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Yesterday's data releases showed a stronger-than-expected labour market in the US, with non-farm payrolls increasing by 130k in January and unemployment rate easing 0.1pp to 4.3%. The data reinforced market expectations that the Fed will deliver two rate cuts this year, likely starting in the summer, rather than signaling an earlier or more aggressive easing cycle.

In yesterday's session, weaker-than-expected US retail sales in December combined with expected lower consumption due to harsh winter conditions, reinforced expectations of interest rate cuts during the year, with the first one occurring in June. Today key employment data will be released which should add further clarity on the interest-rate path.

Yesterday session was risk-on, with global stocks advancing, led by Japan, where the Nikkei-225 registered gains of nearly 4% after the Liberal Democratic Party obtained the supermajority in the Lower House elections, allowing prime minister Sanae Takaichi to continue pursuing expansionary fiscal policies.

In the last session of the week, equity markets edged modestly higher, despite lingering doubts over the return on Big Tech investment in AI and questions around the robustness of corporate fundamentals, set against a backdrop of generally supportive macroeconomic data.

The ECB kept rates on hold at 2%, as expected, with Christine Lagarde noting that both rates and inflation remain in a “good place”. She also played down concerns around euro strength and risks linked to Chinese trade, signalling limited scope for policy easing below the 2% level.The BoE kept rates unchanged at 3.75%, albeit with a surprisingly dovish tone.

Euro area sovereign yields edged lower, while the EURUSD cross held steady near 1.18, after the region's January inflation cooled, with headline inflation falling to 1.7% from 2.0% on lower energy prices and core easing to 2.2% as services inflation moderated. Attention now turns to today’s ECB policy meeting, where rates are expected to remain unchanged.

Rising concerns over intensifying competition in the AI sector triggered a sharp sell-off in technology stocks, weighing on broader market sentiment. Euro area equity indices mostly closed modestly lower, while US equities saw larger declines. On both sides of the Atlantic, cyclical sectors, including industrials and energy, outperformed on a relative basis.

Investors kicked off the week on a cautious footing, ahead of the ECB’s meeting later this week, which is widely expected to leave interest rates unchanged (depo rate at 2%), while markets continued to digest Kevin Warsh’s nomination to replace Jerome Powell as Fed Chair. Sentiment was also weighed by the sharp sell-off in precious metals that began late last week.

Mixed session to close off the week, with US investors reacting to President Trump’s nomination of Kevin Warsh as the next Federal Reserve Chair, while euro area markets focused on stronger-than-expected economic data, including upside surprises in GDP growth from Spain and Germany.

With investor focus on the tech sector, equity markets moved lower during the session. US stock indices posted modest losses, with tech stocks under pressure as investors continued to digest Q4 earnings results. European indices were weighed by losses in business software companies amid concerns over the potential disruptive impact of AI on their business models.

As expected, the Federal Reserve maintained its policy rate in the 3.50%-3.75% range. Fed Chair Jerome Powell struck a somewhat hawkish tone, highlighting activity strength, labor market stabilization and elevated inflation. Treasury yields ended the session flat and the dollar rebounded from its sharp decline since last Friday, gaining against the euro and the yen.