Highlights:
Continued conflict in the Middle East and fluctuating oil prices dominated market sentiment, causing U.S. equities to close lower in the week. Energy markets were particularly volatile as investors balanced fears of supply disruptions through the Strait of Hormuz—one of the world’s most critical oil transit routes—against occasional indications that tensions might ease. Investor confidence was also weakened by growing worries about potential stress in private credit markets and ongoing developments in global trade policy. The S&P 500 declined 1.6%, the Dow Jones Industrial Average fell 1.91%, and the Nasdaq 100 lost 1.06%, as investors reassessed the global macro-outlook. Economic reports showed mixed signals on inflation and growth. Year-over-year core inflation remained at 2.5%, while the broader consumer price index increased 0.3% for the month and 2.4% from a year earlier. Meanwhile, the Bureau of Economic Analysis reported that the Federal Reserve’s preferred inflation gauge, the core Personal Consumption Expenditures Price Index increased to 3.1% year-on-year, marking the highest level since early 2024. Economic growth data was also revised downward. The second estimate for fourth-quarter Gross Domestic Product showed the U.S. economy expanding at a 0.7% annual pace rather than the earlier estimate of 1.4%. Moving to the other side of the Atlantic, European stocks edged lower amid heightened uncertainty. The STOXX Europe 600 declined 0.11% for the week as investors focused on the possible duration of the Middle East conflict and the implications of higher energy costs for economic growth. Christine Lagarde, head of the European Central Bank, said the institution stands ready to act to keep inflation under control if higher energy prices persist. In the United Kingdom, economic growth stalled in January according to the Office for National Statistics. GDP was unchanged for the month, missing expectations for a modest increase. While retail and wholesale trade provided some support, declines in administrative and support services offset those gains. In Asia, Japanese equities declined during the week, with the Nikkei 225 falling 3.24% and the TOPIX losing 2.36%. Rising oil prices linked to tensions near the Strait of Hormuz increased concerns about energy supply, particularly because Japan relies heavily on imports from the Middle East. Prime Minister Sanae Takaichi announced plans to release part of Japan’s strategic oil reserves—held by both the government and private firms—to reduce the risk of supply shortages. Chinese stock markets showed mixed performance. The CSI 300 rose slightly, while the Shanghai Composite Index declined. Consumer prices increased at the fastest rate in more than three years. The consumer price index rose 1.3% year over year in February, boosted by strong spending during the Lunar New Year holiday period. At the same time, China’s exports jumped 21.8% during the first two months of the year compared with the same period in 2025, exceeding expectations. Imports also rose significantly, pushing China’s trade surplus to a record $213.6 billion.
Data highlights:
U.S. Core Inflation Rate YoY (Feb) stayed still at 2.5%, in line with expectations. U.S. Inflation Rate YoY (Feb) stayed still at 2.4%, in line with expectations. U.S. GDP Growth Rate QoQ (Q4) rose +10bps, from 3.7% to 3.8%, +10bps more than the flat 3.7% expectation. U.S. PCE Price Index YoY (Jan) fell -10bps, from 2.9% to 2.8%, -10bps less than the expected 2.9%. Canada’s Unemployment Rate (Feb) rose +20bps, from 6.5% to 6.7%, higher than the 6.6% (+10bps) consensus. U.K. GDP YoY (Jan) rose +10bps, from 0.7% to 0.8%, -10bps less than the 0.9% (+20bps) expectation. Germany Inflation Rate YoY (Feb) fell -20bps, from 2.1% to 1.9%, in line with expectations. China’s Inflation Rate YoY (Feb) rose +110bps from 0.2% to 1.3%, +60bps above the expected 0.8%. Japan’s PPI YoY (Feb) fell -30bps, from 2.3% to 2%, -10bps less than the lower expectation of 2.1%.
Week ahead:
CNY Unemployment Rate (Feb), CAD Inflation Rate YoY (Feb) – Monday | AUD Interest Rate Decision – Tuesday | EUR Inflation Rate YoY (Feb), USD PPI YoY (Feb), CAD Interest Rate Decision, USD Fed Interest Rate Decision – Wednesday | AUD Unemployment Rate (Feb), JPY Interest Rate Decision, GBP Unemployment Rate (Jan), CHF Interest Rate Decision, GBP Interest Rate Decision, EUR Interest Rate Decision, CAD PPI YoY (Feb) – Thursday.
