Global Markets Weekly Update

U.S.

Major stock indexes finished a volatile, holiday-shortened week lower. The S&P MidCap 400 Index performed worst, falling 0.55%, followed by the Dow Jones Industrial Average and S&P 500 Index, which declined 0.53% and 0.35%, respectively. Meanwhile, the Russell 2000 Index shed 0.32%, while the Nasdaq Composite closed modestly lower. U.S. markets were closed Monday in observance of Martin Luther King Jr. Day.

Stocks traded sharply lower to start the week on Tuesday, with the S&P 500 Index posting its largest daily decline since October amid renewed fears of a global trade war after U.S. President Donald Trump announced that he would impose new tariffs on European nations that opposed the U.S. purchasing or otherwise taking control of Greenland. 

However, major indexes reversed course on Wednesday after Trump appeared to soften his stance. In a social media post, Trump said that he and NATO Secretary General Mark Rutte had “formed the framework of a future deal with respect to Greenland” and that he would no longer “be imposing the Tariffs that were scheduled to go into effect on February 1st.” Stocks rallied on the news, ultimately finishing the week above their worst levels. 

GDP growth revised higher; inflation remains elevated

On the economic data front, an updated estimate from the Bureau of Economic Analysis (BEA) showed that the U.S. economy grew at a faster-than-expected pace in the third quarter. The agency reported that real gross domestic product (GDP) increased at an annual rate of 4.4%, a tick higher than a previous estimate of 4.3% and ahead of the second quarter’s 3.8% pace. The upward revision was largely driven by higher exports and investment. 

The BEA also released its November core personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge—which rose 0.2% from the prior month, in line with October’s reading. On a year-over-year basis, the index rose 2.8%, remaining well ahead of the Fed’s long-term inflation target of 2%.

Jobless claims remain stable; consumer sentiment improves 

The week’s employment data suggested that layoffs remain relatively subdued despite some signs of softening in the U.S. labor market. New applications for unemployment benefits for the week ended January 17 came in at 200,000, a slight increase from the previous week’s revised 199,000 and below estimates for around 207,000. The reading brought the four-week moving average down to 201,500, the lowest level in two years. Continuing unemployment claims came in at 1.849 million in the week ended January 10, a decrease from the prior week’s downwardly revised 1.875 million.

Meanwhile, the University of Michigan released the final January reading of its Index of Consumer Sentiment on Friday morning. The index reading came in at 56.4 for the month, up from 52.9 in December. However, the report also noted that January’s reading is over 20% lower year over year, “as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets.”

Business activity growth ticks higher in January

Elsewhere, S&P Global reported that U.S. business activity growth inched higher in January, according to its Flash U.S. Composite Purchasing Managers’ Index (PMI). An acceleration in manufacturing growth outpaced growth in the services sector, and businesses’ confidence in the year ahead “remained positive but dipped slightly,” as “ongoing worries over the political environment and higher prices” offset optimism around economic growth prospects and demand conditions. 

Corporate bonds outperform Treasuries amid macroeconomic optimism 

Despite rallying alongside equities on Wednesday, U.S. Treasuries posted modest losses heading into Friday, with short-term yields edging higher and longer-term yields declining slightly. (Bond prices and yields move in opposite directions.) Municipal bonds also lost ground amid broader rate volatility, though T. Rowe Price traders noted that new issuance in the muni market was relatively well absorbed.

Meanwhile, corporate bonds posted gains, outperforming U.S. Treasuries amid improving macroeconomic sentiment and resilient investor demand.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.98% lower amid renewed trade and geopolitical uncertainty. Major stock indexes also fell. France’s CAC 40 Index weakened 1.40%, Germany’s DAX lost 1.57%, and Italy’s FTSE MIB dropped 2.11%. The UK’s FTSE 100 Index declined 0.90%.

Eurozone business activity still positive, confidence higher

Business activity in the eurozone expanded modestly in January thanks to an increase in new orders, according to surveys of purchasing managers by S&P Global. A provisional estimate of the HCOB Flash Eurozone Composite PMI Output Index was unchanged at 51.5. (A reading above 50 signals expansion.) Optimism in the business outlook hit a 20-month high. Preliminary composite PMI for the UK rose to a 21-month peak of 53.9, suggesting robust quarterly GDP growth. 

UK jobs market struggles, inflation back up, sales volumes rise

The UK labor market weakened in the three months through November, and pay growth slowed further. The International Labour Office unemployment rate stayed at a five-year high of 5.1%, with retail and hospitality bearing the brunt of job cuts, official numbers showed. Annual wage growth excluding bonuses declined to 4.5% from 4.6% in the prior period. Year-over-year growth in private-sector pay, a measure monitored by the Bank of England (BoE), slowed to 3.6%—the lowest level since November 2020.

Retail sales volumes rose 0.4% sequentially in December, after falling in the previous two months. The increase came against a backdrop of an unexpected acceleration of inflation to 3.4% from 3.2% in November due to higher airfare and tobacco costs. However, the BoE has called for annual consumer price inflation to recede to its 2% target in April or May.

Norway central bank keeps rates steady

Norges Bank kept its policy rate at 4.0%, as expected, repeating its guidance for rate cuts “in the course of the year.”

EU Parliament holds up Mercosur deal

The European Union’s (EU’s) trade deal with Mercosur, the South American trading bloc, faces a potentially lengthy delay. The European Parliament voted by a slender majority in favor of a resolution to seek an opinion from the Court of Justice of the European Union on whether the texts of the agreement comply with EU treaties.

Japan

Japan’s stock markets fell over the week, with the Nikkei 225 Index declining 0.17% and the broader TOPIX down 0.79%. Domestic political uncertainty weighed on markets, and talk of unfunded tax cuts led Japanese government bond (JGB) yields to spike as investors grew increasingly concerned about the country’s already fragile finances. The Bank of Japan (BoJ) left interest rates unchanged, as expected.

Election announcement and talk of temporary food tax cut roils markets

Prime Minister Sanae Takaichi’s announcement on Monday of an early parliamentary election on February 8 was widely anticipated, as she seeks to consolidate power and secure public support for her aggressive spending plans. However, Takaichi surprised investors by pledging that if she secures a fresh mandate for her new coalition, the government would reduce the consumption tax on food (currently at 8%) to 0% for two years—leaving investors to question how lost revenue would be offset and adding to growing concerns about the health of Japan’s finances. 

Spiking bond yields reflect concerns about Japan’s finances

The yield on the 10-year JGB rose to 2.26% from 2.18% at the end of the previous week, reaching its highest levels since 1997 on investor concerns about Takaichi’s proposed temporary consumption tax cut. Similarly, upward moves on Tuesday in 30- and 40-year JGB yields were the biggest since the U.S. “Liberation Day” tariff announcements in April 2025, reflecting fears about Japan’s high debt burden. Speaking at the World Economic Forum in Switzerland, Japan’s Finance Minister Satsuki Katayama sought to calm the Japanese bond markets, promising to pursue market stabilization and referring to the country’s conduct of fiscal policy as “consistently responsible and sustainable, not expansionary.”

BoJ leaves rates unchanged; yen volatile on post-meeting comments 

On the monetary policy front, at its January meeting, the BoJ left its key policy rate unchanged at 0.75%. Having raised the rate twice in 2025, the central bank reiterated that it would increase it further if the economy and prices evolve in line with its forecasts. In its quarterly outlook, the BoJ revised upward four of its six inflation forecasts as well as its GDP forecasts for fiscal years 2025 and 2026, noting that an improving economy and a tight labor market would continue to lift wages and prices.

The yen traded within the JPY 158 range against the U.S. dollar for much of the week but was volatile on Friday after BoJ Governor Kazuo Ueda highlighted discomfort with the speed of moves at the long end of the JGB yield curve, as well as a willingness to intervene in periods of heightened market volatility.

China

Mainland Chinese stock markets ended the week on a mixed note after a handful of indicators underscored uneven growth across the economy. The CSI 300 Index, the main onshore benchmark, declined 0.62%, according to FactSet. The Shanghai Composite Index rose 0.84%. In Hong Kong, the benchmark Hang Seng Index slipped 0.36%.

China’s economy grew 4.5% in the fourth quarter year on year and expanded 5% in 2025, the country’s statistics bureau reported Monday. The fourth quarter marked the slowest growth pace since China reopened after pandemic lockdowns in late 2022, and 2025 marked the third straight year that the country met its official growth target of around 5%. Nominal economic growth, which is unadjusted for price changes, reached 4% in 2025, the slowest pace since 1976, excluding 2020, when the pandemic began.

Other indicators showed that domestic demand remains weak. Industrial production rose 5.2% in December, slightly above estimates and the fastest pace in three months. But fixed asset investment shrank 3.8% in 2025, the first annual decline in the data starting nearly three decades ago. Retail sales, a key barometer of consumer demand, edged up 0.9% in December, lagging estimates and marking the weakest pace since the pandemic reopening.

China’s industrial sector powered its economy for 2025 amid solid demand for the country’s exports, but many analysts believe that sustaining the current pace of growth will be difficult as protectionism surges worldwide. The first quarter of 2026 may be particularly challenging due to comparisons with the year-ago period, when China recorded strong growth as consumer subsidies bolstered spending and exports surged amid front-loading by trade partners.

Other key markets

Bulgaria

Eurozone membership, President’s resignation could lead to political consolidation after a period of political instability

On January 1, Bulgaria became the 21st major European nation to adopt the common euro currency. This major step for a former Soviet bloc nation integrating into the European Union, however, has been overshadowed by internal political turmoil. The Bulgarian government collapsed in December and, more recently, the country’s president, Rumen Radev, who has held this office since 2017 and overseen the collapse of several governments since then, resigned.

Prime Minister Rosen Zhelyazkov’s government resigned in December after street protests broke out due to corruption allegations, anger about mismanagement of EU funds, as well as unpopular economic policies, such as proposed tax and spending increases. The resignation of President Radev earlier in the week is a possible indication that he intends to run for office in the snap elections to be held later this year—possibly as early as March or April—and that he may even create his own political party with an agenda to implement reforms and curtail corruption.

While there is likely to be some social and political volatility in the months ahead, T. Rowe Price emerging markets credit analyst Peter Botoucharov expects to see some consolidation of the political scene ahead of the early elections. He also believes that the government will be forced to adopt a more responsible budget for the year ahead. In addition, he is not concerned about the country’s macroeconomic policy direction and notes that Bulgaria, which has one of the lowest debt-to-GDP ratios in the EU, will likely stay on a path of convergence with the EU.

Türkiye (Turkey)

Policymakers reduce rates but maintain a “tight monetary stance”

On Thursday, Türkiye's central bank held its scheduled monetary policy meeting, and policymakers decided to reduce the one-week repo auction rate by 100 basis points (one percentage point), from 38.0% to 37.0%. At the same time, policymakers lowered the overnight lending rate from 41.0% to 40.0% and the overnight borrowing rate from 36.5% to 35.5%. While a rate reduction was generally expected, some investors were disappointed that the central bank did not make larger rate cuts.

According to the very short post-meeting statement, policymakers noted that the “underlying trend of inflation declined in December.” Indeed, the government recently reported that the annual rate of inflation in December was 30.89% versus 31.07% in November. As for January, policymakers believe that consumer inflation “has firmed” due to increased food prices, though they consider the rise in inflation to be “limited.”

While they acknowledged “signs of improvement,” they believe that “inflation expectations and pricing behavior continue to pose risks to the disinflation process.” With a commitment to maintain the “tight monetary stance…until price stability is achieved,” policymakers opted to proceed with a relatively small rate cut.