Global markets remained broadly stable despite ongoing sector rotation and mixed macroeconomic signals.
Moderating US inflation and lower bond yields supported fixed income and defensive sectors, while technology shares faced renewed volatility despite strong earnings momentum. In the week ahead, attention will focus on US Q4 gross domestic product (GDP), core personal consumption expenditure (PCE) inflation and UK labour data, with limited directional conviction expected for the US dollar.
Beyond the numbers
Macroeconomics
Last week, US retail sales disappointed by remaining flat in December, while core sales declined by 0.1% m/m. This pause followed strong sales in November and sustained activity in several sectors in October.
US non-farm payrolls (NFP) for January surprised on the upside, rising by a solid 130,000 after 48,000 the previous month, while the unemployment rate declined from 4.4% to 4.3%. Despite these strong headline numbers, the details paint a more mixed picture, as job creation was concentrated in the healthcare sector (137,000), while other sectors such as trade and transport, finance, communications and public services recorded contractions. Despite the monthly rebound in payrolls, the labour market shows diverging trends across sectors as well as ongoing fragilities.
US inflation for January came in lower than expected, increasing by 0.2% m/m. While services were up by 0.4% m/m, energy, goods and housing costs were broadly moderate and contributed to a further decline in both headline inflation at 2.4% y/y (down from 2.7% the prior month), and core inflation, at 2.5% y/y (from 2.6% y/y previously). The current scenario suggests inflation is likely to remain within a 2.5–2.8% y/y range over the coming months.
In the UK, Q4 GDP came in below expectations at 0.1% q/q. Activity was mainly driven by public consumption during the quarter, while investment in equipment and housing declined sharply.
This week, the focus will be on the first estimates of US Q4 GDP, which is expected to come in at 2.8%, alongside business sentiment indicators including the flash Purchasing Managers' Index (PMI), Philly Fed and NY Empire State Index. Household income and spending data for December will also be released, together with core PCE, which is expected to rise by 0.3% m/m and to remain close to 3.0% y/y. In the UK, labour data should confirm the downward trend already in place, while January inflation is expected to decline to 3.0% y/y from 3.4% y/y.
Minutes of the latest Federal Open Market Committee (FOMC) meeting will be published and should provide further details about the Federal Reserve’s (Fed) decision to leave interest rates unchanged.
Equities
Global equities ended another volatile week on a stable note (MSCI ACWI total return 0.0%), with US equities underperforming (S&P 500 -1.3%) due to their heavy technology exposure (Magnificent 7 -3.2%, S&P 500 Technology -2.0%). In contrast, Japanese equities surged to fresh record highs (Nikkei 225 +5.0%) following parliamentary elections that secured a majority for Prime Minister Takaichi, signalling strong public support for her policy agenda, which is centred on aggressive fiscal spending, investment, and targeted tax cuts.
Positive US macroeconomic data (labour market, easing inflation) failed to ease ongoing fears of artificial intelligence (AI)-driven disruption which triggered sharp sell-offs in financial services, insurers, real estate, and even trucking and logistics companies. While these fears remain speculative at this stage, they are driving waves of risk reduction and are fuelling sector rotations. Global utilities, real estate, and materials emerged as the best-performing sectors last week (+5.3%, +3.8%, and +3.7%, respectively), further buoyed by a sudden drop in long-term yields (US 10-year Treasury yields fell -15 bps to 4.05%).
Taking a step back, the market appears to be grappling with a contradiction: on the one hand, there is a belief that AI will significantly disrupt entire sectors, while on the other, there is scepticism that companies investing in the infrastructure supporting AI will generate sufficient returns. The latter remains unproven, but recent corporate earnings suggest otherwise, with Q4 earnings per share (EPS) growth at +26% for the Magnificent 7 and +30.7% for the S&P 500 Technology Index vs. +13.2% for the broader US market (S&P 500) as at 13 February.
While near-term sentiment towards the technology sector may remain volatile, we believe the overall backdrop for risk assets remains supportive, underpinned by economic growth, easing monetary and fiscal policies, and healthy corporate earnings.
The market appears to be grappling with a contradiction around AI-driven disruption and returns.
Fixed income
US
Fixed income markets ended last week in positive territory, supported by a pronounced decline in rates, while spreads widened slightly. Emerging markets gained 1.0% due to their higher durations. US Treasuries and investment grade (IG) rose by 0.56% and 0.49%, respectively, while high yield (HY) and AT1s increased by 0.12% and 0.24%, respectively. Meanwhile, yields on 10-year US Treasury notes showed some volatility driven by macro data, but ultimately ended the week at 4.05%, down from 4.30% the previous week.
Federal Reserve Governor Miran reiterated his advocacy for further interest rate cuts, stating that the current monetary policy stance poses a threat to US economic growth. He also expressed his view that inflation does not currently represent a major concern.
On the credit front, the New York Fed released a report indicating that delinquencies across the USD 1.7 trillion student loan book spiked in 2025, reaching 9.6% of total loans, and continues to stand as the riskiest pocket within the household credit sector.
Europe
In Europe, following the European Central Bank’s (ECB’s) decision to keep rates on hold at 2.0%, the market consensus now suggests there will be no further rate cuts until the end of the year. However, with inflation currently at around 1.7% in the eurozone, policymakers have indicated that the ECB stands ready to act should inflation slow further.
Yields on 10-year US Treasury notes ended the week at 4.05%, down from 4.30% the previous week.
Forex & Commodities
The USD was largely rangebound last week, with the EUR/USD trading around 1.1850. US data were mixed, with stronger-than-expected headline NFP data offset by weaker-than-expected consumer price index (CPI) figures. Terminal rate expectations remained unchanged at 3%. The main data releases in the coming week will be PCE inflation and preliminary PMI data for February. The PCE release is unlikely to deliver any significant surprises for the greenback, suggesting that USD exchange rates may remain broadly stable in the near term.
The GBP faces several event risks with the publication of labour market and inflation data. Inflation is expected to decline towards 3% due to base effects and should therefore not be materially market moving. However, if labour market data disappoint, markets could begin to price in an additional Bank of England rate cut by Q2, following the anticipated March cut. Overall, short GBP positions are best expressed against the EUR.
Last week, the AUD/USD rose to its highest level in several months to around 0.7150. This week’s labour market data will provide further insights into the prospect of additional rate hikes; here, the composition of job gains between full-time and part-time employment will be key; a higher share of full-time employment could prompt markets to price in further interest rate hikes at the margin by the Reserve Bank of Australia. Overall, we maintain a constructive stance on the AUD.
Gold exhibited choppy price action last week, and we note that its correlation with equity markets has increased since last April. US real rate expectations declined to around 1.75% following the CPI release. This environment should remain supportive for gold, given broader expectations of lower nominal and inflation-adjusted real interest rates. The key data release will be PCE, and a weaker-than-expected print would provide further support for gold.
US data were mixed, with stronger-than-expected headline NFP data offset by weaker-than-expected CPI figures.
The opinions expressed herein are correct as at 16 February 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
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