U.S. Equities

Intraday trading last week saw the S&P 500 hit a new high, surpassing 7,000, boosted by communication services and the energy sector. However, by the end of the week, mediocre tech earnings and the FOMC meeting triggered a significant drawdown, bringing the index back to around 6,900. The week was unfavourable for smaller and mid-sized stocks, with the Russell 2000 dropping 55 points and the S&P MidCap 400 falling 49 points.

U.S. Earnings

Tech stocks stacked up this week’s earnings reports, with Apple, Microsoft, and Meta all publishing their Q4 results. Apple beat expectations, but Meta came out on top, surpassing its expected $58.35 billion prediction by $1.54 billion, fuelled by strong advertising results and accompanied by strong revenue predictions for Q1 2026, pushing the stock to open over 9% higher the following day.

Microsoft wasn’t so fortunate, having one of its worst days in stock history, falling over 9.4%. Investor concerns arose following new disclosures revealing that 45% of Microsoft’s total remaining cloud contract backlog is tied to OpenAI, heightening perceptions of concentration risk and increasing the company’s reliance on OpenAI’s long-term success. This reliance is concerning, as OpenAI is facing significant funding pressures and is struggling to keep pace with the level of spending undertaken by well-capitalised rivals like Google. These concerns were further amplified by Microsoft’s year-on-year capital expenditure rising 66%, also largely driven by AI spending, raising questions around the timing and certainty of returns on these investments.

AI remained in focus as Tesla released its latest earnings on Wednesday, making some controversial disclosures. They announced the end of production for the Model S and X (already discounted in some markets) as a deliberate strategic shift towards Elon Musk’s long-term AI-powered vision for autonomous vehicles and humanoid robots.

Federal Reserve News

The Federal Reserve held the federal funds rate steady at 3.75%, in line with market expectations, citing solid economic growth and persistently elevated inflation. With core PCE running above target and the labour market remaining resilient, the Fed signalled a higher-for-longer stance, keeping the door open for future adjustments if risks to inflation or employment emerge.

Later on Friday, President Donald Trump nominated Kevin Warsh to lead the U.S. central bank, likely in response to current Fed Chair Jerome Powell’s term ending soon in May.

Commodities

Gold started the week strong, hitting a record high of $5,600 per ounce, but saw a significant pullback below $5,000. This is partly due to a strengthening U.S. dollar subsequent to the announcement that Kevin Warsh is likely to be the new Fed chair. Warsh has been perceived to have a hawkish stance, making him more likely to raise rates, bringing more investment into the U.S. dollar. As much as this is a factor, gold volatility is still mostly due to extremely sporadic retail buying, making it an extremely sentiment-driven market currently.

Australia 

Increasing inflation makes an RBA rate hike all but certain for the upcoming Tuesday. Midweek, the ABS released the latest CPI figures, with both headline and trimmed mean coming in higher than predicted. Combined with the previous week’s strong employment figures, there is an expectation that the RBA will back up its hawkish stance and start raising rates. This, combined with the Fed being expected to cut rates, is moving the interest rate differential favourably towards the Australian dollar, which has already climbed to 70 cents per U.S. dollar, something that has not been seen in three years. However, there is likely no guarantee that either central bank will move in line with these already priced-in expectations.

Europe

European markets were mixed last week. Germany’s DAX fell 1.45%, and France’s CAC 40 Index fell 0.20%, while Italy’s FTSE MIB and the UK’s FTSE 100 Index finished the week in positive territory. The pan-European STOXX Europe 600 Index ended 0.44% higher. There were a number of data releases in Europe this week, but they were all overshadowed by broader market events.

The whole eurozone economy grew 1.5% in 2025, up from 0.9% in 2024, surpassing the European Commission’s forecast of 1.3%. Stronger investment, household consumption, and exports supported growth despite economic and political uncertainties. In Q4, GDP rose 0.3% sequentially, above the expected 0.2%, reflecting resilience in the region

Japan

Japanese equities retreated over the week, with losses across major indices. The Nikkei 225 slipped 0.97%, while the TOPIX fell a steeper 1.75%. Technology shares were among the weakest performers, driven by growing investor unease over whether the new increases in AI spending can be sustained.

Political developments also remained in focus ahead of the February 8 lower house election. Several major media outlets suggested that Prime Minister Sanae Takaichi’s Liberal Democratic Party may be positioned to secure a parliamentary majority without needing coalition support.

Currency markets were notably volatile during the week. The yen swung sharply following Takaichi’s surprise election call and debate surrounding potential unfunded tax cuts. Speculation that Japanese authorities could step into foreign exchange markets fuelled a rapid appreciation of the currency against the U.S. dollar. While officials stopped short of confirming direct intervention, rhetoric intensified, with Takaichi warning that the government would act decisively against speculative and abnormal currency moves. Senior currency official Atsushi Mimura added that Japan would continue to coordinate closely with U.S. counterparts on exchange-rate issues.

After last week’s scary moves in long-dated Japanese bonds, the fixed-income market has calmed down. Yields moved lower, with the 10-year Japanese Government Bond yield easing to 2.23%, down from 2.26% the previous week. Softer-than-expected inflation data contributed to the decline, prompting investors to scale back expectations for further near-term rate hikes by the Bank of Japan, which raised short-term rates late last year.

China

Equity performance in mainland China was muted this week, with the CSI 300 inching up 0.08% and the Shanghai Composite slipping 0.44%, while Hong Kong outperformed, with the Hang Seng Index rising 2.38%.

On the economic front, signs of moderation emerged at the regional level. Bloomberg disclosed that 13 of China’s 20 provinces that have reported their 2026 growth objectives set lower GDP targets compared with last year. Many local governments either trimmed their goals by roughly half a percentage point or adopted target ranges with reduced lower bounds.

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