, a touch above market expectations of a 0.3% MoM increase. YoY headline inflation was little changed at 3.8%. In underlying terms, growth in the monthly trimmed mean measure rose 0.3% MoM as expected, though revisions saw the YoY rate edge slightly higher to 3.36%, above the consensus of 3.3% YoY. Compositionally, much of the month's increase was driven by the unwinding of electricity subsidies, with the last of their impact falling out in February. Total private-sector credit growth eased to 0.5% MoM in January, below expectations for stronger growth of 0.7% MoM, though YoY growth remained little changed at 7.7%. Overall credit growth remains resilient across business and housing.

Over the past week, Canada's financial markets have been primarily driven by escalating trade tensions with the US and mixed economic data. Canada is seeking bilateral talks with Washington on sectoral tariffs alongside the upcoming review of the US-Mexico-Canada trade agreement (USMCA), with Canadian officials expressing cautious optimism about the trilateral framework's survival despite President Trump's reported consideration of abandoning the pact. The Canadian dollar weakened amid elevated tariff uncertainties, with analysts noting that wider yield spreads and neutral Bank of Canada rate expectations have outweighed the benefits from higher oil prices. On the economic front, Canada's GDP contracted 0.6% annualised in the fourth quarter of 2025, slightly worse than consensus forecasts, though the underlying composition showed resilience with consumer spending rebounding and final domestic demand remaining robust, albeit fueled by Canadians dipping into savings as the household savings rate fell to 4.4%. The Bank of Canada is expected to remain on hold, with economists suggesting the economic softness is not severe enough to warrant further rate cuts and that the central bank will likely stay sidelined until there is clarity on USMCA negotiations.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.4% (4.3% YTD).

The S&P 500 Index closed the week down -0.4% (0.7% YTD) amid ongoing concerns about the disruptive potential of artificial intelligence (AI) and heightened global trade and tariff uncertainty. Equities started the week on a negative note, selling off on Monday after a widely circulated research report heightened worries about potential AI-driven disruption risks across industries and the broader economy. Sentiment improved on Tuesday and Wednesday ahead of AI bellwether NVIDIA’s quarterly earnings, though ultimately indexes declined through the end of the week as the chipmaker’s consensus-topping results failed to reverse the broader risk-off tone.

The Russell 1000 Growth Index returned -0.8% (-4.8% YTD), the Russell Value Index 0.1% (7.2% YTD) and the Russell 2000 Index -1.2% (6.2% YTD). The technology-heavy Nasdaq Composite retreated -0.9% (-2.4% YTD).

In Europe, the MSCI Europe ex-UK Index added 0.3% (6.5% YTD). Robust corporate earnings and investors’ desire to diversify beyond the technology-heavy US market won out over geopolitical tensions, AI disruption concerns, and renewed trade tariff uncertainty. Major stock indices advanced. Germany’s DAX Index edged up 0.1% (3.2% YTD), France’s CAC 40 Index added 0.8% (5.3% YTD), and Italy’s FTSE MIB Index put on 1.6% (5.4% YTD). Switzerland’s SMI gained 1.1% (5.6% YTD). The euro was little changed against the US dollar, closing the week at USD 1.18 for EUR.

The FTSE 100 Index in the UK rallied 2.1% (10.2% YTD), reaching a fresh high midweek, while the FTSE 250 Index was broadly unchanged (6.1% YTD). The British pound was stable against the US dollar, closing the week at USD 1.35 for GBP.

Japan’s stock markets rose strongly over the week. The TOPIX Index jumped 3.4% (15.6% YTD), and the TOPIX Small Index surged 3.9% (17.1% YTD). The indexes reached record highs to wrap up a strong February, as investors remained optimistic about the policy outlook under Prime Minister Sanae Takaichi.

In Australia, the S&P/ASX 200 Index rose 1.5% (6.1% YTD) and printed a fresh all-time high. This was driven by firmer commodity prices, still-resilient private credit growth, and strong performance in the technology sector.  Australian government bond yields abated modestly, with the curve flattening marginally. The Australian dollar continued to appreciate against the US dollar by 0.6%.

In Canada, the S&P/TSX Composite gained 1.6% (8.6% YTD).

The MSCI Emerging Markets Index climbed 2.8% (14.9% YTD), with gains driven by markets in China, Taiwan, and South Korea. The Indian and Brazilian markets contributed negatively.

Mainland Chinese stock markets rose in an abbreviated trading week as risk sentiment improved, and broader market participation returned following the Chinese New Year break and ahead of the upcoming “Two Sessions” meetings. Leaders typically set key economic goals at the annual legislative gathering. The onshore CSI 300 Index, the main onshore benchmark, added 1.1% (1.9% YTD), and the Shanghai Composite Index advanced 2.0% (5.0% YTD). Hong Kong's benchmark Hang Seng Index added 0.8% (3.9% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, declined -0.7% (-0.9% YTD).

In Hungary, the National Bank of Hungary (NBH) lowered its key policy rate by 25bps to 6.25%, marking the first rate cut since September 2024. The move follows a continued decline in inflation, with headline CPI falling to 2.1% YoY in January, helped by favourable base effects and the extension of government price caps. According to T. Rowe Price emerging markets credit analyst Peter Botoucharov, inflation could pick up in the second half of the year, potentially finishing 2026 in the 3.5% to 4.0% range. Importantly, the eventual removal of price caps could add to headline inflation, potentially limiting the scope for more aggressive easing. Markets appeared to take the decision in stride, with limited volatility in local rates and currency markets, reflecting that the move had been largely priced in.

On the political front, attention is increasingly turning to Hungary’s parliamentary elections scheduled for 12 April. Recent polling indicates that the opposition Tisza Party has widened its lead over Prime Minister Viktor Orbán’s Fidesz party, raising the prospect of a more competitive electoral outcome. While markets have not yet reacted sharply, election-related uncertainty could influence investor sentiment, particularly in local fixed income. Ahead of the vote, Botoucharov maintains a balanced view that acknowledges improving inflation dynamics but also recognises the potential for renewed price pressures and political risk. Together, the start of a cautious easing cycle and a shifting political landscape suggest that Hungarian assets may remain sensitive to both inflation data and election developments in the months ahead.

In Colombia, markets came under renewed pressure last week as political risk returned to the forefront. The latest Invader poll showed left-wing candidate Iván Cepeda gaining ground in the first round, while right-wing candidate Abelardo de la Spirilla held steady. Although Paloma Valencia from former President Alvaro Uribe’s party climbed sharply and could theoretically consolidate support behind de la Spirilla in a runoff, the broader right-wing bloc still trails meaningfully. Perhaps more notable, President Gustavo Petro’s approval rating jumped, suggesting that policies such as the 23% minimum wage increase are proving politically popular. As T. Rowe Price Sovereign Analyst Chris Mejia noted, the poll points to stronger-than-expected support for Petro’s policy agenda and could generate a negative market reaction in the near term.

Markets have already been sensitive to shifting election dynamics. The Colombian peso and local bonds weakened earlier in the week as investors demanded higher risk premiums amid rising uncertainty around the policy outlook. At the same time, the central bank has maintained a relatively hawkish stance, helping to cushion the currency in the short term but doing little to offset concerns about fiscal pressures and the broader reform path. Proposals to tap pension assets to help address budget strains have further underscored fiscal challenges. Looking ahead, markets are likely to remain headline-driven, with currency and rate volatility closely tied to polling trends and clarity on the next administration’s economic direction.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (1.7% YTD), the Bloomberg Global High Yield Index (hedged to USD) -0.2% (1.1% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.2% (1.7% YTD).

The week’s broadly risk-off tone appeared to help support US Treasuries, which generated positive returns as yields generally finished lower than the prior Friday. Over the week, the 10-year Treasury yield decreased by -15bps to 3.94%, down from 4.09%, and dropped below 4% for the first time since November (down -23 bps YTD). The 2-year Treasury yield declined by -10bps, ending the week at 3.38%, down from 3.48% (-10bps YTD).

US investment-grade corporate bonds underperformed Treasuries with modest gains, although the market absorbed meaningful supply while navigating AI-related dispersion and tariff headlines. High-yield bond performance was mixed across sectors, as software and AI-related names were volatile while investors mostly favoured higher-quality credits.

Over the week, the 10-year German Bund yield decreased by -10bps, ending at 2.64% from 2.74% (down -21bp YTD). The 10-year UK gilt yield decreased by -13bps, ending the week at 4.23% from 4.35% (down -24bps YTD).