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Central banks pause as risk appetite sours

Major central banks kept policy settings unchanged on Thursday, with the European Central Bank and Bank of England both leaving rates on hold and the Reserve Bank of India also pausing after last year’s cuts. Equity markets weakened in the wake of the decisions, as US and European stocks fell on renewed worries about elevated technology valuations, softer US labour market data and ongoing pressure on cryptocurrencies, while Asian tech-heavy indices were mostly lower on Friday. Precious metals added to the turbulence: silver prices continued to swing violently, plunging nearly 10% before rebounding, and gold also whipsawed higher, underscoring nerves even in traditional haven markets. US Treasury yields edged lower as investors digested the run of weaker employment indicators.

  • Date
  • Author Shane Strowmatt, Senior Investment Writer
  • Reading time 5 minutes

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The European Central Bank (ECB) kept its key interest rate at 2% at its first policy meeting of 2026 on Thursday, maintaining a data-dependent stance as inflation hovers around its 2% target but downside risks persist. Policymakers highlighted that resilient growth, supported by low unemployment, solid private balance sheets, higher public spending and earlier rate cuts, is offset by uncertainty from global trade tensions and geopolitics. The recent appreciation of the euro, which has gained almost 14% against the US dollar over the past year, is adding disinflationary pressure at a time when euro-area inflation has eased to 1.7% in January, prompting the ECB to closely monitor the currency’s impact on prices. Market participants largely expect rates to remain unchanged in the euro area through 2026. On Thursday, the Euro Stoxx 50 fell 0.7%, while Germany’s DAX lost 0.5% and France’s CAC 40 and Switzerland’s Swiss Market Index declined 0.3%.

Bank of England holds as cuts loom

The Bank of England left its key interest rate at 3.75% at its first policy meeting of 2026 on Thursday, with the Monetary Policy Committee voting by a narrow 5 to 4 margin to pause after December’s cut, as inflation stood at 3.4% in December and recent growth data surprised on the upside. The central bank reiterated that policy is calibrated to bring UK inflation back to its 2% target and keep it there sustainably, signalling that further easing is likely but that the scale and timing will depend on how the inflation outlook evolves, with officials expecting price growth to fall close to target from April. Governor Andrew Bailey said he sees scope for additional cuts but will judge each meeting individually, while the market expects two to three cuts in 2026.

Asian tech stocks retreat

India’s central bank also kept its key policy rate unchanged at 5.25% on Friday, pausing its easing cycle after cutting benchmark rates by a total of 125 basis points last year. India’s stock market was trading better than most in the Asia-Pacific region on Friday, with the Nifty 50 essentially flat. Other Asian equities came under pressure on as a technology-led selloff dragged South Korea’s KOSPI down 1.5%, with heavyweight chipmakers Samsung Electronics and SK Hynix declining. Indonesian assets were particularly weak after Moody’s lowered the country’s credit rating outlook on Thursday, with the Jakarta Composite Index falling more than 2% and the rupiah sliding to its lowest level since late January. Australia’s S&P/ASX 200 was trading 2% lower, while Hong Kong’s Hang Seng Index was down 1.2% and mainland China’s CSI 300 was 0.2% weaker. Japan’s Nikkei 225 bucked the trend, trading 0.8% higher.

Tech stocks weigh on Wall Street

US equities closed lower on Thursday as renewed weakness in technology shares, concerns around artificial intelligence investments and a sharp Bitcoin drop unsettled markets. The Dow Jones Industrial Average fell 1.2% after reaching a record high on Tuesday, while the S&P 500 lost 1.2% and the Nasdaq 100 declined 1.4% to its lowest level since November, with traders also reacting to unexpectedly weak US labour market data from last week. Alphabet’s share price, which had been down as much as 8% after announcing plans to invest up to USD 185 billion mainly in data centres to support AI, closed only 0.5% lower, but worries persisted over which companies will ultimately benefit from or be burdened by the high costs of AI. Those concerns caused Amazon shares to fall more than 10% in late US trading on Thursday after the online retail and cloud computing group reported mixed fourth-quarter results and sharply raised its 2026 capital expenditure guidance to USD 200 billion. Crypto-exposed stocks such as Strategy and Coinbase slumped alongside Bitcoin’s slide, which briefly traded just above USD 60,000 but bounced back to nearly USD 66,000 on Friday.

US Treasury yields fall on softer jobs data

US Treasury yields declined on Thursday as a series of labour market indicators pointed to cooling employment conditions, with the ten-year yield slipping to below 4.2% and the two-year to under 3.5%. The latest JOLTs data showed job openings falling to 6.54 million in December from a revised 6.93 million in November, the lowest level since September 2020, while initial jobless claims for the week to Saturday rose by 22,000 to 231,000, exceeding economists’ expectations. Additional reports underlined the softer tone, with Challenger, Gray & Christmas flagging the highest January layoff announcements since 2009 and the weakest planned hiring for the month since that year, and the ADP survey indicating that private-sector payroll growth slowed to 22,000 in January from 37,000 in December. Some market participants suggested that the accumulating signs of labour market weakness could prompt the Federal Reserve to deliver more interest rate cuts this year than markets currently anticipate, with investors now looking to next Wednesday’s delayed official January employment report for further confirmation.

Corporate and economic calendar

Corporate news in focus: Quarterly figures from Philip Morris and Toyota Motor.

Economic data in focus: German trade balance (08:00), German manufacturing production (08:00), French trade balance (08:45), Swiss unemployment rate (09:00), Canadian unemployment rate (14:30) and University of Michigan Consumer Sentiment Index (16:00).

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Alessandro Fezzi
Source: LGT Bank (Switzerland) Ltd.

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