2026 Weekly Update

Market update

The S&P 500 closed the week at 6,836.17, -1.39% lower. The Dow Jones closed at 49,500.93, -1.23%, with the Nasdaq lower by -2.10%. The volatility index VIX closed the week at 20.6, up from 17.76. The Euro Stoxx 600 rose +0.09%.

The 10-year UST closed at 4.05%, down from 4.21% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 37bps. US Corporate Bond spreads: Investment Grade spreads widened +2bps at 79bps and High Yield spreads narrowed -4bps at 328bps. German 10-year Bunds yield closed at +2.75% down from +2.84% a week before. In Europe, Corporate Investment Grade spreads remained at 85bps and High Yield widened +6bps at 307bps.

The US Dollar Index (DXY) depreciated -0.74% last week and closed at 96.92. The Euro closed at 1.1868 (+0.45%); the Yen appreciated +2.87%, closing at 152.7 and the Swiss Franc appreciated +1.04%, closing at 0.7679. Gold closed at $5,042.04, appreciating +1.56%. Oil was lower, Brent closed at $67.75 (-0.44%) and WTI at $62.89 (-1.04%).

Macroeconomy

US prices

The headline CPI was lower than expected coming in at +0.2% m-o-m (vs. consensus at +0.3%) and +2.4% y-o-y (vs. consensus at +2.5%). CPI Core was in line at +0.3% m-o-m and +2.5% y-o-y. The headline CPI was weighed down by energy, where prices fell 1.5% m-o-m (including energy commodities -3.3%). Among the core categories, the most notable area of deflation/disinflation was used cars and trucks (-1.8% m-o-m). Among core categories, some of the notable areas of inflation included airline fares (+6.5%), computers (+3.1%) or tobacco and smoking products (+2.1%), among others. Shelter overall ticked up +0.2% m-o-m (down from +0.4% in Dec.), with OER (owner’s equivalent rent) +0.2% (vs. +0.3% in Dec.). In general, the big tariff categories were mixed.

US jobs

The January jobs report was quite strong, with the Establishment survey showing 130k payroll additions (which compares to consensus at +65k, and “whispers” were down in the 50k or lower range). Private payrolls were particularly robust, coming in at +172k (vs. forecast at +68k). Job gains occurred in health care, social assistance, and construction, while federal government and financial activities lost jobs. Since reaching a peak in October 2024, federal government employment is down by 327k, or 10.9%. According to the Household survey, the number of employed people surged by 528k in Jan while the civilian labor force jumped 387k. The participation rate rose 10bps to 62.5% (analysts were looking for it to hold steady at 62.4%) while the unemployment rate dipped 10bps to 4.4% (analysts expected it to hold steady at 4.4%). Wage growth ran a bit firmer on a sequential basis (+0.4% vs. consensus at +0.3%) but was inline on a y-o-y basis at +3.7% (down 10bps from +3.8% in Dec.). The workweek was a touch longer than anticipated at 34.3 hours (vs. consensus at 34.2 hours). Revisions for Nov. and Dec. were net negative (employment in both months combined is 17K lower than previously reported). Other data showed weekly initial jobless claims coming in a bit higher than expected, at 227k in the week ending February 7 (vs. 223k expected). Employment Cost Index for Q4, which came in at just +0.7%. That’s a measure of labor costs that’s closely followed by the Fed, and it was the weakest it’s been since the current inflation surge begun in Q2 2021.

US debt

The Congressional Budget Office (CBO) updated its Budget and Economic outlook for 2026 to 2036. It pointed to some progress in narrowing the deficit, although entitlement spending remains very elevated, and a negative ruling from SCOTUS on the IEEPA tariffs could hurt revenue. The federal budget deficit in fiscal year 2026 is expected to hit $1.9 trillion and grows to $3.1 trillion by 2036. Relative to the size of the economy, the deficit is 5.8% of GDP in 2026 and grows to 6.7% in 2036, which is greater than the 3.8% deficits averaged over the past 50 years. Rising net interest costs drive much of that increase. In terms of US debt-to-GDP, from 2026 to 2036, large and growing deficits cause debt to increase. Federal debt held by the public rises from 101 percent of GDP this year to 120 percent in 2036, surpassing its previous high of 106 percent of GDP in 1946. On other news, Chinese regulators urged local banks to limit exposure to US Treasuries due to concentration risk and market volatility. Data suggests Chinese banks have been diversifying away from US bonds for several years.

EU summit

At the EU leaders summit, politicians sought to move forward with reforms to bolster Europe’s economy and improve regional coordination. There were many proposals with various champions. French President Macron pushed a “Buy European” agenda. German Chancellor Merz and Italian PM Meloni called for greater deregulation, with PM Meloni saying that the EU “cannot continue to hyperregulate…there's no time to lose”. On the matter of greater joint debt, Bundesbank President Joachim Nagel called for increased joint EU debt issuance to enhance market liquidity for safe European assets. Most leaders were in line calling for greater stimulus, however Merz seemed unmoved saying, “We have taken on European debt in exceptional situations - but those were exceptional situations…We have to make do with the money we have".

UK data

The UK reported weak Q4 growth at 0.1% q-o-q and 1.3% for 2025, attributing to political uncertainty and high input costs that weighed on demand, employment, and investment. Q4 saw solid government spending (+0.4% q-o-q), stagnant private consumption (+0.2% q-o-q), and a contraction in business investment (-2.7% q-o-q). Markets continue to price in almost two rate cuts by year-end, with upcoming inflation and employment data in focus.

Swiss CPI

The Consumer Price Index (CPI) fell by 0.1% m-o-m in January. The 0.1% decrease is due to several factors including lower prices for electricity and supplementary accommodation. Prices also decreased for air transport, as did those for clothing and footwear, the latter due to seasonal sales. In contrast, prices for hotels and international package holidays recorded a price increase, as did car insurance premiums.

China CPI

China’s January inflation was mixed, with some distortion from the later Lunar New Year (mid-February this year, vs. late January last year). CPI inflation was exceptionally weak, dragged down by food and energy. Headline CPI inflation slowed to 0.2% y-o-y from December’s 0.8%. Excluding food and energy, core CPI rose +0.8% y-o-y and -0.3% m-o-m decline, with broad-based softness. PPI deflation narrowed more than expected, supported by rising commodity prices and price recovery in select anti-involution and high-tech manufacturing sectors. PPI rose +0.25% m-o-m, the fastest monthly pace in 20 months, mainly driven by a +0.4% increase in producer PPI, while consumer PPI remained subdued at -0.2%. Annual PPI deflation narrowed more than expected to -1.4% from -1.9% in December.

Highlights

On rates

The mixed economic data was sufficiently dovish for traders to increase the number of expected rate cuts by December 2026 to 63.4bps (+7.7bps on the week). This helped drive the largest weekly drop in the 10-year Treasury yield since August 2025, down -15.8bps (-5.0bps on Friday) to 4.05%. The 2-year yield also moved sharply lower, falling -8.9bps to 3.41% (-4.8bps on Friday), its lowest level since 2022. In terms of notable fedspeak, Federal Reserve Bank of Dallas President Lorie Logan said she expects inflation to continue easing but would only support further interest rate cuts if there is “material” weakening in the labor market. She believes current policy is appropriate if inflation keeps falling while employment remains stable, though additional cuts may be warranted if job growth cools significantly. Logan reiterated her cautious stance after backing the Fed’s January decision to hold rates steady, noting she’s not yet fully confident inflation will return to 2%.

Credit

US High Yield (HY) credit spreads have widened since the start of the year, while Euro HY saw some tightening, as did both US and Euro Investment Grade (IG). While spreads are at historically tight levels, yields remain relatively elevated. Within US IG, the narrative remains that AI-related capital expenditures will continue to be funded by debt issuance rather than cash as big tech companies begin tapping EUR and GBP markets to raise money. While these large companies have the headroom to raise more without hurting their credit ratings, spreads show investors are demanding more of a premium to lend to these names. US IG Tech spreads are now in line with the broader US IG index, after years of trading at around a 20bps discount historically. In US HY, the recent moves in spreads illustrate the “AI winners vs losers” narrative, where software companies have dragged spreads higher for the US HY Tech index as risks of disruption grow. US HY Tech spreads have widened by around 70bps in February. Spread widening wasn’t limited to just software companies but other capital-light business models including Insurance and Financial Services. The story isn’t limited to HY as leveraged loans – where technology makes up roughly 15% of the market - and private credit – where software alone makes up roughly 19% of the market – saw large losses in the last few weeks. This is important to track as now more than before HY companies are borrowing simultaneously in the leverage loans market.

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 hand, 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%.

Oil

Oil prices had already been moving lower along with other risk assets, but the selloff gained momentum amid several headlines that pointed to greater supply. First, there were comments from US Energy Secretary Wright that China had bought crude from the US that was previously purchased from Venezuela. This was followed by comments from Interior Secretary Burgum, who said during an event in Washington that the US would be selling Venezuelan oil to China at global market price levels. Bloomberg reported that Venezuelan officials are set to grant more oil permits to Chevron and Repsol, adding credence to the potential for further supply in the medium term. Staying with the US, President Trump reiterated his preference to “reach a deal” with Iran and said that it could come together “over the next month, something like that”. Additionally, there was reporting from Bloomberg that showed Russia had included returning to the dollar settlement system as part of a greater re-framing of the US-Russia economic relationship.

What to watch

• Monday: US & Canada markets closed for President’s Day holiday; Japan Q4 GDP; Singapore Exports
• Tuesday: US ADP Employment; UK Weekly Earnings and Employment; Germany ZEW Survey; Australia RBA Minutes
• Wednesday: US Durable Goods Orders, FOMC Minutes; UK CPI; RBNZ Official Cash Rate
• Thursday: US Initial Jobless Claims; Indonesia Rate Decision
• Friday: US Q4 GDP, PMI, PCE, University of Michigan Survey; UK Retail Sales; Eurozone Services PMI; Japan CPI