2026 Weekly Update

Market update

The S&P 500 closed the week at 6,909.51, +1.07% higher. The Dow Jones closed at 4,9625.97, +0.25%, with the Nasdaq higher by +1.51%. The volatility index VIX closed the week at 19.09, down from 20.6. The Euro Stoxx 600 rose +2.08%. 

The 10-year UST closed at 4.08%, up from 4.05% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 40bps. US Corporate Bond spreads: Investment Grade spreads widened +1bp at 80bps and High Yield spreads were unchanged at 328bps. German 10-year Bunds yield closed at +2.74% down from +2.75% a week before. In Europe, Corporate Investment Grade spreads widened +3bps at 88bps and High Yield widened +3bps at 310bps. 

The US Dollar Index (DXY) appreciated +0.91% last week and closed at 97.8. The Euro closed at 1.1784 (-0.71%); the Yen depreciated -1.54%, closing at 155.05 and the Swiss Franc depreciated -1.00%, closing at 0.7756. Gold closed at $5107.45, appreciating +1.30%. Oil was higher, Brent closed at $71.76 (+5.92%) and WTI at $66.39 (+5.57%).

Macroeconomy

Tariffs ruling

The Supreme Court of the United States ruled on Friday that many of President Trump’s global tariffs are an illegal overreach of his emergency powers. The ruling primarily concerns the “Liberation Day” tariffs that Trump imposed on 2 April 2025, as well as tariffs imposed due to concerns over fentanyl and migration – both of which were levied using the 1977 International Emergency Economic Powers Act (IEEPA). The Act is usually used to impose sanctions and had not been used before to impose tariffs. The Trump administration has pledged to use alternate legal authorities to quickly reimpose tariffs, but Friday's decision will create legal uncertainty in the short term. After the announcement, President Trump announced a 10% Section 122 blanket tariff, this was less than the maximum amount allowed under the law of 15%, and it’s also less than the rate paid by many countries under deals struck with the White House in recent months. The White House fact sheet on the 10% tariff includes a slew of exempt products, including autos, certain electronics, pharmaceuticals, and more. The 10% tariff can only stay in place for 150 days. On Saturday, the Section 122 blanket tariff was increased to 15%. According to The Budget Lab at Yale, the effective tariff rate is 13.7%, up from 9.1% on Friday but lower than the 16% in effect before the IEEPA taxes were stricken down.

US trade

US goods trade data showed a larger-than-expected deficit for December (-$98.5bn vs -$86.0bn expected), as imports rose +3.6% m-o-m, while exports fell -1.7% m-o-m. This puts the latest monthly deficit largely in line with levels of around $100bn seen in the final few months before President Trump’s election in late 2024, after what had been a very volatile 2025 as initial import front-running was followed by a sharp fall after Liberation Day. However, while the aggregate trade position of the US has not changed much, we’ve seen some big redirection of trade. Notably, the latest data highlights the extent that US-China decoupling, with China now accounting for only 7% of US imports, down from 13% in 2024 and above 20% prior to President Trump’s first China tariffs in 2018.

FOMC minutes

The FOMC minutes revealed a strong consensus for holding rates steady in January and at upcoming meetings. One notable surprise was the discussion of potentially removing the easing bias from the statement: “Several participants indicated that they would have supported a two-sided description of the Committee's future interest rate decisions, reflecting the possibility that upward adjustments to the target range for the federal funds rate could be appropriate if inflation remains at above-target levels”. This contrasted with Chair Powell’s prior characterization that a rate hike was not in anyone’s base case. There was considerable discussion about AI. Several others expected that higher productivity growth—driven by technological or regulatory developments - would exert downward pressure on inflation. On the labor market, several participants noted that their business contacts continued to express caution about hiring, citing uncertainty about the economic outlook as well as the effects of AI and other automation technologies on labor demand. Finally, the board reappointed Powell as Chair, suggesting that if Warsh is not confirmed when Powell's term as chair ends in May, Powell will remain as chair. Regarding fedspeak, Fed President Goolsbee reiterated that further evidence of inflation moving back towards 2% would be required before easing, while Fed Governor Barr said that “it will likely be appropriate to hold rates steady for some time”.

US PMIs

The flash PMIs for Feb. dipped m-o-m and came in below expectations for both manufacturing (51.2 vs. consensus at 52.4 and down from 52.4 in Jan.) and services (52.3 vs. consensus 53 and down from 52.7 in Jan). The S&P report noted that a combination of weakened demand, high prices, and adverse weather weighed on activity in Feb., causing output to expand at the slowest pace in 10 months. Inflation pressures worsened: “average input costs rose sharply again in February, linked to supplier price hikes, tariffs and higher wages, feeding through to the largest increase in average selling prices since last August”.

US data

Q4 GDP came in at +1.4%, about 50% of the +2.8% forecast and far below the +4.4% growth pace in Q3. Higher consumer spending and investment were offset in Q4 by declines in government spending and exports. Government spending in particular was a major drag in Q4 (govt. consumption expenditures and gross investment came in at -5.1% in Q4 vs. +2.2% in Q3, with federal down 16.6%). Gross private domestic investment was a bright spot, coming in at +3.8%. Also, headline PCE for Dec. came in at +2.9%, up 10bps from Nov. and 10bps above the consensus, while core was +3%, up 20bp. from Nov. and 10bps above the consensus. The issue came from tariffs, as goods inflation jumped to +1.7% (up from +1.5% in Nov.), with durable goods prices surging to +2.1% (up from +1% in Nov-). Services inflation stayed unchanged at +3.4% (constant for the last several months). January industrial production rose +0.7% m-o-m versus expectations of +0.4%, while factory output increased +0.6% m-o-m, also beating forecasts. These prints marked the biggest monthly rises in eleven months. The Empire Manufacturing Index came in slightly better than expected at +7.1 (vs +6.2 consensus). Initial jobless claims were better than expected in the week ending February 14, declining from 227k to only 206k (vs. 225k expected). Claims more than reversed their spike two weeks earlier, which may have been affected by the extreme winter weather across the US.

EU PMIs

The S&P Global Flash Eurozone Composite PMI rose to 51.9 in February from 51.3 in January, marking the 14th consecutive month of expansion and exceeding expectations in a Reuters poll of a more modest rise to 51.5. The headline manufacturing PMI jumped to 50.8 from 49.5 while the output index, which feeds into the composite reading, bounced to a six-month high of 52.1 from 50.5. February's rebound was driven by a resurgence in demand with the factory new orders index climbing to 50.9 from 49.2. In Germany, business activity hit a four-month high, although in France the private sector showed little sign of growth amid weak demand. Services activity showed modest improvement with the PMI nudging up to 51.8 from 51.6. The Reuters poll had predicted a slightly bigger uptick to 51.9. Overall pricing pressures nudged up. But firms increased charges at a more modest pace.

Japan CPI

January Japan’s CPI came in a touch below consensus for the headline (+1.5% vs. +1.6% estimated) and core-core (+2.6% vs.+2.7%) measures, although the latter still comfortably sits above 2%. Core CPI came in as expected (+2.0% y-o-y). The easing in core measures over the last few months will validate the BoJ and PM Takaichi’s views from last year that a good portion of the early 2025 price pressures was temporary, with the question now being where those underlying price pressures will settle, especially with a stimulus package from the incoming new administration high on the agenda. Separately, Japan Feb PMIs rose, most notably in manufacturing (52.8 vs 51.5 prior). So that was an encouraging sign, given capital investment is a big priority of Takaichi.

Highlights

On rates

Recently, developed markets government bonds yields saw a sharp bull flattening move, especially in Japan. The 10-year JGB yield stands at around 2.15%, down from a recent peak of around 2.30% in the lead up to the snap elections. In the US, January CPI data came out broadly in line with expectations and has calmed market-based inflation expectations. Combined with more hawkish Fed minutes, long-term inflation expectations fell markedly even if crude oil spot prices rose because the correlation between the two has increasingly diverged. January CPI data in Japan were also in line with expectations, helping 10-year breakeven inflation rates to continue their move downwards. A fall that had started after the yen stopped depreciating thanks to verbal interventions from members of the Japanese government. At the same time, Bank of America’s Fund Manager Survey showed that a rising number of market participants are seeing a potential “no landing” scenario, wherein growth remains strong, avoiding a recession caused by the previous hiking cycle. Terminal rate pricing across the major developed market central banks also fell gently over the week. Finally, despite a slowdown in the growth of foreign holdings and a shift toward shorter maturities, the latest TIC data for December shows that US Treasuries remain a key asset for global investors, with China turning net buyer over the last two months after having been an important net seller in recent years.

Earnings

80% of S&P 500 companies and 55% of Stoxx600 companies have now reported Q4 results. EPS growth for the quarter is tracking at +12% y-o-y in the US, and +4% y-o-y in Europe, implying a positive surprise factor of 7% and 3%, respectively. The better-than-expected earnings delivery is in line with the improvement in activity that took place during the quarter, and consequently S&P500 blended Q4 EPS has inflected higher. In the US, 75% of S&P500 companies that have reported beat EPS estimates. EPS growth for these companies is at +12% y-o-y, surprising positively by 7%. 5 out of the 11 sectors are printing double-digit EPS growth, while on the other side, Health Care is coming in weaker. Topline growth is at +9% y-o-y, ahead of projections by 2%. In Europe, of the Stoxx600 companies that have reported so far, 58% beat EPS estimates. Q4 EPS growth is at +4% y-o-y, which is a positive surprise of 3%. Within the market, 5 sectors are reporting negative EPS growth. Financials, on the other hand, have reported robust double-digit earnings growth. Revenue growth is at -3% y-o-y, ahead of estimates by 3%, but this is skewed by a couple of Energy companies. In Japan, 64% of TSE Prime composite companies beat EPS estimates, with overall EPS growth at 0% y-o-y, surprising positively by 8%. Revenue growth is at +4% y-o-y, ahead of consensus by 1%. At a regional level, while US earnings have continued to outpace Europe, the spread between US and European EPS growth has narrowed. Notably, despite the strength of the Euro in Q4, US vs Europe sales beats continued to decline. At a sector level, US Cyclicals delivered stronger growth than Defensives, for the second quarter in a row, with an interesting feature of this reporting season being the meaningful jump in the number of companies mentioning ‘AI disruption’.

What to watch

• Monday: US Durable Goods Orders; Germany IFO; South Korean February Exports
• Tuesday: US ADP Employment, Conference Board Confidence Survey; China Loan Prime Rate
• Wednesday: Germany Q4 GDP; Eurozone CPI; Australia CPI
• Thursday: US Initial Jobless Claims; Bank of Korea Policy Rate
• Friday: US PPI; Canada December GDP; Switzerland Q4 GDP; Tokyo CPI; India Q4 GDP