Issue #48 - 🥉 Markets Steady, AI Volatility Rises & Trade Risks Return

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What’s in this issue;

📉 Markets & Macro — Softer US inflation steadies sentiment, while trade tensions, AI volatility, and crypto weakness drive sector divergence.

🧠 Investor Takeaways — Why inflation remains the key catalyst, tariff risks are rising, and selective positioning matters more than ever.

🏠 The Fragile 2026 Economy — Property stagnation, central bank policy traps, and tax code shifts reshaping household income and economic stability.

🌍 Emerging Markets Surge — AI-driven momentum, earnings growth acceleration, commodity tailwinds, and rising geopolitical risks.

🧭 What to Watch This Week — Fed minutes, inflation data, EM catalysts, geopolitics, and earnings signals.

📊 Macro Pulse & Earnings Radar — Key economic data, inflation reads, and earnings from global market leaders.

🔍 ICYMI — AI-driven market rotation, crypto volatility, Fed policy shifts, and sector leadership changes.

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What Moved Markets This Week

Markets ended the week cautiously higher, with investor focus centred on U.S. inflation data, renewed trade tensions, and volatility across technology and crypto-linked assets.

A softer-than-expected CPI print helped stabilise sentiment late in the week, driving a rebound in U.S. equities and lifting UK stocks into positive territory, despite earlier pressure from inflation concerns and AI-sector jitters.

Key market drivers this week:

U.S. inflation data drove sentiment: A softer CPI print eased concerns about persistent inflation, supporting a late-week rebound in U.S. equities and helping markets stabilise after early losses.

Renewed tariff concerns resurfaced: Reports highlighting potential new Trump tariffs and funding risks at U.S. customs reignited fears around trade friction, pressuring risk appetite and global equities.

AI sector volatility weighed on Europe: Concerns around stretched AI valuations and earnings sustainability triggered selling across European tech shares, dragging regional indices lower.

UK stocks tracked Wall Street higher: A late-session rally in U.S. markets lifted the FTSE 100 into positive territory, supported by gains in mining and defensive sectors.

Crypto weakness spilled into equities: Sharp losses across crypto markets weighed on sentiment, hitting crypto-linked stocks and reinforcing broader risk caution.

What This Means for Investors

Inflation remains the key catalyst: Softer CPI supports the rate-cut narrative, but markets remain highly sensitive to any upside surprises.

Trade policy risk is rising: Renewed tariff threats introduce headline-driven volatility, particularly for industrials, exporters, and global cyclicals.

Selective positioning is critical: Sector divergence — especially within tech and AI — suggests leadership is narrowing.

Investor Playbook

Stay nimble around inflation data: Maintain exposure to growth, but be ready to adjust positioning if inflation momentum reverses.

Avoid crowded AI trades: Focus on profitable tech leaders rather than speculative momentum names.

Use defensives and gold as stabilisers: Defensive sectors and real assets offer protection during headline-driven volatility.

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Things I’m Paying Attention To

I have been tracking the "delicate balance" of the 2026 economy. The three biggest levers moving the needle right now: the "wait-and-see" property market, the central bank’s tightrope walk, and the shifting reality of take-home pay.

Here is a breakdown of the current situation based on those three areas:

The Property Market: A "Stagnant" Equilibrium it’s not a "buying economy," and the data backs that up. While we aren't seeing a 2008-style crash, the market is currently defined by affordability fatigue.

The "Pro": Inventory is finally rising. For the first time in years, buyers actually have options and room to negotiate because homes are sitting on the market longer (averaging 60+ days in many regions).

The "Con": Even though prices are "flat," they are flat at historic highs. With mortgage rates hovering around 3.75% to 4%, the monthly carry cost is still too high for many first-time buyers, keeping the "buyer pool" small and picky.

The Verdict: It’s a transition year. We are seeing a shift from a seller's market to a buyer's market, but the "buying power" hasn't quite caught up yet.

Economic Fragility: The Central Bank Dilemma

The Bank of England and the Fed are in a "policy trap" where every move has a heavy cost.

Increase Rates

Could trigger a recession by crushing consumer spending and making corporate debt unserviceable.

Rates were held at 3.75% recently because the labor market looks "soft."

Decrease Rates

Could reignite inflation, especially with new fiscal spending plans and supply chain volatility.

Cuts are expected to be "glacial"-maybe only 0.25% or 0.5% for the entire year.

The "Fragility" Factor: Because public debt is so high, the government needs interest rates to stay low to afford their own interest payments, but the central banks must keep them high enough to prevent another inflation spike. It's a very narrow path.

Tax Code Changes: Boosting the "Floor"

There is a massive push right now to increase worker income without relying on direct raises that fuel inflation.

Higher Wage Floors: The National Living Wage and Minimum Wage saw significant bumps in April, effectively raising the income floor for millions.

Threshold Freezes vs. Relief: While some personal allowance thresholds remain frozen (the "stealth tax"), there is a focus on simplified expense reimbursements. For instance, as of April 2026, employers can more easily reimburse home-office equipment and health costs tax-free, which keeps more money in the employee's pocket without increasing their taxable "salary."

The Shift: The burden is shifting toward Employer National Insurance. By increasing what companies pay to employ people, the government is trying to fund public services while protecting the net pay of the workers.

What this means for your strategy:

If you are looking at the property market, the "deal" isn't in the interest rate—it's in the negotiation. Sellers are becoming desperate for liquidity while the economy remains "fragile," which might create opportunities for those with cash or high equity.

Emerging Markets

Emerging markets (EM) have kicked off 2026 with strong momentum, building on a stellar 2025 where EM equities returned around 34%. Year-to-date, the MSCI EM Index is up about 7-8.9%, outpacing many developed benchmarks like the S&P 500.

This surge is largely fueled by AI-driven gains in North Asia, particularly Taiwan (+11.2%) and South Korea (+28.1%), where semiconductor and tech firms are benefiting from massive global AI infrastructure spending.

Broader EM earnings are projected to grow 29% this year—more than double the U.S. estimate of 14%—supported by improving corporate governance, efficient capital allocation, and shareholder returns in key countries like China, India, and South Korea.

Global cyclical upswings are evident, with copper prices soaring up to 40% in six months, signalling tech and industrial activity. European and Hong Kong stocks have gained over 10% YTD in dollar terms, while Latin America is buoyed by demand for industrial metals.

However, volatility persists due to geopolitical tensions, including U.S. military pressure on Iran, indirect talks to de-escalate, and marginal progress in Russia-Ukraine negotiations. Oil prices have risen 14.3% amid instability in Venezuela following the U.S. capture of President Maduro on narcoterrorism charges, raising supply disruption risks.

In Africa, economies like Kenya show resilience with a stable shilling, strong bond interest, and solid corporate results, while South Africa has deployed soldiers to combat gang violence in economic hubs without derailing growth. The OECD’s upcoming Critical Minerals Forum in April highlights cross-regional cooperation on resources, a boon for EM commodity exporters.

What’s Happening This Week

This week features a mix of economic data releases, policy events, and market catalysts that could influence EM flows:

U.S. Data Dominance: Monday markets are closed for Washington’s Birthday. Wednesday brings FOMC January minutes, which could signal Fed rate paths amid recent PCE inflation acceleration to 3.0% YoY. 0 Friday’s core PCE (expected +3.0%), preliminary Q4 GDP (+2.8% annualised, down from +4.4%), and flash PMIs will provide a global inflation/growth snapshot, impacting EM currencies and bonds. Other global inflation reads include UK CPI (Wed), Japan CPI (Thu), and Canada CPI (Tue).

Asia Focus: China’s Lunar New Year holiday continues, with ~9.5 billion cross-regional passenger flows boosting consumer stocks like Alibaba ($BABA) and Trip.com ($TCOM). New anti-money laundering rules take effect Monday, and Loan Prime Rates are awaited. In Japan, a new Prime Minister election (Wed) favors Sanae Takaichi, who has big spending plans potentially lifting EM sentiment. South Korea’s court verdict on former President Yoon Suk Yeol (Thu) could add volatility.

Other EM Highlights: In Nigeria, pension reforms are supporting equity rallies, while fixed-income yields dip on liquidity. Kenya’s CBK MPC meeting (Tue) and bond auctions (Wed) are key for East African rates. India’s AI Impact Summit (Thu-Fri) features Meta and Qualcomm leaders, emphasising EM’s role in tech governance. Brazil’s banking scandal evolves with a judge’s recusal in a $2.3bn fraud case.

Geopolitical and Sector Moves: U.S.-Iran deal skepticism from Netanyahu could spike oil, while China’s ‘Polar Silk Road’ ambitions target Arctic resources. U.S. Pentagon links Alibaba and BYD to Chinese military, heightening scrutiny on EM tech giants. Earnings from EM-exposed firms like Walmart ($WMT, Thu) and Booking ($BKNG, Wed) will gauge consumer trends.

What You Should Pay Attention To

Opportunities in AI and Tech Rotation: Watch North Asian semis ($TSM, $SKM) and AI buildout plays, with hyperscaler capex potentially hitting $650B this year.

India’s tariff cuts (to 18% on goods) and AI diplomacy could boost exports and tech inflows. Consider undiscovered small-caps in volatile markets, as they’ve gained traction amid shifts from high-growth tech.

Geopolitical Risks and Commodities: Monitor oil and metals amid Venezuela, Iran, and Arctic developments—gold/silver volatility spiked recently with $3T plunges. U.S. policy shifts (e.g., Trump’s India deal, Fed Chair nomination of Kevin Warsh) may weaken the dollar further, benefiting EM currencies. 9 Trade blocs among “middle powers” like India and Brazil offer hedges against protectionism.

Economic Indicators and Policy: U.S. data could delay Fed cuts, pressuring EM borrowing costs—track PCE for inflation reacceleration signals. In China, watch post-holiday stimulus like RMB internationalisation efforts to challenge the dollar.

African subscribers: Focus on AGOA extensions for export stability and local currency borrowing initiatives to mitigate debt risks.

Broader Trends: EM inflows hit two-decade highs; diversify into value stocks and Latin America for catch-up potential. Regulatory shifts (e.g., Pakistan’s social media tax hunts, India’s 3-hour content takedowns) signal tighter oversight—assess compliance impacts on digital EM plays. For resilience, explore RWA tokenisation in crypto for asset liquidity amid volatility.

Overall, EM’s low volatility and earnings momentum suggest sustained outperformance, but stay vigilant on U.S. data and geopolitics to navigate potential swings.

🔭 Looking Ahead: The Week in Focus

This week delivers a heavy dose of US macro data, with inflation, jobs, and consumer spending all landing within a 48-hour window — a setup that could strongly influence rate expectations and market direction.

Alongside this, earnings season rolls on, with heavyweight names across tech, healthcare, and consumer sectors reporting.

🧭 Macro Pulse: What Could Move Markets

Tuesday — Consumer Health Check

Consumer spending is slowing, signalling early signs of household fatigue. A softer print strengthens the case for further Fed rate cuts and could support equities especially rate-sensitive sectors.

Wednesday — Fed Day: Jobs + Inflation

This is the key session of the week.

Rising unemployment, softer job creation, and falling inflation all point toward a cooling economy, reinforcing expectations that the Fed remains firmly on an easing path.

Markets will be watching closely — volatility risk is elevated.

Thursday — Growth & Housing Reality Check

UK growth remains sluggish, keeping rate-cut expectations alive for the Bank of England. Meanwhile, US housing continues to struggle under affordability pressures, acting as a persistent drag on economic momentum.

📊 Earnings Radar: Who’s Reporting

Large-cap earnings continue across tech, healthcare, energy, and consumer sectors, offering insight into corporate resilience and demand trends:

Key themes:

👉 Consumer demand

👉 Enterprise tech spending

👉 AI infrastructure momentum

👉 Energy & commodity outlook

ICYMI

What Else is Happening?

The financial markets are experiencing notable volatility and rotation in mid-February 2026. Last week saw significant swings, with the S&P 500 down about 1.4%, the Nasdaq dropping around 2%, and broader concerns over AI’s disruptive potential weighing on sectors like financials, consumer discretionary, and certain tech names.

Industrial stocks surged in some rotations, while financial stocks faced pressure from fears that AI advancements (e.g., developments tied to companies like Anthropic) could disrupt traditional business models in wealth management, logistics, and more.

A key theme is the “dark side of AI,” where investor worries about job displacement and economic disruption are prompting sell-offs in vulnerable industries, creating a sort of “doom loop” for AI-exposed or AI-threatened stocks. Meanwhile, retail traders continue buying dips in big tech names like Microsoft after pullbacks.

On the policy front, the Federal Reserve held interest rates steady recently, with muted market reaction. There’s ongoing speculation about the nomination of Kevin Warsh as the next Fed Chair (potentially starting mid-2025, but influencing 2026 expectations), which could signal shifts toward firmer policy or lower rates under different leadership.

Bond traders are eyeing upcoming jobs data for clues on rate cut probabilities (priced in for two quarter-point cuts this year, with a chance for a third).

Crypto-related developments show Bitcoin recovering above $70,000 after a sharp drop and wipeout earlier in the month, aided by cooling inflation data boosting risk appetite.

Broader crypto treasury firms face tests in 2026, with predictions of potential forced selling or shifts toward ETFs.

Other notes: Gold and precious metals have seen pressure from rising yields, while small-cap and value stocks show relative strength compared to mega-cap tech dominance in prior periods.

Broader economic outlooks vary, with some forecasts seeing 35% recession odds but positive equity gains possible from AI, earnings, and stimulus.

Useful Links

Here are 3 factors that drove the big swings in the stock market last week (CNBC): Breaks down AI fears hitting financials, industrial surges, and broader volatility—essential for understanding sector rotations and why defensives or cyclicals might outperform in uncertain times.

A Stock Market Doom Loop Is Hitting Everything That Touches AI (Bloomberg): Explores conflicting fears of AI disruption vs. overhyping, directly impacting investor positioning in tech, software, and adjacent sectors—key for assessing long-term AI trade risks.

The ‘dark side of AI’: Wall Street weighs recent stock sell-off over disruption fears (Yahoo Finance): Details sell-offs in wealth management, transportation, and logistics due to AI threats—helps investors evaluate which holdings face real existential risks vs. hype.

Best Financial Stocks To Watch Now - February 15th (MarketBeat): Highlights high-volume names like Coinbase (COIN), Visa (V), Robinhood (HOOD), JPMorgan (JPM), and Mastercard—relevant amid fintech/crypto ties and broader financial sector pressure from rates/AI.

BTC price news: bitcoin claws back to $70,000 after $8.7 billion wipeout (CoinDesk): Covers Bitcoin’s rebound on inflation data—ties into risk-on sentiment, potential ETF flows, and how macro (like Fed path) influences crypto as an alternative asset for investors.

These stories highlight the ongoing tug-of-war between AI enthusiasm/disruption fears, policy uncertainty, and macro data—critical for portfolio adjustments in this choppy early-2026 environment. Investors should watch upcoming economic releases (e.g., jobs data) for further direction.

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