2026 Weekly Update

Market update

The S&P 500 closed the week at 6,932.30, -0.10% lower. The Dow Jones closed at 50,115.67, +2.50%, with the Nasdaq lower by -1.84%. The volatility index VIX closed the week at 17.76, up from 17.44. The Euro Stoxx 600 rose +1.00%.

The 10-year UST closed at 4.21%, down from 4.24% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 53bps. US Corporate Bond spreads: Investment Grade spreads widened +2bps at 77bps and High Yield spreads widened +17bps at 332bps. German 10-year Bunds yield remained unchanged at +2.84%. In Europe, Corporate Investment Grade spreads widened +1bp at 85bps and High Yield narrowed -2 bps at 301bps.

The US Dollar Index (DXY) appreciated +0.66% last week and closed at 97.63. The Euro closed at 1.1815 (-0.30%); the Yen depreciated -1.58%, closing at 157.22 and the Swiss Franc depreciated -0.39%, closing at 0.776. Gold closed at $4,964.36, appreciating +1.43%. Oil was lower, Brent closed at $68.05 (-3.73%) and WTI at $63.55 (-2.55%).

Macroeconomy

Japan election

Japanese PM Takaichi has won a huge majority with 316 seats out of 465 and the largest election win for a single party in Japan in the post WWII era. Clearly a big victory was expected but this is probably even more impressive. The "supermajority" has raised the prospects of even more aggressive policy, including fiscal plans. Following the significant election results, Japan's chief currency official, Atsushi Mimura, expressed that he is monitoring the markets with considerable urgency. In addition, Finance Minister Satsuki Katayama yesterday indicated that she is prepared to engage with the market today if necessary. Market reaction has been strong with the Nikkei (+4%) and yields climbing with 10yr (+5.5bps) and 20yr (+1.9bps) JGBs trading at 2.28%, and 3.14% respectively. The yen (+0.40%) is strengthening after opening weaker and after six consecutive sessions of losses, currently trading at 156.55 against the dollar.

Japan data

Japan's wage statistics showed that inflation-adjusted real wages decreased by -0.1% y-o-y in December, marking a contraction that has now lasted for 12 consecutive months. Although the rate of decline was the slowest observed since early 2025, the ongoing decrease highlights the persistent pressure on consumer purchasing power. Nominal wages exhibited stronger momentum, with total cash earnings increasing by +2.4% y-o-y, a notable improvement from the revised 1.7% rise in November.

US data

In terms of jobs data, the weekly initial jobless claims spiked up to an 8-week high of 231k in the week ending Jan 31 (vs. 212k expected). Also, the JOLTS report showed that US job openings fell to just 6.542m in December (vs. 7.25m expected), which is their lowest level since 2020, coming in below every economist’s estimate on Bloomberg. Meanwhile, the ADP’s report of private payrolls also came out weaker than expected in January at 22k (vs. 45k expected), with a slight downward revision to prior months. Normally that would be followed by the jobs report on Friday, but given the partial government shutdown, the BLS confirmed yesterday that it was being postponed to Wednesday this week. In other data, the ISM services print came in at 53.8 (vs. 53.5 expected), which is its highest level since late-2024. However, some of the details were a bit more mixed, as the subcomponents for new orders (53.1 vs 56.5 expected) and employment (50.3 vs 51.7 expected) missed expectations. Moreover, the prices paid component ticked back up to 66.6 (vs. 65.0 expected), and that’s been a strong leading indicator for US inflation. The ISM manufacturing headline print was back in expansionary territory at 52.6 in January (vs. 48.5 expected), placing it above every economist’s estimate on Bloomberg. And the details were also very strong, with the new orders component surging to 57.1, up +9.7pts on the December print, making it the sharpest monthly jump since June 2020 and the Covid recovery.

European Central Bank

As expected, the ECB left policy rates unchanged at 2%. As expected also, President Lagarde repeated that monetary policy is “in a good place”. There was no sense of imminent change in policy, in either direction. But the ECB is taking nothing for granted. It continues to keep the options open going forward with the data-dependent, meeting-by-meeting, no-precommitment approach to policy. The external environment remains “challenging” because of tariffs/global trade tensions and “a stronger euro over the last year”. The exchange rate was mentioned in the longer press conference statement, not the shorter policy decision. This implies the euro was not considered a significant issue. The domestic resilience story was present. In addition to the references to a low unemployment rate, solid private sector balance sheets, the pass-through of earlier rate cuts, and rising spending on information and communication technology (AI), the February statement includes references to the gradual roll out of public spending on defense and infrastructure (in the description of current conditions, not just as an upside risk) and rising spending on construction. Regarding prices, HICP inflation fell to 1.7% y-o-y in January, below the ECB staff forecast of 1.9% for Q1 published in December. President Lagarde played down the significance of this miss, saying it is more like the inflation profile the ECB was anticipating in September (that forecast did not lead to policy easing). As far as the Governing Council is concerned, it remains confident that inflation will be on target in the medium-term.

Bank of England

The BoE voted to keep the policy rate on hold at 3.75%. The decision was more dovish than expected, with a narrow 5-4 majority (the other 4 preferring a 25bp rate cut) and the Governor once again casting the decisive vote. The latter also stated that "there should be scope for some further reduction in the bank rate this year", with inflation expected to fall to around 2% in spring. The pace of cuts was not specified, as the Bank removed references to a gradual approach from the minutes.

Australia Central Bank

The RBA raised their benchmark cash target rate by 25bps to 3.85%, up from 3.65%, in a unanimous decision by the rate-setting board. The central bank anticipates further potential hikes to address what it perceives as persistently high inflation. This decision follows a resurgence in Australian inflation observed in late 2025, which has also seen core inflation rise above the RBA’s annual target of 2% to 3%. Furthermore, the RBA’s economic outlook, as outlined in its monetary policy statement, now projects headline inflation to reach 4.2% by mid-year, significantly higher than earlier expectations. Additionally, it anticipates that underlying inflation - a trimmed mean measure closely monitored by the RBA - will accelerate to 3.7% by June, up from the current rate of 3.4%. In the short term, the RBA has revised its forecast for economic growth to 2.1% by June this year, an increase from the previous estimate of 1.9%.

Highlights

On rates

Sovereign bonds delivered a mixed performance. In the US, growing expectations of rate cuts under a new Fed Chair were reinforced by the JOLTS survey, which showed December job openings at their lowest since 2020. Markets responded by increasing the number of cuts priced by the Fed’s December meeting by +2.7bps to 56bps, while 10yr Treasury yields slipped -2.9bps (+2.7bps Friday) to 4.21%. Yields were little changed after the latest quarterly borrowing estimates from the US Treasury, which came in at $574bn for Q1 and $109bn for Q2. The Q2 figure was a bit higher than expected, but this was mostly due to an increased end-of-June cash balance target of $900bn, which our strategists expect to be met with higher bill issuance. Also, the US government shutdown came to end after four days, with the House passing the funding package that had been approved by the Senate. The legislation, which was then signed by Trump, will fund most government agencies through September, though Congress still faces a showdown over funding for the Department of Homeland Security which was extended only until next Friday (February 13) amid partisan tensions over immigration enforcement. In Europe, however, 10yr bund yields barely budged, ending the week at 2.84%, effectively unchanged after the ECB left rates on hold.

Earnings season

We are in the busiest weeks of the Q4 reporting season, with nearly half of companies in the US having reported, and nearly a third in Europe. Earnings growth is coming in stronger than initially expected. In the US, 80% of S&P500 companies that have reported beat EPS estimates. EPS growth for these companies is at +15% y-o-y, surprising positively by 8%. 6 out of the 11 sectors are printing double-digit EPS growth, including the commodity sectors, Industrials, Financials and Tech. On the other side, Discretionary and Real Estate are coming in weaker. Topline growth is at +9% y-o-y, ahead of projections by 2%. Despite the robust Q4 earnings growth recorded by the Mag-7 companies, 4 out of the 5 that have reported so far saw their price flat or down on the day, which points towards a broadening in equity market leadership. In Europe, of the Stoxx600 companies that have reported so far, 64% beat EPS estimates. Q4 EPS growth is at +5% y-o-y, which is a positive surprise of 4%. Energy, Utilities, Healthcare and Communication Services are weak, while Discretionary and Financials recorded strong, double-digit EPS growth. Revenue growth is at -2% y-o-y, ahead of estimates by 1%. In Japan, 63% of Topix companies beat EPS estimates, with overall EPS growth at +7% y/y, surprising positively by 6%. Revenue growth is at +5% y/y, ahead of consensus by 1%.

What to watch

• Monday: US January NY Fed 1-yr inflation expectations; Japan January Economy Watchers survey, M2, M3, bank lending; Norway Q4 GDP
• Tuesday: US January NFIB small business optimism, Q4 employment cost index, December retail sales, import price index, export price index, November business inventories; Japan January machine tool orders; Denmark January CPI; Norway January CPI
• Wednesday: US January jobs report, federal budget balance; China January CPI, PPI; Japan January PPI; Italy December industrial production; Canada December building permits
• Thursday: US January existing home sales, initial jobless claims; UK Q4 GDP, January RICS house price balance; Germany December current account balance
• Friday: US January CPI; China January home prices; Germany January wholesale price index; Eurozone December trade balance, Q4 employment; Switzerland January CPI