This week, trading volumes were lower, partly because U.S. markets were closed on Monday and both Mainland China and Hong Kong were also shut.
In the UK, fresh inflation data offered a measure of relief. Consumer price inflation slowed to 3% in January, down from 3.4% the previous month, with declines in meat prices, air fares and motor fuel costs helping to pull the headline rate lower. The easing in price pressures comes as the labour market shows tentative signs of cooling. Unemployment rose to 5.2% in the three months to December 2025, up slightly from 5.1% in the preceding period. Much of the increase was concentrated among younger workers, reflecting both higher employment costs (following recent National Insurance contribution changes introduced by Chancellor Rachel Reeves) and the expanding use of artificial intelligence across a range of industries. Wage growth also moderated, with average earnings rising 4.2% year-on-year in the three months to December, compared with 4.4% previously, suggesting some gradual loosening in pay pressures. Policymakers expect the inflation rate to fall further over the next few months and markets are pricing in an 82% probability of a rate cut next month, with traders believing that the Bank of England will be focusing more on the cooling labour market than on inflation alone.
Japan’s economy eked out a modest expansion in the closing quarter of 2025, growing by 0.1% after shrinking by 0.7% in the previous three months. The slight improvement was enough to prevent a technical recession. Household spending provided the primary support, helping to counter subdued export activity and lingering caution among consumers. Financial markets responded with restraint: the Nikkei rose 0.12% at the open, while the yen slipped against the dollar. The data is likely to strengthen Prime Minister Takaichi’s resolve to pursue measures aimed at easing the consumption tax burden, in keeping with the demand-supporting ethos associated with Abenomics. Her position, however, diverges from that of the Bank of Japan, which is expected to continue raising interest rates despite the fragile growth backdrop. The central bank’s focus remains on containing inflation and steadying the currency – both of which have put pressure on household budgets.
Meanwhile the U.S. Treasury eased some sanctions on Venezuela’s energy sector, issuing two major licences. One allows companies such as Chevron, BP, Eni, Shell, and Repsol – already operating in the country – to expand oil and gas activities with PDVSA. The second permits foreign firms to sign new investment contracts with PDVSA, subject to separate U.S. approval. The move excludes Russia, Iran, China, and entities owned by their nationals.
Still to come this week we have Fed meeting minutes, U.S. PCE and GDP growth.
Nicola Tune, Portfolio Specialist
