Weekly Market Recap

Consumer price index (CPI) inflation eased to 3.0% YoY in January, its lowest level in almost a year, thanks in part to lower fuel prices. On the jobs front, the UK’s unemployment rate hit a nearly five-year high of 5.2% in the three months to December, according to the Office for National Statistics. Wage growth also slowed over the same period. These data have boosted expectations that the Bank of England (BoE) will cut interest rates at the next meeting of its Monetary Policy Committee in March, even though inflation remains above the BoE’s 2.0% target.

The Federal Reserve released minutes from its January meeting on Wednesday, showing that policymakers remain divided on the path forward for monetary policy. The minutes indicated that while some participants viewed additional easing as appropriate if inflation cools as expected, others acknowledged “the possibility that upward adjustments” to rates could be appropriate if inflation remains elevated. The minutes also noted that the “vast majority of participants” believe the “downside risks to employment had moderated” and “the risk of more persistent inflation remained.”

Meanwhile, the Bureau of Economic Analysis (BEA) reported that its core (excluding food and energy) personal consumption expenditures (PCE) price index—the Fed’s preferred measure of inflation—rose 0.4% month over month (MoM) and 3.0% year over year (YoY) in December, up from 0.2% and 2.8% in November, respectively. The headline PCE price index rose 2.9% YoY, a tick higher than the prior month’s reading and the highest level since March 2024.

Separate data from the BEA indicated that US economic growth slowed sharply in the fourth quarter, growing at an annual rate of 1.4% compared with 4.4% in the third quarter. The deceleration was primarily attributed to decreases in government spending and exports, as well as a deceleration in consumer spending.

Elsewhere, S&P Global reported that US business activity growth slowed to a 10-month low in February, according to its Flash US Composite Purchasing Managers’ Index (PMI). Weakened demand, high prices, and adverse weather were cited as contributing factors to the deceleration. However, businesses’ expectations for output in the year ahead hit a 13-month high, “adding to signs that at least part of February’s slowdown may prove temporary.”

The week’s economic calendar also included a slew of housing market data, starting with the National Association of Home Builders (NAHB) housing market index. The index, which gauges homebuilders’ confidence in the housing market, dropped one point to 36 in February. According to NAHB Chairman Buddy Hughes, “builders reduced their expectations for future sales as buyers report affordability challenges.” The National Association of Realtors also reported that its pending home sales index—a forward-looking indicator of home sales—fell 0.8% in January.

On the positive side, Census Bureau data—released after a delay tied to the recent federal government shutdown—showed that privately owned housing starts increased 3.9% in November and 6.2% in December, both of which were ahead of consensus estimates.

Seasonally adjusted industrial production in the eurozone fell 1.4% sequentially in December, according to data from Eurostat, the statistical office of the European Union. This was a greater decline than most observers had expected. However, an early reading of the eurozone PMI for February surprised to the upside, with new orders rising at their fastest pace in almost four years.

German investors’ confidence in economic conditions unexpectedly fell in February, according to the latest ZEW Indicator of Economic Sentiment. The indicator hit a five-year high of 59.6 in January and was expected to rise further in February, but it slipped to 58.3 instead.

A news report that European Central Bank (ECB) President Christine Lagarde is to step down before her eight-year term ends in October 2027 fuelled speculation about who might be appointed as her successor. Lagarde said her “baseline” is to finish her ECB term, but did not deny the Financial Times report. Spain subsequently became the first country to openly declare its intention to seek the ECB presidency, with the economy minister stating that Spain will “actively work to ensure it holds an influential and meaningful position” at the regional central bank.

The International Monetary Fund (IMF) expects China's economy to grow 4.5% in 2026, up 0.3% from its October forecast but below the 5% growth achieved in 2025. Following the conclusion of its annual Article IV consultation, the IMF acknowledged that China’s economy has been resilient to shocks but flagged increased challenges to its historical growth model. Transitioning to a consumption-led growth model should be the overarching priority, according to the IMF. While the organisation welcomed the focus of China’s 15^th Five-Year Plan on boosting consumption, it called for a comprehensive and more forceful response that combines increased macroeconomic policy support with structural reforms.

China recently released detailed provisions for its new value-added tax (VAT) law, including raising the VAT rate on telecommunication services to 9% from 6%. The move comes as authorities adjust tax policy amid slower economic growth and persistent deflationary pressure. Major telecom providers—China Mobile, China Unicom, and China Telecom—warned that the higher rate could impact revenue and profitability.

Meanwhile, the US briefly updated and then withdrew a list of Chinese companies allegedly assisting Beijing’s military. The Pentagon added Alibaba Group Holding, BYD Co, Baidu, and TP-Link Technologies to the list before withdrawing it minutes later without an explanation. Alibaba and Baidu rejected the designation, saying they are not military companies and that there is no credible basis for being included. The Pentagon is increasingly using the list to restrict companies’ abilities to contract with the military or to receive research funding. It also serves as a warning to US investors and could be considered a potential precursor to more punitive trade restrictions.

Geopolitical tensions weighed on global investors’ risk appetite. On the domestic front, Japan’s economy grew by less than expected over the final quarter of last year, and consumer inflation rose at the slowest pace in two years in January. Against this backdrop, the yen weakened to JPY 155.1 against the US dollar, from prior week’s JPY 152.7.

The yield on the 10-year Japanese government bond fell to 2.11% from 2.22% at the end of the previous week, as concerns about the government’s aggressive spending plans subsided somewhat. Prime Minister Sanae Takaichi, who earned a solid victory in a snap election earlier in the month, sought to reassure investors by pledging to pursue responsible and proactive fiscal policy that balances capital investment and fiscal restraint. She emphasised an increase in capital investment in areas including economic security, agriculture, energy, and health services.

Japan’s gross domestic product (GDP) expanded by less than anticipated over the final quarter of last year. On an annualised basis, fourth-quarter GDP grew 0.2% quarter over quarter (QoQ), short of consensus expectations of 1.6% growth but up from a contraction in the prior quarter. Private consumption, which accounts for more than half of Japan’s GDP, cooled to 0.1%, from the prior quarter’s 0.4%. Exports dropped only modestly, reflecting lesser-than-feared impacts of US tariffs. Separate data showed that Japan’s export growth beat expectations in January, on strength in shipments to Asia and Western Europe.

The nationwide core CPI rose 2.0% YoY in January, matching consensus expectations and down from 2.4% in December. The reading marked the slowest pace of growth in consumer inflation in two years, with the slowdown driven by softer food price inflation and lowered fuel prices. The government has pursued various fiscal measures aimed at easing cost-of-living pressures, which appeared to be having some effect.

The Minutes of the Reserve Bank of Australia (RBA) February Board meeting underscored a material reassessment of key judgments including: (1) 'significant changes' to the RBA estimates of spare capacity, (2) a greater persistence of inflationary pressures, (3) a shift in the risks around the Board's inflation and employment objectives, and (4) that financial conditions were not restrictive enough to bring inflation back to target within a reasonable period. Such narratives suggest a second rate hike is more likely than not.

The Australian unemployment rate remained stable at 4.1%, against expectations for an increase. While employment growth was a bit weaker than expected at 17,800, the participation rate remained stable at 66.7%. Growth in Australia's Wage Price Index (excluding bonuses) was little changed at 0.82% QoQ in the fourth quarter of 2025, in line with expectations.

Canada's financial markets have been shaped by cooling inflation, weak trade performance, and rising energy stocks. Canada's January CPI decelerated to 2.3% year-over-year from 2.4% in December, with core measures softening further, prompting economists to suggest the Bank of Canada may cut rates again in April and June. Trade data released on showed Canada's 2025 trade deficit widened to CAD 31.3 billion—the largest annual shortfall outside the COVID pandemic—as US tariffs hammered key export sectors, though December's monthly deficit narrowed to CAD 1.3 billion, largely due to volatile gold exports masking underlying weakness. Meanwhile, Canadian energy stocks hit their first record high since 2008, driven by surging oil prices amid US-Iran tensions. National Bank trimmed its 2026 GDP growth forecast for Canada amid intensifying trade tensions and a manufacturing sector in its longest recession in a generation.

Last week, the MSCI All Country World Index (MSCI ACWI) rose 1.0% (3.9% YTD).

The S&P 500 Index closed the holiday-shortened week up 1.1% (1.1% YTD), generating modest gains through Thursday before rallying on Friday following news that the US Supreme Court had ruled to overturn the Trump administration’s sweeping global tariffs. Escalating tensions between the US and Iran—which helped send oil prices higher—were also a focus for investors during the week. US markets were closed on Monday in observance of the Presidents’ Day holiday.

The Russell 1000 Growth Index returned 1.5% (-4.1% YTD), the Russell Value Index 0.7% (7.1% YTD) and the Russell 2000 Index 0.7% (7.5% YTD). The technology-heavy Nasdaq Composite gained 1.5% (-1.5% YTD), posting its first weekly gain since early January.

In Europe, the MSCI Europe ex-UK Index rallied 2.2% (6.2% YTD). Key drivers included improved earnings expectations, broadly supportive macroeconomic data, and investors’ desire to diversify beyond the technology-heavy US market. Major stock indices advanced. Germany’s DAX Index rose 1.4% (3.1% YTD), France’s CAC 40 Index surged 2.5% (4.5% YTD), and Italy’s FTSE MIB Index climbed 2.3% (3.7% YTD). Switzerland’s SMI put on 1.9% (4.5% YTD). The euro weakened against the US dollar, closing the week at USD 1.18 for EUR, down from 1.19.

The FTSE 100 Index in the UK was up 2.6% (7.9% YTD), reaching a new peak midweek, and the FTSE 250 Index added 1.4% (6.0% YTD). The British pound depreciated against the US dollar, closing the week at USD 1.35 for GBP, down from 1.37.

Japan’s major stock markets saw small declines over the week. The TOPIX Index retreated -0.3% (11.7% YTD), but the TOPIX Small Index advanced 1.6% (12.7% YTD).

In Australia, the S&P/ASX 200 Index rallied 2.1% (4.5% YTD) on the back of higher oil prices and resilient labour market data. Australian government bond yields remained largely unchanged. The Australian dollar modestly gave back 0.4% of the appreciation against the US dollar in previous weeks.

In Canada, the S&P/TSX Composite jumped 2.3% (6.9% YTD).

The MSCI Emerging Markets Index gained 0.8% (11.7% YTD), with markets in India, South Korea and Brazil contributing to the gains.

Financial markets in mainland China were closed for the Chinese New Year holidays, which started 16 February, and will reopen on 24 February. The Hong Kong stock exchange was shut 17–19 February after a half-day session on Monday, 16 February. Trading resumed Friday with the benchmark Hang Seng Index losing -0.6% (3.1% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, shed -1.0% (-0.1% YTD).

In Romania, the National Bank of Romania (NBR) left its benchmark rate unchanged at 6.50%, marking a continuation of its pause in its easing cycle. Policymakers acknowledged that headline inflation eased in the fourth quarter, largely due to lower fuel prices, while core inflation remained relatively sticky. January inflation came in at 9.6% YoY, slowing less than anticipated as earlier tax increases continued to filter through prices. While inflation remains elevated in the near term, the central bank maintained its view that price pressures should decline more decisively in the second half of the year. Markets largely appeared to view the decision as expected, with T. Rowe Price emerging markets credit analyst Peter Botoucharov expecting the central bank’s first rate cut likely in late Q2 or early Q3, contingent on further disinflation.

On the fiscal side, sentiment improved after Romania’s Constitutional Court upheld the government’s judiciary pensions reform, a key measure aimed at supporting fiscal consolidation. The reform, which increases the retirement age and limits pensions for magistrates, had previously faced setbacks and was cited as a factor behind Fitch’s negative outlook on Romania’s BBB- sovereign rating last Friday. The ruling is seen as strengthening policy credibility and supporting the case for gradual sovereign spread compression relative to regional peers. Meanwhile, December’s current account deficit narrowed year over year, although the full-year deficit widened, underscoring ongoing external imbalances.

In Peru, the Congress voted to remove President José Jeri after debating his fitness to remain in office amid a series of controversies, making him the third head of state ousted by the current Congress since it was seated in 2021. Lawmakers subsequently elected José Balcázar of the left-wing Perú Libre party as head of Congress and interim president, marking Peru’s eighth president in as many years.

In his inaugural remarks, Balcázar struck a conciliatory and market-calming tone, pledging to oversee elections on 12 April, maintain macroeconomic and monetary policy continuity, and provide stability. While the leadership change underscores Peru’s ongoing political instability, T. Rowe Price emerging markets credit analyst Chris Mejia noted that national elections are only two months away, which could constrain the interim government’s policy flexibility and limit the likelihood of major shifts in fiscal or monetary direction. Markets appeared largely unfazed by the change in leadership, viewing the development as another episode in a prolonged cycle of political turnover rather than a meaningful shift in the country’s macroeconomic framework.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.1% (1.2% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.2% (1.3% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index was little changed (1.5% YTD).

US Treasuries posted negative returns as investors digested the week’s economic data and the Fed meeting minutes, which were seen as striking a more hawkish tone than recent meetings. Over the week, the 10-year Treasury yield rose by 4bps to 4.09%, down from 4.05% (down -8bps YTD). The 2-year Treasury yield increased by 7bps, ending the week at 3.48%, down from 3.41% (flat YTD).

US investment-grade corporate bonds were little changed, outperforming Treasuries, and new issuance was generally oversubscribed. Meanwhile, high-yield bonds advanced alongside equities, and optimism in the software space following a recent stretch of weakness supported the technology segment.

Over the week, the 10-year German Bund yield decreased by -1bps, ending at 2.74% from 2.75% (down -12bp YTD). The 10-year UK gilt yield decreased by -7bps, ending the week at 4.35% from 4.42% (down -12bps YTD).