North America
Last week, U.S. markets ended a volatile, holiday-shortened week slightly lower as investors navigated trade tensions and mixed economic signals. Stocks sold off early on renewed global trade war fears but recovered some losses after President Trump softened his stance, allowing major indexes to finish above their lows, though mid-cap stocks underperformed overall. Technology and large-cap stocks also closed modestly lower, reflecting cautious investor sentiment. Economic data showed continued resilience, with third-quarter GDP revised higher to a strong 4.4%, jobless claims remaining near multi-year lows, and business activity improving slightly, while inflation stayed elevated and consumer sentiment, despite a monthly improvement, remained well below last year’s levels, highlighting ongoing pressure on households. Investors also monitored the Federal Reserve’s preferred inflation gauge, the core PCE, which remained above the Fed’s long-term target, keeping rate expectations in focus. In fixed income markets, Treasuries and municipal bonds edged lower amid rate volatility, while corporate bonds outperformed, supported by steady investor demand and improving economic confidence, as traders weighed signs of growth against persistent inflationary pressures.

Europe & UK
Last week, European markets ended lower amid renewed trade and geopolitical uncertainty. In local currency terms, the pan-European STOXX Europe 600 Index fell 0.98%, with major national indexes also retreating: France’s CAC 40 lost 1.40%, Germany’s DAX declined 1.57%, Italy’s FTSE MIB dropped 2.11%, and the UK’s FTSE 100 slipped 0.90%. Business activity in the eurozone remained positive, with the HCOB Flash Eurozone Composite PMI Output Index steady at 51.5, signalling modest expansion, while optimism in the business outlook reached a 20-month high. The UK’s preliminary composite PMI rose to 53.9, suggesting robust GDP growth for the quarter, though the labour market showed weakness as unemployment remained at a five-year high of 5.1% and wage growth slowed, particularly in retail and hospitality. Retail sales volumes rebounded 0.4% in December, even as annual inflation accelerated to 3.4% from 3.2%, driven by higher airfare and tobacco costs, keeping the Bank of England’s inflation target in focus. In monetary policy, Norway’s central bank held its policy rate at 4.0%, maintaining guidance for potential cuts later this year. On the trade front, the EU’s agreement with Mercosur faces delays after the European Parliament voted to seek a legal review from the Court of Justice of the European Union, highlighting ongoing regulatory and political hurdles.

Japan
Last week, Japanese stock markets fell modestly, with the Nikkei 225 declining 0.17% and the broader TOPIX down 0.79%, as domestic political uncertainty weighed on investor sentiment. Markets reacted to Prime Minister Sanae Takaichi’s announcement of an early parliamentary election on February 8 and her pledge to temporarily cut the consumption tax on food to 0% for two years, raising concerns about how lost revenue would be covered and fueling worries over Japan’s fiscal health. These concerns pushed the 10-year Japanese government bond (JGB) yield up to 2.26% from 2.18%, the highest level since 1997, while 30- and 40-year yields rose sharply. Finance Minister Satsuki Katayama sought to reassure markets, emphasizing that fiscal policy remains “responsible and sustainable.” On the monetary policy front, the Bank of Japan left its key policy rate unchanged at 0.75%, while revising upward several inflation and GDP forecasts for fiscal years 2025 and 2026. The yen traded within a JPY 158 range against the U.S. dollar but became volatile on Friday after BoJ Governor Kazuo Ueda expressed concern about rapid moves at the long end of the JGB yield curve and signalled readiness to intervene during periods of heightened market stress.