Global markets weekly update

Major U.S. 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), as well as concerns regarding potential overinvestment in the technology, weighed on many of the high-growth stocks that have outperformed in recent years. In contrast, some cyclical and value-oriented segments outperformed as investors seemed to rotate into the areas that have lagged firms with more AI exposure. Corporate earnings and geopolitical tensions also appeared to contribute to the week’s volatility.

Of the major indexes, the technology-heavy Nasdaq Composite performed worst, shedding 1.84%, while the S&P 500 Index finished little changed. On the other hand, the S&P MidCap 400 Index, Russell 2000 Index, and Dow Jones Industrial Average all posted solid gains. The Russell 1000 Value Index outpaced its growth counterpart by over 400 basis points (4.00 percentage points).

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

Later in the week, the Labor Department’s Job Openings and Labor Turnover Summary revealed that U.S. 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 U.S. jobless claims came in at 231,000 for the week ended January 31—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 U.S.-based employers announced over 108,000 job cuts in January, a 118% year-over-year 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, registering a reading of 53.8, its 19th consecutive month of expansion. January was the second month in a row that all subindexes for the services PMI were in expansion territory.

U.S. Treasuries generated positive returns heading into Friday morning, with yields decreasing across most maturities. (Bond prices and yields move in opposite directions.) 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 center-related names.

In local currency terms, the pan-European STOXX Europe 600 Index made a new intraday high and gained 1.00%. Optimism about the eurozone economy underpinned investor sentiment, helping to offset the impact of recent market volatility. Among major stock indexes, Germany’s DAX rose 0.74%, Italy’s FTSE MIB added 0.77%, and France’s CAC 40 Index gained 1.81%. The UK’s FTSE 100 Index tacked on 1.43%.

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 stabilize” 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% month over month. 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.

The Bank of England (BoE) voted to keep its policy rate on hold at 3.75%, having reduced it in December, in a hotly contested decision. Four policymakers on the nine-strong Monetary Policy Committee unexpectedly voted in favor 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.”

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 1.75% and the broader TOPIX Index up 3.72%. Domestic sentiment was largely one of optimism ahead of the country’s lower house election on February 8, 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 around JPY 157 against the U.S. dollar, from the JPY 154.8 level at the end of the previous week. Expectations that voters would strengthen Takaichi’s mandate to pursue aggressive fiscal expansion—including higher defense spending and potentially lower taxes—put pressure on the yen. Initial comments by Takaichi that a weak yen is a huge opportunity for Japan’s export industries also pressured the Japanese currency somewhat, 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% year over year 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 among the key issues for voters going into the February 8 election, and Takaichi recently pledged to reduce to 0% for two years the consumption tax on food in an effort to lower living costs.

Mainland Chinese stock markets ended the week lower as volatility in commodity markets and weakness in tech stocks weighed on major indexes. The CSI 300 Index, the main onshore benchmark, shed 1.33%, according to FactSet. The Shanghai Composite fell 1.27%. In Hong Kong, the benchmark Hang Seng Index dropped 3.02%.

On the economics front, 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 month over month 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 straight month, climbing to 50.3 from 50.1 in December, highlighted by higher new orders, a rise in 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, according to Bloomberg, 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.

On Thursday, 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 among Bank Board members 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 year-over-year 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, as private sector investment activity has been “subdued.” The labor market is “tight,” as unemployment remains low, while wages rose 7.1% year over year 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.

On Tuesday and Wednesday, the Polish central bank held its regularly scheduled monetary policy meeting, and policymakers decided to keep the key interest rate, the reference rate, at 4.00%. Other interest rates controlled by the central bank were also unchanged.

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

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 net of food and energy prices 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 at current levels.