Overview
Trading across asset classes finished the week in a state of heightened ambiguity. Investors faced a string of developments that pushed and pulled market sentiment: an emphatic electoral victory in Japan that lifted local markets and the currency; a continued fraying of sentiment in parts of the U.S. technology complex after a key earnings disappointment; and U.S. economic releases that altered the perceived timing of interest-rate cuts by the Federal Reserve only to reverse course within days. The net result is a market outlook that looks muddled across a range of sectors from technology and transport to sovereign bonds and energy.
Equities: tech under pressure, Japan surges
U.S. technology stocks absorbed meaningful losses midweek. The Nasdaq Composite fell roughly 2 percent on Thursday after Cisco Systems posted disappointing results, a move that rippled through tech names. Apple registered a particularly steep decline, dropping about 5 percent yesterday - its largest one-day fall since the selloff tied to last April’s ‘Liberation Day’ tariff announcement. Beyond the headline tech names, transportation stocks were singled out as collateral in the so-called artificial intelligence disruption trade, with that sector among the more notable victims of the rotation.
By contrast, Japan’s markets rallied on a political event of the week. Prime Minister Sanae Takaichi and her Liberal Democratic Party secured a supermajority in lower house elections over the weekend, and Japanese equities responded strongly. The Nikkei climbed past 58,000 for the first time on Thursday, a striking reaction to the political outcome. Japanese government bonds and the yen, two markets that had experienced pronounced volatility in anticipation of Takaichi’s planned spending measures, also strengthened following the election.
Currencies and fixed income: yen strength, dollar pressure
The resurgent yen exerted downward pressure on the dollar through the week, even as the greenback found some demand on Thursday amid a move toward safer assets. The yen’s advance placed it on track for its largest weekly gain in over a year. At the same time, Japanese government bonds firmed after the election outcome, a pattern that suggests market participants may be trading on a combination of technical factors and the view that much of the negative sentiment had already been priced in.
Observers should not mistake the immediate stabilization of the yen and JGBs for a durable resolution. As the details of funding plans for any new spending are revealed, both the currency and the bond market remain vulnerable to renewed volatility. Separately, the dollar’s ongoing weakness versus the euro and the yuan over the last year remains conspicuous, and appears aligned with public statements from leaders in both of those currency zones about ambitions to expand their currencies’ global roles.
Interest-rate expectations and U.S. data flow
Expectations for Federal Reserve policy shifted during the week as U.S. data arrived in a mixed pattern. On Tuesday, December retail sales figures came in weaker than expected, prompting markets to lift the odds of Fed easing and move April rate cut expectations close to even. That initial move was quickly countered on Wednesday by the release of January jobs data that surprised to the upside.
Nonfarm payrolls rose by about 130,000 in January, nearly double the consensus forecast. The gains were concentrated in healthcare and social assistance, and the employment figures were accompanied by substantial downward revisions for 2025. Taken together, the report suggests a labor market that may be stabilizing rather than deteriorating rapidly. Nonetheless, the combination of inflation remaining above the Fed’s 2.0 percent target and signals that economic activity could be firming globally leaves open the question of what would be required for the Fed to materially shift course toward a more hawkish stance.
Policy expectations are further complicated by fiscal impulses abroad and at home. Governments worldwide are expected to loosen spending this year despite large outstanding debt burdens - a dynamic that presents a negative tilt for sovereign bond returns. Concurrently, major technology companies are planning substantial capital expenditures, with roughly $650 billion earmarked for 2026 among four large firms. That degree of planned corporate investment does not intuitively align with a backdrop of falling interest rates, even as political calls persist for lower borrowing costs. For example, the U.S. President has publicly advocated that U.S. borrowing costs should be “the lowest in the world.” Against this backdrop, investors will be watching upcoming inflation readings closely, including the consumer price index data scheduled later today, for fresh guidance on the inflation trajectory and monetary policy reaction function.
Energy markets: rangebound oil amid geopolitical and demand storylines
Oil prices traded in a relatively narrow band for the week. Markets moved modestly on headlines related to U.S.-Iran negotiations, and the interactions at the diplomatic level - including a high-profile meeting between Israeli Prime Minister Benjamin Netanyahu and the U.S. President - indicated that talks involving Tehran will continue. The International Energy Agency updated its assessment to expect global oil demand to increase more slowly than its earlier forecast, and that slower demand growth supports the agency’s projection of a sizable supply surplus. Against that analytical backdrop, Brent crude remained close to $70 a barrel.
Market participants face a growing question about how well prices reflect physical supply-and-demand fundamentals. The oil market is increasingly influenced by external, difficult-to-predict factors, which raises doubts about the precision with which prices map to physical fundamentals. This dynamic is one more signal that supposedly highly efficient global markets may find it challenging to internalize the many twists and turns expected in 2026.
Commodities, hedging and related themes
For readers tracking commodities and related market mechanics, several topical threads are worth following. There are ongoing conversations about hedging strategies in a market that appears to be more driven by episodic geopolitical and political developments than by steady physical signals. Additionally, weather patterns may influence regional energy needs; for example, thin snowfall in parts of Europe could lift natural gas demand. Meanwhile, social and technology platforms are playing a role in recent interest around metals, highlighting the range of drivers that can influence commodity cycles.
What the ROI team is reading, listening to and watching
The editorial team has compiled recommended reading and listening to help put the week’s events in broader context.
- The Doom Loop - A recent book from a Cornell professor and former IMF economist that examines the consequences of reversing decades of globalization and multilateral frameworks and offers possible remedies to avoid a self-reinforcing destructive loop.
- Blood and Sand - A historical account that connects the 1956 Suez Crisis and the Hungarian uprising, with notable focus on the role of oil in national decision-making during the Suez episode.
- Brookings essay on U.S. growth - An analysis proposing four potential reasons the U.S. economy has kept expanding even as policy choices diverge from mainstream economic prescriptions.
- Rare earths primer - A research piece offering an overview of production and consumption in critical metals.
- U.S. utility commissioner factory visits - A brief report on visits to Chinese production lines for electric vehicles, batteries, solar panels and utility-scale transformers that yielded practical observations about supply chains and manufacturing capabilities.
- Mining Indaba perspectives - Coverage noting the renewed optimism around mining prospects in Africa and commentary that unpacks both bullish views and a notable counterpoint from an independent outlet.
On audio, a recent podcast episode explores the economics and mechanics of dating apps, examining platform mechanics, generational usage shifts and the potential for artificial intelligence to reshape business models. For video, a recent interview with an economist-author discusses the potential unraveling of long-standing economic and political structures and considers the difficult path to rebuilding resilient frameworks.
What to watch next
Market participants should track the near-term calendar of macro releases, starting with the consumer price index reading due later today. In addition, the unfolding details of fiscal plans in Japan will be critical to watch for their potential to reintroduce volatility into both the currency and government bond markets. On the corporate side, subsequent earnings and capital expenditure announcements - especially from large technology firms planning substantial 2026 spending - will inform the narrative around growth expectations and interest-rate trajectories.
Conclusion
This has been a week of mixed messages. Political developments in Japan produced a classic market jolt that lifted Japanese equities and the yen, while U.S. markets grappled with a combination of company-specific disappointments and macroeconomic releases that alternately pulled forward and delayed expectations for Federal Reserve easing. Energy markets remain exposed to a blend of geopolitical negotiation dynamics and revised demand forecasts that suggest a looser balance than previously thought. For investors and market-watchers, the central takeaway is a need for vigilance: the equilibrium that seemed to be forming earlier in the year is far from settled, and a raft of policy and economic developments could flip sentiment again as funding details, inflation data and corporate spending plans become clearer.
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