Geopolitical tensions and shifting US tariff policies created uncertainty, yet European and Asian markets delivered strong performance.
The UK, Eurozone and US all saw inflation drift lower, increasing expectations for future rate cuts, particularly from the Bank of England and European Central Bank.
Government bonds performed strongly, long dated maturities as rising geopolitical risk and cautious central bank messaging boosted demand for safety. Corporate bond markets also saw solid returns.
Global markets experienced mixed performance in February 2026. Geopolitical tensions particularly between the US, Israel, and Iran created volatility across regions, while inflation generally continued to moderate. Technology linked sectors delivered strong gains in Asia and emerging markets, though US tech lagged on concerns around AI related earnings and spending. Bond markets rallied strongly amid rising geopolitical risk and expectations around central bank policy paths. Tariff uncertainty resurfaced following the US Supreme Court’s ruling against earlier trade measures, prompting new temporary tariffs and impacting global sentiment.
European equities outperformed the US, supported by stronger than expected macro data and continued economic resilience. Sector performance was mixed, with communication services, consumer staples and energy outperforming, while financials and healthcare lagged. The ECB held interest rates at 2% for the fifth consecutive meeting as core inflation eased and manufacturing activity improved. Geopolitics including US Israel strikes on Iran and US tariff policy changes added volatility, though most developments occurred after markets closed for the month.
The UK equity market recorded its strongest monthly gain in over three years. Inflation fell to 3.0% in January, driven mainly by lower food and airfare costs. The Bank of England kept rates at 3.75% but signalled that cuts could begin as early as March. Growth disappointed, with GDP rising only 0.1% in Q4 2025 and unemployment increasing to 5.2%. Wage growth slowed and consumer confidence dipped slightly as households grew more concerned about job security. Retail spending rebounded strongly in January due to heavy discounting.
US equities underperformed as markets digested concerns around AI sustainability, geopolitical tensions, and tariff uncertainty. The US Supreme Court invalidated previous global tariffs, prompting the administration to introduce a new 10% tariff later increased to 15% which added further uncertainty. Technology and consumer discretionary sectors lagged, while defensive sectors held up better. Inflation fell more sharply than expected to 2.4%, and the labour market exceeded expectations with strong January job gains. GDP growth slowed to 1.4% in Q4 2025 due to the prolonged government shutdown. Consumer confidence improved slightly, though sentiment remained fragile.
Asia Pacific equities delivered broad gains, led by Korea and Taiwan on the back of robust semiconductor and AI related demand. China and Hong Kong lagged due to weakness in technology and continued structural pressures, though China’s property market showed tentative signs of stabilisation. Japan outperformed following the election of Prime Minister Takaichi, expectations of pro growth policy measures, and a sharply weaker yen. Australia posted solid gains supported by strong labour data and firm commodity prices. India underperformed due to higher inflation, rising crude prices and concerns about AI disruption in IT services.
Emerging markets outperformed developed markets for a second month, supported by easing inflation, strong capital inflows and continued momentum in technology linked sectors. Korea, Brazil and Thailand were among the top performers, while Indonesia and Singapore lagged. Latin America continued to attract accelerating inflows, with Brazil and Mexico performing strongly and Chile boosted by rising metals prices. Chinese equities softened on weak tech performance and low inflation. India lagged due to inflation and oil price concerns. Middle Eastern markets faced increased risk following US Israel strikes on Iran and Iran’s retaliatory actions.
Government bonds rallied strongly, with long dated maturities outperforming amid heightened geopolitical risk. US Treasuries, gilts and bunds all posted solid returns. Rate cut expectations in the US faded following hawkish Fed communications and delayed inflation data showing core PCE at 3%. In the UK, gilts were supported by expectations of lower debt issuance and improving fiscal conditions. Eurozone inflation fell below the ECB’s target, and manufacturing activity strengthened. Corporate bond returns were positive despite widening spreads, and investment grade issuance remained strong across currencies.
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