USA

U.S. macro data continued to signal a decelerating but resilient economy. Q4 2025 GDP growth slowed to 1.4% (SAAR), confirming a downshift from the stronger mid-2025 expansion phase. The labor market remained stable: initial jobless claims hovered near 210k, consistent with tight employment conditions rather than recessionary deterioration. Core inflation remained sticky near 2.5% YoY, reinforcing the Federal Reserve’s cautious tone in the January FOMC minutes, where policymakers signaled openness to further tightening should inflation reaccelerate.

However, the defining catalyst late in the week was geopolitical. Direct military confrontation escalated between the United States, Israel, and Iran, sharply increasing global risk premia. Markets quickly repriced geopolitical risk, with energy markets leading the reaction. Brent crude spiked aggressively on fears of supply disruption through the Strait of Hormuz, a corridor responsible for roughly 20% of global oil flows.

Equities responded negatively to the combined weight of:

• AI-driven structural disruption fears in financials and discretionary sectors,

• Tariff uncertainty following Supreme Court trade rulings,

• And now elevated geopolitical risk.

For the week:

• S&P 500: modest decline

• Nasdaq: underperformed amid AI-valuation sensitivity

• Dow Jones: weaker on industrial and financial exposure

Higher oil introduces a renewed inflation impulse, complicating Fed policy. If sustained, energy inflation could delay rate normalization and tighten financial conditions further.

Europe

European macro data surprised modestly to the upside. The Eurozone Composite PMI rose above 51, indicating mild expansion, while manufacturing moved back into marginal growth territory after a prolonged contraction phase. This supported the narrative of cyclical stabilization across the region.

However, European markets remain highly sensitive to energy dynamics. The Middle East escalation poses a dual risk:

• Energy price pass-through: Europe remains structurally exposed to imported energy. A sustained Brent spike above $95–100 would materially impact industrial margins.

• Growth fragility: The recovery remains shallow. Energy inflation could stall the improvement in PMIs.

Despite this, European equities showed relative resilience early in the week, supported by earnings momentum in select financials and industrial exporters. By week’s end, risk sentiment weakened as oil surged and global risk-off flows intensified. Weekly index performance was mixed:

• STOXX Europe 600: slightly positive early, faded into volatility

• DAX 40: sensitive to energy-intensive industrial exposure

• CAC 40 & FTSE 100: defensive sectors provided partial cushioning

• IBEX 35: under pressure due to financial sector weight

The ECB now faces a renewed dilemma: improving growth momentum versus externally driven energy inflation risk.

Japan

Japan entered the week with some of the strongest macro momentum among developed markets. Flash PMIs showed:

• Manufacturing expansion accelerating (above 52),

• Services stable,

• Composite activity strengthening.

This reinforced expectations that the Bank of Japan may continue gradual normalization. However, Japan’s equity performance became increasingly dictated by:

• Global tech sentiment,

• Yen strength driven by safe-haven flows,

• And oil price dynamics.

Higher oil prices are particularly relevant for Japan as a major energy importer. Rising crude prices weigh on trade balance dynamics and corporate margins, particularly for industrial exporters.

The Nikkei 225 and TOPIX remained supported by domestic macro strength but experienced heightened volatility late in the week as geopolitical escalation triggered global de-risking. Exporters lagged amid currency fluctuations.

China

China’s narrative was dominated by policy expectations ahead of the annual parliamentary sessions (“Two Sessions”). Markets positioned for targeted stimulus and continued support for technology and innovation sectors. However, the Middle East escalation added new macro variables:

• Oil Sensitivity: China is a major crude importer. Sustained Brent above $95–100 raises input costs and pressures industrial margins.

• Inflation Transmission: Energy price spikes complicate China’s attempt to stabilize growth while avoiding renewed cost-push inflation.

• Safe-Haven Flows: Regional risk aversion impacted Hong Kong more than mainland markets due to global investor participation.

Despite this, mainland equities remained relatively stable compared to Western peers, supported by domestic liquidity expectations. Hong Kong equities experienced more volatility due to foreign capital flows and global risk repricing.

Index dynamics:

• Shanghai Composite: relatively stable with policy support bias

• Hang Seng: more volatile amid global spillovers.