“What Moved Global Markets This Week? US Falls, Europe Hits Records, Japan Breaks Out”
US equities closed the week lower as investors navigated renewed concerns about artificial intelligence disruption and stubborn inflation data. The Dow fell 1.31%, the S&P 500 slipped 0.44% and the Nasdaq retreated as volatility around AI-related stocks intensified following a widely circulated research report questioning the broader economic impact of rapid AI adoption. Strong earnings from Nvidia were not enough to reverse the cautious tone.
Economic data reinforced the unease. Producer price inflation accelerated in January, with PPI rising 0.5% month-over-month and 2.9% year-over-year, driven largely by services costs. Factory orders declined 0.7% in December, reflecting weaker demand in manufacturing sectors including commercial aircraft. Consumer confidence showed modest improvement in February and unemployment claims remained stable, but the overall picture was one of an economy running hotter than the Federal Reserve would like. Treasury yields fell, with the 10-year dropping below 4% for the first time since November as investors shifted toward safer assets.
Europe told a different story. The STOXX Europe 600 hit a new record and posted a 0.52% weekly gain, extending a run that has seen record capital inflows into European equities as investors diversify away from a technology-heavy US market. Germany’s DAX edged higher, Italy’s FTSE MIB gained 1.59%, France’s CAC 40 rose 0.77% and the UK’s FTSE 100 climbed 2.06% to a fresh high.
The economic picture across the eurozone was mixed but broadly encouraging. German business confidence improved for a second consecutive month, with the Ifo index reaching its highest level since last summer — a significant signal for a continent whose equity markets are increasingly being repriced around fiscal stimulus and improving fundamentals. French business confidence weakened slightly, suggesting recovery remains uneven. Inflation varied across the region: France reported 1.1%, Spain 2.5% and Germany 1.9%. In the UK, expectations for additional rate cuts later this year supported sentiment, with markets looking past trade-related uncertainties following reassurances on the US-UK agreement.
The gap between European and US performance this week adds to a pattern that has been building since late 2025. European equities trade at 14.8 times forward earnings against significantly higher US multiples, and the combination of Germany’s €500 billion fiscal expansion, ECB rate stability and improving corporate earnings is drawing institutional capital that spent the past decade almost exclusively in American markets.
Asian markets delivered broadly positive performance. Japan’s Nikkei 225 and TOPIX reached record highs, rising 3.56% and 3.42% respectively, as investors responded to the policy outlook under Prime Minister Sanae Takaichi and perceived dovish nominations to the Bank of Japan’s board. Tokyo inflation came in slightly above expectations, reinforcing the central bank’s gradual path toward normalisation. Retail sales beat forecasts, though industrial production showed some softness.
Chinese markets advanced in a shortened post-Lunar New Year trading week. The CSI 300 and Shanghai Composite both posted gains while Hong Kong’s Hang Seng edged higher. Holiday travel activity increased significantly year-over-year, though per-trip spending declined — signalling cautious consumer behaviour. Shanghai eased homebuying restrictions and the People’s Bank of China reduced foreign exchange reserve requirements to manage currency appreciation, underscoring Beijing’s focus on maintaining growth momentum while navigating an increasingly complex geopolitical landscape.
The week’s dominant theme was divergence. US markets are grappling with inflation that won’t cool and AI valuations that are being questioned. Europe is attracting capital on improving fundamentals and attractive pricing. Asia is supported by policy optimism and record-breaking equity benchmarks. As 2026 shapes up to be defined by hard assets, AI infrastructure and geopolitical risk, the rotation out of US concentration and into broader global exposure looks less like a tactical trade and more like a structural shift
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