Highlights
Major U.S. stock indexes ended a turbulent week with mixed results. Large technology companies experienced their steepest weekly decline since November, while smaller companies and value-oriented shares continued to gain. Among the major benchmarks, the Nasdaq Composite performed the worst, dropping 1.87%, while the S&P 500 ended the week 0.10% lower. In contrast, the Dow Jones Industrial Average, S&P Mid-Cap 400, and Russell 2000 all recorded notable gains, with the Dow reversing three weeks of negative returns and closing at an all-time-high. Concerns about the disruptive impact of artificial intelligence and the possibility of excessive investment in the sector weighed on many high-growth technology stocks that had previously led the market. At the same time, investors appeared to shift toward cyclical and value sectors, which benefited from this rotation. Earnings reports and geopolitical developments also contributed to market volatility. Further to this, a series of labour market reports released during the week pointed to softer conditions. Payroll processor ADP reported that private-sector employment rose by only 22,000 jobs in January, far below expectations and down from December’s figure. For the full year 2025, job creation totalled 398,000, markedly lower than the previous year’s total. Additional data from the Labor Department showed that job openings fell to about 6.5 million in December, the lowest level since 2020. Separately, Manufacturing activity strengthened in January, reaching its highest level since 2022, according to the Institute for Supply Management’s purchasing managers’ index. The index rose to 52.6, returning to expansion territory for the first time in a year, with all major components showing improvement. New orders rebounded strongly, suggesting a potential pickup in demand. Crossing over to Europe, the pan-European STOXX 600 saw its fourth week of gain in five, as confidence in the eurozone economy helped offset global market volatility. The European Central Bank kept its key refinancing rate unchanged at 2.15% for a fifth straight meeting, noting that the economy remains resilient and that inflation is expected to settle around its 2% target over time. In the UK, the Bank of England also left interest rates unchanged at 3.75%. However, a split vote among policymakers and comments from Governor Andrew Bailey signalled that further easing could be possible in the coming months, with markets increasingly expecting a rate cut as early as March. Japanese equity markets joined in the general market bullishness with the Nikkei surging 1.75% in the week. The risk-on mood was supported by improving domestic sentiment ahead of the February 8 lower house election. Indications suggested that Prime Minister Sanae Takaichi’s party might secure a majority without needing coalition partners. The yen weakened against the U.S. dollar, partly because expectations of expanded government spending and possible tax reductions increased concerns about fiscal policy. Investors also remained cautious about Japan’s high public debt, which pushed government bond yields to levels not seen since the late 1990s.
Data Highlights
USD Initial Jobless Claims (Jan) rose more than expected by 22K (10.5%), from 209K to 231K, whilst the market priced only a 1.44% increase. Although USD Continuing Jobless Claims (Jan) increased less than expected by 1.37%, rising from 1819K to 1844K, the market had priced an increase to 1850K. (1.7%). CAD Unemployment Rate (Jan) fell 0.3%, from 6.8%, down to 6.5%. (-0.3%), better than the expectations of it sitting still at 6.8%. EUR Inflation Rate YoY (Jan) fell 0.3%, from 2% to 1.7%, in line with expectations. EUR CPI (Jan) fell in line with expectations to 1.7%, from 2%. The ECB Interest Rate Decision saw the rate retained at 2.15%, in-line with market sentiment. CHF Unemployment Rate (Jan) rose more than expected by 0.1%, from the previous and consensus 3.1%. The RBA Interest Rate Decision saw the rate increased by 0.15% to 3.85%, from the previous 3.6%. NZD Unemployment Rate (Q4) rose by 0.1% against similar previous and consensus expectations, from 5.3% to 5.4%.
Week Ahead
USD Unemployment Rate (Jan), USD Nonfarm Payrolls Private (Jan), USD Non-Farm Payrolls (Jan) – Wednesday | JPY PPI YoY (Jan), GBP GDP YoY (Dec), USD Initial Jobless Claims (Feb), USD Continuing Jobless Claims (Jan) – Thursday | CHF Inflation Rate YoY (Jan), EUR Employment Change YoY (Q4), USD Inflation Rate YoY (Jan), USD Core Inflation Rate YoY (Jan) – Friday.
