North America
Last week, U.S. markets were mostly cautious and volatile, though the last three trading days saw some recovery, as investors digested mixed economic data and eased slightly on geopolitical fears. Early in the week, escalating tensions in the Middle East and rising oil prices weighed on sentiment, leading to declines across major indices, with the S&P MidCap 400 and Dow Jones Industrial Average underperforming, while the Nasdaq held up relatively better. Core CPI remained steady, but the Federal Reserve’s preferred inflation gauge, core PCE, rose to its highest level since early 2024, signaling ongoing inflationary pressures. Fourth-quarter GDP growth was revised lower, reflecting slower consumer spending, weaker exports, and reduced investment, though housing data provided some relief with improving affordability, higher home sales, and rising housing starts. In the last three days of trading, U.S. equities regained some ground as energy and technology sectors led modest gains, while investor focus shifted to potential policy responses from the Fed and easing concerns over immediate geopolitical shocks. Fixed income markets remained cautious, with Treasuries seeing higher yields and corporate bonds underperforming amid elevated issuance, but the partial rebound in equities suggested a tentative return of risk appetite.

Europe & UK
Last week, European markets were mostly cautious, though the last three trading days showed some modest recovery as investors responded to easing energy price concerns and selective buying in beaten-down sectors. Early in the week, geopolitical tensions in the Middle East and uncertainty over energy costs weighed on sentiment, causing the STOXX Europe 600 Index to slip, with Germany’s DAX and France’s CAC 40 posting declines, while Italy’s FTSE MIB showed slight resilience and the UK’s FTSE 100 edged lower. Policymakers remained in focus, with European Central Bank President Christine Lagarde emphasizing readiness to act if energy-driven inflation rises further, while noting that the region is better positioned than in prior years. Economic data highlighted ongoing weakness—Germany saw a sharp fall in factory orders and exports, and eurozone industrial production recorded its largest monthly drop in months. In the UK, GDP growth stalled in January, with flat services output. Despite these challenges, the last few sessions saw selective gains in sectors like consumer goods and technology, suggesting cautious optimism among investors that the worst of the volatility may be stabilizing, while monitoring energy developments and central bank signals.

Japan
Last week, Japan’s stock markets declined sharply, with the Nikkei 225 falling 3.24% and the broader TOPIX Index down 2.36%, as investors remained cautious amid heightened geopolitical risks and energy market volatility. Tensions around the Strait of Hormuz raised concerns over potential disruptions to oil supply, which is particularly significant for Japan given its heavy reliance on Middle Eastern oil imports. In response, Prime Minister Sanae Takaichi announced the release of strategic oil reserves and subsidies to cap domestic gasoline prices, aiming to mitigate the impact of rising energy costs. Japanese government bond yields climbed, with the 10-year JGB yield reaching 2.22%, reflecting worries that a weaker yen and higher oil prices could drive up import costs and inflation. The yen weakened to around JPY 159.5 against the U.S. dollar, approaching levels that previously prompted intervention, though authorities limited their response to verbal warnings about potential currency action. On the economic front, Japan’s GDP for the fourth quarter of 2025 was revised higher to an annualized growth rate of 1.3%, supported by stronger business investment and consumer spending, signalling a rebound from the prior quarter’s contraction despite the ongoing uncertainties affecting markets.