This month was defined by a notable divergence between the world’s major economies. While the United States began to feel the friction of high interest rates and a cooling manufacturing sector, the United Kingdom and Japan showed surprising resilience. Central banks policies remain the primary focus, with the Federal Reserve maintaining a “higher-for-longer” stance while the Bank of Japan eyes further tightening.
U.S.
US economic growth slowed, with Q4 2025 GDP annualised at 1.4%, weighed down by lower consumer spending and lingering effects of last year’s government shutdown. The annual inflation rate slowed down to 2.4% in January, marking its lowest level since May’25. U.S. inflation figures remaining above target and proving sticky would suggest the Federal Reserve may delay rate cuts until the second half of the year.
In line with expectations, the Fed left the federal funds rate unchanged at the 3.5%–3.75% target range in its January 2026 meeting, after three consecutive rate cuts last year, emphasising a careful, data-dependent approach to future easing. Fed officials noted no immediate need to change policy without clearer inflation progress.
The flash Manufacturing PMI hit a ten-month low in February, reflecting a slowdown in business activity while still in expansionary territory. Consequently, the 10-year Treasury yield saw some volatility, ending the month at 4.0%.
Major U.S. stock indices showed resilience later in the month, bolstered by a Supreme Court ruling that struck down certain administrative tariffs, providing a late-month boost to investor sentiment, though broader sentiment remained cautious.
The US dollar remained relatively firm, supported by higher Treasury yields and a cautious Fed narrative, influencing FX crosses and global asset allocations.
Eurozone
The Eurozone continues to walk a tightrope between stagnant growth and stabilizing prices. While Germany remains disadvantaged by fiscal constraints, the broader bloc is showing signs of a “soft landing.” Flash PMI indicators for the region suggest continued expansion above the 50 threshold, with growth in both manufacturing and services, though momentum remains modest.
The European Central Bank kept interest rates unchanged in its February policy meeting as inflation pressures remained contained but uneven across member states. President Lagarde also stressed that they will not “pre-commit” to further cuts until the impact of geopolitical tensions is clearer.
European equities delivered moderate gains through February, with the Pan Europe Stoxx 600 index climbed 4%. Long-term yields across core European markets have been mixed; government bonds generally priced in slower growth and lower policy tightening risk.
Japan
Japanese equities exhibited volatility amid election uncertainty in the first week of Feb. However, following Sane Takaichi’s landslide victory, Japan’s stock markets witnessed a significant surge with both the Nikkei 225 and Topix indexes reaching new peaks.
Japan’s factory activity expanded at its fastest pace in four years with the manufacturing PMI surging to 52.8 in February, driven by growing domestic demand, robust exports and AI-related semiconductor demand. Services also showed improvement.
Inflation continued to ease, with recent data pointing to rates near multi-year lows. BoJ policy remains accommodative, though debates around tightening are increasing alongside yield pressure. Japanese government bonds (JGBs) have seen yields rising, especially in longer maturities, as markets adjust to policy changes with the appointment of the new Prime Minister.
China
China’s official manufacturing PMI recently dipped below the expansion threshold, reflecting ongoing weakness in factory activity despite policy support. Retail sales and household consumption improved modestly but remain subdued.
China’s annual inflation eased sharply to 0.2% in January 2026 from 0.8% a month earlier, raising concerns about a prolonged deflationary cycle. The People’s Bank of China has maintained a supportive stance, with liquidity and credit policies aimed at countering weakness in the property and industrial sectors.
Chinese equity performance was mixed across different indices while markets witnessed notable broadening of interest as investors rotated into technology and industrial names. The yuan remained relatively stable, though external pressures such as tariff risk and global dollar strength influenced volatility.
Oil prices rose significantly, reaching multi-month highs in February and adding a risk premium amid geopolitical tensions between the US and Iran and supply concerns, reversing earlier declines.
Broader commodity indexes and precious metals, especially gold saw upward momentum as markets priced in risk and safe-haven demand, acting as a hedge against geopolitical volatility and the “sticky” inflation outlook in the West.
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The views and opinions expressed should not be construed as investment or financial advice. The information contained is for educational purposes only.