Light volume amid holidays in US and China

EU mid-market update: Light volume amid holidays in US and China; Themes remain on AI disruption with new China models; Rubio olive branch to EU seen as 'too late'.

Notes/observations

- European equities began the week modestly higher in holiday-thinned conditions, with U.S. cash markets closed for Presidents Day and China shut for Lunar New Year. Liquidity remains constrained, limiting conviction. Despite ongoing weakness in U.S. tech, where the Nasdaq is down roughly 4% MTD amid a broader AI “disruption trade” and scrutiny of Mag 7 capex, European indices have shown relative resilience, reflecting lower concentration in mega-cap technology and improving sentiment around cyclical recovery and earnings revisions. Banks and defense names outperformed, with renewed focus on potential structural increases in U.K. and European defense spending.

- AI-related uncertainty continues to reverberate across sectors, with software, financial intermediaries, REITs, logistics and legal services cited as exposed to productivity displacement themes. Reports that the U.S. Pentagon may curtail engagement with Anthropic over model-use constraints underscore the policy dimension of the AI debate. In parallel, broader macro risk appetite remains fragile but orderly; analysts characterize current positioning in crypto and equities as consolidation rather than capitulation.

- Rates markets extended Friday’s CPI-driven rally. Softer-than-expected U.S. inflation has reinforced expectations for Fed easing, with the U.S. 2-year yield falling to its lowest level since September 2022 and the 10-year benchmark drifting back toward 4%. Swap markets now assign meaningful probability to additional cuts into year-end. Eurozone sovereign yields edged lower in light trade, while U.K. gilts were steady ahead of key domestic data this week.

- Yen (JPY) softened slightly after weak Japanese Q4 GDP, which narrowly avoided a technical recession. Political discussions around temporary food tax suspension and openness to further BOJ rate hikes highlight policy crosscurrents.

- Geopolitically, US Sec of State Rubio friendlier comments at Munich Security Conf were seen as trying to repair transatlantic relations following events over Greenland/Denmark and trade threats but EU officials already have committed to pivot away from US dependency.

- Partial US govt shutdown began just after midnight Saturday because Congress failed to pass a Department of Homeland Security (DHS) funding bill after bipartisan talks collapsed amid a fight over Trump’s immigration crackdown and Democrats’ demands for ICE/CBP reforms. DHS - including ICE, CBP, TSA, FEMA, the Coast Guard, and the Secret Service - will keep most “essential” operations running, with about 90% of its workforce still working (many without pay) while Congress is largely out of Washington until Feb 23 unless leaders call members back sooner. Major U.S. economic data releases should mostly be unaffected because the main statistical agencies (BLS, BEA, Census) are not in DHS, but DHS-specific reporting and some operational inputs tied to border/security functions could face limited delays or disruptions.

- Seedance 2.0 (ByteDance’s AI multimodal text-to-video model) can take a single text prompt and generate a coherent 15-second video with a storyline, scene changes, distinctive characters, complex actions, plus realistic voice-over and background sound. It is fueling concern that AI tools like this could shake up Hollywood and the commercial ads industry by automating parts of storyboarding and production. Unverified rumor also saying that next Seedance 3.0 is in a closed-door “final sprint” with breakthroughs like 10+ minute continuous generation via a “narrative memory chain,” native multilingual emotion-aware lip-synced dubbing, director-style shot-level storyboard control with grading presets, and up to 8x cheaper cost per minute versus 2.0.

- Meanwhile, Alibaba has confirmed a new AI model, Qwen3.5, positioned for the "agentic AI era," claiming it beats major U.S. rival models on several benchmarks while being about 60% cheaper to use and roughly 8x better at handling large workloads than Qwen3-Max. It attributes the gains to hybrid linear attention plus sparse MoE and large-scale RL environment scaling, and claims 8.6x - 19.0x higher decoding throughput versus Qwen3-Max.

- Looking ahead, this week’s macro calendar is dense despite today’s lull: U.S. FOMC minutes (Weds), advance Q4 GDP and PCE (Fri), global flash PMIs, and key U.K. labor and CPI data will guide rate-cut expectations. Markets are currently pricing a roughly two-thirds probability of a March cut by the Bank of England, contingent on further evidence of labor market cooling and inflation deceleration.

-Asia closed mixed with Nikkei225 closing 0.2% higher. EU indices +0.2-1.2%. US futures +0.5%. Gold -0.6%, DXY +0.1%; Commodity: Brent -0.5%, WTI -0.6%; Crypto: BTC -2.1%, ETH -3.7%.

Asia

- Japan Q4 Preliminary GDP Q/Q: 0.1% v 0.4%e; GDP Annualized Q/Q: 0.2% v 1.6%e; avoided technical recession.

- Japan Dec Final Industrial Production M/M: -0.1% v -0.1% prelim; Y/Y: 2.6% v 2.6% prelim.

- Singapore Jan Non-Oil Domestic Exports Y/Y: 9.3% v 13.5%e; Electronic Exports Y/Y: 56.1% v 24.9% prior.

- New Zealand Jan Total Card Spending M/M: -0.7% v -1.3% prior.

- RBNZ: Mean Household 2-year inflation expectations fall to 3.4% (prior 4.3%).

- Lunar New Year holidays have commenced in mainland China, South Korea, Taiwan and Indonesia.

Global conflict/tensions

- US Sec State Rubio stated that did not know if Russia was serious about finding an end to the war in Ukraine; They say they were; We're going to continue to test it.

Europe

- UK Feb Rightmove House Prices M/M: 0.0% v 2.8% prior; Y/Y: 0.0% v 0.5% prior.

- BOE’s Mann: Believe the threat of inflation is waning, but fears there is no end in sight for sluggish growth. Had not made decision on any March rate cut as no data yet.

Americas

- Fed's Goolsbee (non-voter) recent CPI data had had encouraging bits but some concerns; Services inflation still pretty high, showed inflation had not been tamed. Reiterated that rates can go down a fair bit more, just need to see progress on inflation.

- US equity and bond markets closed for Presidents Day holiday.

Energy

- Oil prices were broadly steady ahead of a second round of talks between the US and Iran this week.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.26% at 619.32, FTSE +0.19% at 10,465.70, DAX +0.11% at 24,930.20, CAC-40 +0.31% at 8,337.66, IBEX-35 +1.09% at 17,864.28, FTSE MIB +0.34% at 45,583.50, SMI +0.05% at 13,632.00, S&P 500 Futures +0.50%].

Market focal points/key themes: European indices opened generally higher and remained upbeat through the early part of the session; among sectors leading the way higher are financials and energy; lagging sectors include utilities and materials; banking subsector supported after ECB announces technical improvements to its liquidity operations; US markets closed for holiday.

Equities

- Energy: Norsk Hydro [NHY.NO] -3.5% (several downgrades).

- Financials: Ratos [RATOB.SE] -8.5% (earnings).

- Healthcare: Sanofi [SAF.FR] +0.5% (Lancet published data).

- Industrials: Volkswagen [VOW3.DE] +1.0% (to cut costs).

- Materials: Rosebank Industries [ROSE.UK] -2.5% (confirms advanced discussions to acquire two PE-owned US-based businesses).

Speakers

- BOJ Gov Ueda stated that had regular information sharing meeting with PM Takaichi; PM Takaichi did not have any specific request. Just met to exchange views in general.

- Russia govt spokesperson: Main issues will be discussed in Geneva including territories.

Currencies/fixed income

- USD was little moved as various holidays dampened investor appetite.

- EUR/USD at 1.1865. Dealers noted that ECB on Saturday announced plans to extend its euro repo lines to nearly all foreign central banks as it looked to increase the euro's global role.

- GBP/USD at 1.3660 as dealers focused on upcoming UK data. Labor market, inflation and retail sales data due to be released this week could signal the likely date for the Bank of England's next interest-rate cut. Markets currently price approx. 65% probability of a BOE rate cut in March.

- USD/JPY did drift higher during Asia session after Japan Q4 GDP came in below consensus but unlikely to put off the next step in BOJ tightening. Pair at 153.60 by mid-EU session.

- 10-year German Bund yield last at 2.75%, France 10-year Oat at 3.34% and 10-year Gilt yield at 4.40% 10-year Treasury yield: 4.05%; 10-year JGB: 2.22%.

Economic data

- (IN) India Jan Wholesale Prices (WPI) Y/Y:1.8% v 1.4%e.

- (SE) Sweden Jan Unemployment Rate: 8.6% v 8.3% prior; Unemployment Rate (seasonally adj): 8.0% v 8.7%e; Trend Unemployment Rate: 8.7% v 8.7% prior.

- (NO) Norway Jan Trade Balance (NOK): 75.9B v 42.9B prior.

- (RO) Romania Jan CPI M/M: 0.9% v 0.7%e; Y/Y: 9.6% v 9.4%e.

- (CH) Swiss Q4 Preliminary GDP (sports adj) Q/Q: 0.2% v 0.3%e.

- (TR) Turkey Jan Central Gov't Budget Balance (TRY): -214.5BV v -528.1B prior.

- (CH) Swiss Weekly Total Sight Deposits (CHF): 452.7B v 447.4B prior; Domestic Sight Deposits: 437.0B v 430.6B prior.

- (IT) Italy Dec General Government Debt: €3.096T v €3.125T prior.

- (EU) Euro Zone Dec Industrial Production M/M: -1.4% v -1.5%e; Y/Y: 1.2% v 1.3%e.

Fixed income issuance

- (SI) Slovenia opened its book to sell EUR-denominated 10-year bonds; guidance seen +40bps to mid=-swaps.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (DE) Germany to sell combined €5.0B in 6-month and 12-month BuBills.

- 05:30 (NL) Netherlands Debt Agency (DSTA) to sell €2.0-4.0B in 3-month and 6-month bills.

- 06:00 (IL) Israel Q4 Advance GDP Annualized: 4.1%e v 11.1% prior.

- 06:00 (IL) Israel to sell bonds.

- 06:00 (TR) Turkey to sell bonds (2 tranches).

- 07:00 (IN) India announces details of upcoming bond sale (held on Fridays).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (ES) Spain Debt Agency (Tesoro) size announcement on upcoming issuance.

- 08:15 (CA) Canada Jan Annualized Housing Starts: 262.5Ke v 282.4K prior.

- 08:30 (CA) Canada Dec Manufacturing Sales M/M: +0.5%e v -1.2% prior.

- 09:00 (FR) France Debt Agency (AFT) to sell €6.2-7.8B in 3-month, 6-month and 12-month bills.

- 11:00 (CO) Colombia Q4 GDP Q/Q: 0.5%e v 1.2% prior; Y/Y: 3.0%e v 3.6% prior Overall 2025 GDP Y/Y: No est v 1.7% prioir.

- 11:00 (CO) Colombia Dec Economic Activity Index (Monthly GDP) Y/Y: 2.8%e v 3.1% prior.

- 16:45 (NZ) New Zealand Jan Food Prices M/M: No est v -0.3% prior.

- 18:30 (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: No est v 76.9 prior.

- 19:30 (AU) Australia RBA Feb Minutes.

- 21:25 (US) Fed’s Bowman.

- 22:35 (JP) Japan to sell 5-year JGB Bonds; Avg Yield: % v 1.6390% prior; bid-to-cover: x v 3.08x prior (Jan 13th 2026).

- 23:30 (JP) Japan Dec Tertiary Industry Index M/M: -0.2%e v -0.2% prior.