Market Analysis Summary - Week Ahead
Date: 16 February 2026
Author: Kathleen Brooks, Research Director UK
Key Takeaways
- Starmer’s desire for closer ties with the EU is influencing equity markets.
- US Treasuries are unaffected by fears of China selling.
- The AI trade is characterized by fear-driven selling.
- The stock market sell-off has potential benefits.
- UK economic data is in focus this week.
Market Overview
The week is expected to start quietly with US markets closed for Presidents Day. European markets are showing positive trends, particularly in banking and defense sectors, following announcements of increased defense spending and a push for closer EU relations.
US Treasuries and Market Dynamics
Last week saw a rally in US Treasuries, marking their best performance in months, despite concerns over Chinese banks reducing their exposure to US Treasuries. This indicates that current economic data and a tame CPI report are more influential than geopolitical fears.
The divergence between US bonds and stocks is notable, driven by expectations of potential Fed rate cuts and the disruptive impact of the AI scare on stock performance.
The AI Trade
The AI scare trade has recently affected logistics firms, with significant sell-offs in tech stocks. The narrative surrounding AI has led to a substantial decline in valuations, with over $1 trillion lost in the software and services sector this year. However, skepticism is growing regarding the sustainability of this fear, especially as companies with little experience in logistics claim to revolutionize the industry with AI.
Concerns are raised that the sell-off may have been excessive, as AI technology still requires human oversight and management to be effective.
Benefits of the Sell-Off
Despite the negative sentiment, the sell-off has led to more reasonable valuations for tech firms. For instance, Salesforce's P/E ratio has dropped significantly, suggesting potential investment opportunities as fears subside.
Upcoming Economic Data
This week is crucial for UK economic data, including retail sales, labor market statistics, and CPI reports. Analysts predict a slight increase in the unemployment rate and a moderation in wage growth. The CPI is expected to show a decrease in inflation, which could influence the Bank of England's decisions on interest rates.
In the US, the FOMC minutes and PCE inflation data will be closely watched, as any hints of further rate cuts could impact the dollar and Treasury markets.