Weekly Market Recap

British lenders approved 61,013 loans for house purchases in December, down from 64,072 in November and the smallest number in 18 months, Bank of England data showed. Economists polled by RThe Bank of England (BoE) voted to keep its policy rate on hold at 3.75%, following a December reduction, in a hotly contested decision. Four policymakers on the nine-strong Monetary Policy Committee unexpectedly voted in favour of lower borrowing costs, prompting financial markets to raise their bets on a cut as soon as March. Governor Andrew Bailey said after the decision that “there should be scope for some further easing” because the BoE now expected inflation to settle close to the 2% target in April—nearly a year earlier than it expected in November. He noted that the market interest rate curve implied two reductions this year, which was “reasonable.”euters had expected a small rise.

The week’s economic calendar brought a heavy dose of labour market data, most of which surprised to the downside. Private payrolls processing firm ADP reported that private-sector employment increased by 22,000 in January, short of forecasts for about 45,000 and down from 37,000 in December. With ADP’s full-year totals, job creation for 2025 totalled 398,000, a notable decline from 771,000 in 2024.

Later in the week, the Labor Department’s Job Openings and Labour Turnover Summary revealed that US job openings declined to about 6.542 million in December—the lowest since September 2020—while hires edged up modestly and layoffs rose. Elsewhere, the Labor Department reported that initial US jobless claims came in at 231,000 for the week ended 31 January—above consensus estimates and an increase from the prior week’s reading of 209,000.

In related news, consulting firm Challenger, Gray & Christmas reported that US based employers announced over 108,000 job cuts in January, a 118% year-over-year (YoY) increase and a 205% jump from the prior month. January’s announced layoffs were the most for the month since 2009.

Activity in the manufacturing sector expanded at its highest level since 2022 in January, according to the Institute for Supply Management’s (ISM) purchasing managers’ index (PMI) of manufacturing activity. The ISM reported that the index jumped to 52.6 for the month, up 4.7 points from December and marking the first reading in expansion territory in a year (readings above 50 indicate expansion, while readings under 50 denote contraction). All five subindexes improved during the month, and the new orders index rebounded for its first month of expansion since August and its highest reading in almost four years, a potential sign of a demand-related spike in factory activity.

Later in the week, the ISM reported that its January services PMI was unchanged month over month (MoM), at 53.8, marking its 19th consecutive month of expansion. January was the second consecutive month in which all subindexes of the services PMI were in expansion territory.

The European Central Bank (ECB) left its key deposit rate unchanged at 2.0% for a fifth consecutive meeting, as expected. Policymakers said in a statement that the economy “remains resilient in a challenging global environment” and that inflation “should stabilise” at its 2% target in the medium term. ECB President Christine Lagarde said at the press conference, “We are in a broadly balanced situation at the moment”, and that policy remained in a “good place.”

Ahead of the ECB’s meeting, data indicated that inflation slowed further in January, with annual consumer price growth decelerating to 1.7% from 1.9% in December, as a stronger euro and higher energy prices dampened cost pressures. The core rate, which excludes volatile food and energy prices, eased to 2.2%, the lowest level since October 2021, while services inflation declined to 3.2% from 3.4%.

The volume of retail sales in the euro area fell in December by 0.5% sequentially, which was slightly more than analysts expected, and November’s growth was revised down to 0.1% MoM. Still, over the final quarter of 2025, retail sales volumes rose by 1.4% from the previous quarter, adding to evidence of a pickup in household spending at the end of the year.

Private survey data compiled by S&P Global indicated a modest uptick in China’s economic activity in January. The S&P China services PMI rose 0.3 points MoM to 52.3, the highest reading in three months, “driven by stronger growth in new business, which was in turn supported by a fresh increase in new export orders.” The manufacturing sector PMI also showed expanding activity for the second consecutive month, climbing to 50.3 from 50.1 in December, highlighted by higher new orders, rising employment, and the first increase in output charges in 14 months.

However, PMI data from the country’s statistics bureau painted a different picture, suggesting a broad-based economic slowdown during the month, Bloomberg reported, citing official data. The private survey tends to skew more toward export-oriented private firms, which has led to it producing stronger readings than the official poll recently, as China continues to struggle to spur domestic consumption. Economists polled by Bloomberg broadly expect the People’s Bank of China to ease monetary policy this year.

Domestic sentiment was largely one of optimism ahead of the country’s lower house election on 8 February, where indications were that Prime Minister Sanae Takaichi’s Liberal Democratic Party appeared to be on track for a stand-alone majority of seats. Globally, investors grew concerned about the potential for innovative artificial intelligence technologies to encroach on the operations of many software services providers, dampening risk appetite.

The yen weakened to JPY 157.2 against the US dollar, down from JPY 154.8 at the end of the previous week. Expectations that voters would strengthen Takaichi’s mandate to pursue aggressive fiscal expansion—including higher defence spending and potentially lower taxes—put pressure on the yen. Takaichi's initial comments that a weak yen is a significant opportunity for Japan’s export industries also pressured the Japanese currency, although she subsequently clarified that she wants a strong economic structure that is resilient to exchange rate fluctuations.

Investor concerns about Japan’s financial standing, given its already high debt burden, have sent the yield on the 10-year Japanese government bond (JGB) to its highest levels since 1997. Over the week, the JGB yield was mostly range-bound at around 2.23%.

On the economic data front, Japan’s household spending fell 2.6% YoY in December, slowing sharply from November’s increase of 2.9%. Economists had expected a modest decline. Households have been cutting back on spending as inflationary pressures continue to erode their purchasing power. Inflation is a key issue for voters ahead of the 8 February election, and Takaichi recently pledged to reduce the consumption tax on food to 0% for two years to lower living costs.

The Reserve Bank of Australia (RBA) raised the cash rate by 25bps to 3.85% on Tuesday, in line with consensus. The decision was unanimous across the Board. In the post-meeting press conference, RBA Governor Bullock struck a hawkish tone and characterised the recent pickup in inflation as driven by stronger demand, tighter supply capacity constraints, a more stable-than-expected global economy, and easier financial conditions. Alongside a material upgrade to the Bank’s inflation forecasts, the RBA significantly revised its central estimates for the neutral policy rate from 2.7% to 3.6%, the output gap from 0.0% to 1.0% of GDP, and productivity growth from 0.8% YoY to 0.6% YoY by the second quarter of 2027. Residential building approvals fell 14.9% MoM in December, more than retracing the 13.1% MoM increase recorded in November.

Bank of Canada Governor Tiff Macklem delivered a speech on 5 February, urging businesses to "lean into" economic disruption from US tariffs, artificial intelligence, and slowing population growth, warning that rate cuts could stoke inflation if economic weakness stems from lost production capacity rather than demand. Prime Minister Mark Carney's government announced plans to revamp Canada's tariff system with a new "import credit" scheme to incentivise automakers to invest domestically, resisting US efforts to attract factory jobs, while maintaining counter-tariffs on US-made vehicles. The government also unveiled more stringent auto-emission standards, targeting 75% EV sales by 2035, and reintroduced EV rebates for buyers.

Last week, the MSCI All Country World Index (MSCI ACWI) edged down -0.1% (2.9% YTD).

The US S&P 500 Index shed -0.1% (1.3% YTD). Major US equity indexes finished a volatile week mixed, as large-cap technology stocks suffered their worst week since November, while small-cap and value-oriented stocks added to their year-to-date gains. Worries about the disruptive potential of artificial intelligence (AI) and concerns about overinvestment in the technology have weighed on many high-growth stocks that have outperformed in recent years. In contrast, some cyclical and value-oriented segments outperformed as investors rotated into areas that had lagged firms with greater AI exposure. Corporate earnings and geopolitical tensions also appeared to contribute to the week’s volatility. The Russell 1000 Growth Index returned -2.0% (-3.4% YTD), the Russell 1000 Value Index 2.2% (6.8% YTD), and the Russell 2000 Index 2.2% (7.7% YTD). The technology-heavy Nasdaq Composite pulled back -1.8% (-0.9% YTD).

In Europe, the MSCI Europe ex-UK Index rose 0.8% (3.7% YTD). Optimism about the eurozone economy underpinned investor sentiment, helping to offset the impact of recent market volatility. Major stock indexes advanced. Germany’s DAX Index rose 0.7% (0.9% YTD), France’s CAC 40 Index added 1.8% (1.5% YTD), and Italy’s FTSE MIB Index gained 0.8% (2.4% YTD). Switzerland’s SMI put on 2.4% (1.8% YTD). The euro weakened against the US dollar, closing the week at USD 1.19 for EUR, down from 1.19.

The FTSE 100 Index in the UK was up 1.4% (4.5% YTD), but the FTSE 250 Index inched lower -0.2% (3.5% YTD). The British pound depreciated against the US dollar, closing the week at USD 1.36 for GBP, down from 1.37.

Japan’s stock markets rose over the week. The TOPIX Index rallied 3.7% (8.5% YTD), and the TOPIX Small Index jumped 3.5% (7.7% YTD).

In Australia, the S&P/ASX 200 Index retreated -1.8% (-0.1% YTD) alongside a broad global equity market sell-off. Australian government bond yields rose after the 25bps RBA rate cut, with the curve modestly flattening. The Australian dollar weakened 0.1% against the US dollar.

In Canada, the S&P/TSX Composite tacked on 1.7% (2.6% YTD).

The MSCI Emerging Markets Index lost -1.4% (7.3% YTD), with markets in India and Brazil contributing to the gains. The markets of China, Taiwan and South Korea contributed negatively.

Mainland Chinese stock markets ended the week lower as volatility in commodity markets and weakness in tech stocks weighed on major indexes. The onshore CSI 300 Index, the main onshore benchmark, lost -1.3% (0.5% YTD), and the Shanghai Composite Index gave back -1.2% (2.6% YTD). Hong Kong's benchmark Hang Seng Index fell -3.0% (3.7% YTD). The MSCI China Index, which primarily consists of offshore-listed stocks, dropped -3.8% (1.0% YTD).

In the Czech Republic, the Czech National Bank held its monetary policy meeting, and policymakers decided to keep the main policy rate, the two-week repo rate, at 3.50%. The decision by the Bank Board was unanimous.

According to the post-meeting statement, gross domestic product (GDP) growth increased 0.5% on a quarter-over-quarter basis and 2.4% on a YoY basis in the fourth quarter of 2025. For the full year, GDP growth was measured at 2.5%. Policymakers noted that growth has been driven by household consumption, with private-sector investment activity “subdued.” The labour market is “tight,” as unemployment remains low, while wages rose 7.1% YoY in the third quarter—a source of inflationary pressures.

While policymakers noted that headline inflation has been close to the 2% target for the last year and is expected to be below 2% throughout 2026, they expect core inflation to remain “elevated in the quarters ahead.” They concluded that “relatively tight monetary policy…is still needed” in light of “accelerating credit growth” as well as “elevated services inflation and property price growth.” As a result, policymakers kept interest rates at current levels.

In Poland, the central bank held its regularly scheduled monetary policy meeting, and policymakers decided to keep the key interest rate, the reference rate, at 4.0%. Other interest rates controlled by the central bank were also unchanged.

According to the brief post-meeting statement, a preliminary estimate of fourth-quarter GDP growth was 3.6%, which policymakers said was “probably close” to third-quarter growth. They also noted that enterprise-sector wage growth slowed over the past year, despite a December increase, and that employment in this sector fell.

Regarding inflation, central bank officials reiterated that the annual consumer price index (CPI) decreased from 2.5% in November to 2.4% in December. They also observed that inflation, excluding food and energy, decreased over the last year to 2.7% in December. In addition, they believe that CPI inflation may decrease in the first quarter and “remain consistent with” the central bank’s inflation target—which is 2.5% with a medium-term tolerance range of 1.0% above and 1.0% below—“in the coming quarters.” As a result, policymakers decided to leave interest rates unchanged.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.2% (0.4% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.1% (0.9% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.1% (0.8% YTD).

US Treasuries generated positive returns, with yields decreasing across most maturities. Over the week, the 10-year Treasury yield declined by -3bps to 4.21%, down from 4.24% (up 4 bps YTD). The 2-year Treasury yield declined by -2bps, ending the week at 3.50% from 3.52% (up 2bps YTD).

Investment-grade corporate bonds posted gains but lagged Treasuries as spreads widened slightly despite solid investor demand for new bond issuance. High-yield bonds saw some pressure amid softer macroeconomic sentiment, although trading activity remained strong, particularly in technology- and data centre-related names.

Over the week, the 10-year German Bund yield was little changed, ending at 2.84% (down -1bp YTD). The 10-year UK gilt yield decreased by -1bp, ending the week at 4.51% from 4.52% (up 4bps YTD).