Highlights
Major U.S. equity indexes moved lower during the week, pressured by ongoing anxiety about the disruptive implications of artificial intelligence (AI) and renewed uncertainty surrounding global trade and tariffs. The Dow Jones Industrial Average posted the steepest decline, falling 1.28%, while the S&P 500 Index proved relatively resilient but still slipped 0.44%. Markets began the week under pressure after a widely shared research report intensified fears that AI could significantly disrupt industries and the broader economy. Although sentiment improved midweek ahead of quarterly earnings from AI leader NVIDIA, the company’s better-than-expected results were not enough to shift the prevailing cautious tone, and indexes retreated into week’s end. Initial unemployment claims totalled 212,000 for the week ended February 21, slightly higher than the prior week and in line with forecasts. Meanwhile, continuing claims fell by 31,000 to 1.833 million for the week ended February 14. Meanwhile, economic data showed a pickup in wholesale inflation. The Bureau of Labor Statistics reported that the headline Producer Price Index (PPI) climbed 0.5% in January from the prior month, exceeding expectations and December’s 0.4% gain. The cautious mood in equities supported demand for U.S. government bonds. Treasury prices rose, pushing yields lower across much of the curve with the benchmark 10-year Treasury yield fell below 4% for the first time since November. Across the Atlantic, European equities advanced modestly with the pan European Euro STOXX 600 adding 0.29% from the previous week’s close and hitting another record high. Strong corporate earnings and investor interest in diversifying away from the tech-heavy U.S. market helped offset geopolitical tensions, AI-related concerns, and renewed tariff uncertainty. The UK’s FTSE 100 Index also hit a fresh midweek high and gained 2.09%. Bank of England policymaker Alan Taylor indicated that three additional rate cuts could be possible in 2026 if inflation returns to the 2% target. Following the U.S. Supreme Court’s recent tariff ruling, UK investors were reassured by the Trump administration’s commitment to uphold its May 2025 trade agreement with Britain. Moving along to Asia, Japanese equities rallied strongly during the week. The Nikkei 225 Index climbed 3.56%, and the broader TOPIX Index gained 3.42%, with both benchmarks reaching record highs. Investors remained optimistic about policy under Prime Minister Sanae Takaichi, while markets appeared relatively unfazed by the latest U.S. tariff measures. Meanwhile, Mainland Chinese stocks advanced in a shortened trading week as investor sentiment improved following the Lunar New Year break and ahead of the annual “Two Sessions” meetings, where leaders typically outline key economic priorities. The CSI 300 rose 1.08%, and the Shanghai Composite gained 1.98%. Lunar New Year travel and spending data painted a mixed picture. Total tourism spending increased year over year, and domestic travel rose significantly. However, average spending per trip declined slightly, raising questions about the durability of consumption growth.
Data Highlights
USD PPI YoY (Jan) fell -10bps, from 3% to 2.9%, consensus wrongly overestimated the -40bps drop to 2.6%. USD Core PPI YoY (Jan) actually rose 30bps to 3.6% from 3.3%, contrasting the consensus expectations of a -30bps drop to 3%. CAD GDP Growth Rate Annualized (Q4) fell -300bps to (-0.6%) from 2.4%, consensus expected it only to drop 240bps to 0%. EUR Core Inflation Rate YoY (Jan) fell -10bps, from 2.3% to 2.2%, in line with consensus. Germany GDP Growth Rate YoY (Q4) rose 10bps, from 0.3% to 0.4%, in line with consensus. AUD Inflation Rate YoY (Jan) stayed still at 3.8%, expectations of a 10bps drop to 3.7% were overestimated.
Week Ahead
ISM Manufacturing PMI (Feb), JPY Unemployment Rate (Jan), EUR Inflation Rate YoY (Feb), EUR Core Inflation Rate YoY (Feb) – Monday | AUD GDP Growth Rate YoY (Q4), CHF Inflation Rate YoY (Feb), EUR Unemployment Rate (Jan), EUR PPI YoY (Jan) – Wednesday | CHF Unemployment Rate (Feb) – Thursday | EUR Employment Change YoY (Q4), EUR GDP Growth Rate YoY (Q4), USD Unemployment Rate (Feb), USD Non-Farm Payrolls & Private NFP (Feb), USD Unemployment Rate (Feb) – Friday
