Japan's Takaichi secures historic victory in snap election

In focus today

In Norway, we receive data on 2025Q4 mainland GDP growth. The current key figures point to underlying growth of around 0.1% q/q, but because the technical factors are partially reversing, we believe mainland-GDP growth was 0.3% in Q4.

In the euro area, the February Sentix Investor Confidence indicator will be released. As the first measure of investor confidence for February, consensus expects the reading to improve to 0, up from -1.8 in January.

For the rest of the week, we will keep an eye on US retail sales and the Q4 employment cost index on Tuesday, the US Jobs Report and Chinese CPI on Wednesday, and UK GDP growth on Thursday. The week concludes on Friday with US CPI taking centre stage.

Economic and market news

What happened over the weekend

In Japan, Prime Minister Sanae Takaichi's coalition secured a supermajority in the lower house, winning 328 out of 465 seats following a rare winter snap election. This provides her with a strong mandate to advance her legislative agenda, including plans for tax cuts and increased military spending aimed at countering China. The market reacted strongly to her victory, with Japanese stocks surging to record highs as the Nikkei 225 jumped 5.7%, reflecting investor optimism over her fiscal policies. However, bond yields climbed as concerns grew about the potential impact of her spending plans on fiscal stability, while the yen weakened initially before rebounding after verbal intervention from Japanese officials. Takaichi's nationalistic policies and economic agenda are expected to shape both domestic markets and geopolitical dynamics in the region.

In the US, San Francisco Fed President Mary Daly (non-voter) signalled on Friday that one or two rate cuts may be required in 2026 to address vulnerabilities in the labour market, particularly the challenges faced by new graduates and stagnant wages. While inflation remains above the 2% target, Daly views labour market risks as more pressing, highlighting the need for flexibility in monetary policy amid ongoing uncertainties.

In geopolitics, Iran's foreign minister warned that Tehran would target US bases in the region if attacked by US forces, clarifying that host countries would not be the target. This came after indirect nuclear talks between the two nations showed progress, with further discussions expected next week. Despite the diplomatic efforts, tensions remain high following President Trump's demands for Iran to halt uranium enrichment and missile development, alongside a recent US naval buildup in the region.

In Sweden, January CPI inflation increased slightly to 0.4% y/y from 0.3% in December, falling short of expectations. CPIF inflation was at 2.0% y/y, while core inflation (CPIF excluding energy) came in at 1.7% y/y, both lower than expected. The surprise lies in core inflation, which was significantly weaker, whereas energy and mortgage rates developed as anticipated.

In India, refiners are reducing Russian oil purchases for March-April deliveries, a move that could bolster New Delhi's efforts to finalise a trade pact with Washington by March. US President Trump has lifted 25% tariffs on Indian goods, citing India's commitment to halt Russian oil imports, although no formal announcement has been made. India's Russian oil intake has already dropped significantly, with refiners shifting to Middle Eastern, African and South American suppliers.

In Thailand, Prime Minister Anutin Charnvirakul's Bhumjaithai Party secured 193 out of 500 seats in the general election, surpassing expectations and consolidating the conservative vote. The result reduces risks of political instability and sent Thai stocks 3% higher to their strongest level in over a year. Coalition talks are expected to begin in the coming days, with Anutin pledging to form a strong government and advance nationalist policies, including building a Cambodia border wall and strengthening the military.

Equities: Global equities closed last week on a stronger footing, led by a sharp rebound in the US session on Friday that ultimately pushed equities higher for the week. This came despite continued weakness in consumer discretionary, led by Amazon, and lingering pressure on several of the mega-cap names. That said, the tone within tech shifted meaningfully, with semiconductors and broader hardware showing solid relative strength. Last week's rotation was nothing short of violent: US tech hardware rose approximately 7% for the week, while tech software fell roughly 7%.

Small caps also performed strongly versus large caps, with the Russell 2000 up 3.6% on Friday alone, underlining the breadth of the move away from crowded growth exposures. Asian equity markets are extending the risk-on tone this morning. Japanese equities are up more than 4% following Sunday's election, where Prime Minister Takaichi secured a definitive victory and a supermajority in the Lower House, effectively paving the way for what markets are already framing as Abenomics 2.0. South Korean equities are also up around 4%, reinforcing the regional risk rally. European and US futures are more subdued but remain modestly in the green.

FI and FX: USD/JPY initially pushed higher toward 158 following the landslide election result in Japan but later retreated below 157 after Japanese officials signalled heightened vigilance in monitoring the FX market. EUR/USD remains anchored just above the 1.18 mark in a week where attention shifts to the January US jobs report and CPI release. US yields ended higher on Friday, particularly in the front end, with the 2-year rising 8bp as market sentiment improved. After a very poor mid-week the NOK FX still ended last week on a strong footing amid improving risk appetite, higher energy prices and an outperforming domestic equity market.