US Data Benign, but AI Disruption Fears Persist

For the week ending 13 February 2026

As of midday Friday, global equities were modestly lower on the week amid softness in US large caps. The yield on the US 10-year note declined 14 basis points from a week ago, to 4.06% from 4.20%, amid rising equity volatility and softer inflation readings. The price of a barrel of West Texas Intermediate crude oil remained unchanged at $62.75, while volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 21.5 from 20 last Friday.

MACRO NEWS

US payrolls beat expectations

The US economy added 130,000 jobs in January, doubling the Bloomberg consensus estimate, while the unemployment rate declined to 4.3% from 4.4%. However, a final benchmark revision of the total number of jobs created in 2025 subtracted 862,000, which was higher than expected, though lower than the preliminary estimate of -911,000. On average, the US added only 15,000 jobs per month last year. Adjustments to the Bureau of Labor Statistics birth-death model prompted some economists to question whether the January payroll gains are as strong as they appear. Regardless, the data show no signs of rapid cooling in the US labor market.

US CPI eased in January

Consumer prices in the US rose 2.4% year-over-year in January, down from 2.7% in December, while the core rate fell to 2.5% from 2.6% over the same time period. After today’s slightly-better-than-expected data, traders began to price in a third rate cut from the US Federal Reserve in the second half of 2026. With core goods prices flat for a third straight month, some are coming to the conclusion that any passthrough to prices from tariffs has been completed.

From AI-phoria to AI-phobia

Last week, software stocks were hammered as investors feared AI would make many applications obsolete. This week, it was the stocks of wealth management firms that were in the crosshairs as the introduction of an AI tax-planning tool prompted concerns that the technology might disrupt the traditional financial advisory business model.  Credit veteran Wall Street strategist Ed Yardeni with coining the phrase “from AI-phoria to AI-phobia” this week as the market appears to be shiftng into “shoot first, ask questions later” mode. Such upheaval could provide opportunities for active managers to separate the AI winners from the losers. Smaller and value-oriented stocks continue to outperform large growth stocks, and foreign stocks, particularly emerging markets, continue to outperform the US.

QUICK HITS

China warned its banks to limit exposure to US Treasuries due to concentration risks and market volatility. The decision was positioned primarily as an effort to diversify market risk rather than being motivated by geopolitical considerations or concerns regarding the fundamental creditworthiness of the United States.

Bank of France Governor François Villeroy de Galhau will step down from his post in June.

Driven by demand for AI chips, Taiwan's exports surged 69.9% in January, the fastest growth in 16 years.

US Treasury Secretary Scott Bessent said this week that he would not expect the US Federal Reserve to move quickly to shrink its balance sheet, even under the leadership of Fed chair nominee Kevin Warsh, a critic of the central bank’s large balance sheet.

British Prime Minister Keir Starmer, already struggling amid low approval ratings, is under political pressure after two close advisors resigned this week over the decision to appoint Peter Mandelson — who was known to have ties to disgraced financier Jeffery Epstein — as the UK’s ambassador to the US. Mandelson recently resigned from the House of Lords amid a probe into whether he had shared sensitive government information with Epstein. Despite the controversy, Starmer has vowed not to resign.

Starmer was not the only high-ranking official tied to Epstein this week. US Commerce Secretary Howard Lutnick told the Senate Appropriations Committee that he and his family briefly visited Epstein’s Caribbean island in 2012, years after Lutnick previously stated that he had cut ties with him.

Google’s parent company Alphabet this week sold a £1 billion 100-year bond this week to fund its AI-expansion push. The deal was 10 times oversubscribed — a sign to some of market frothiness.

On Thursday the Trump administration officially rescinded the US Environmental Protection Agency’s 2009 Endangerment Finding, removing the primary legal and scientific basis for federal regulation of greenhouse gas emissions. The White House estimates the rollback will save Americans roughly $1.3 trillion in regulatory costs, including an average of $2,400 per new vehicle.

US retail sales were weaker than expected in December, coming in unchanged. Core sales fell 0.1%.

The US employment costs index rose 0.7% in Q4 2025 from 0.8% in Q3. For the full year ending in December 2025, total compensation costs increased 3.4%.

The US is sending a second aircraft carrier group to the Middle East, increasing pressure on Iranian leaders to come to an agreement with the US on the country’s nuclear program. The Wall Street Journal reported on Thursday that the US smuggled thousands of Starlink terminals into Iran after a government crackdown against anti-regime protestors in January.

Although consumer prices in China have steadied, producer prices are still decreasing, though not as rapidly as they were during mid-2025. In January, the Producer Price Index dropped 1.4% compared to the previous year, which is an improvement from the -3.6% decline recorded in July last year.

The US Treasury Department has issued a general license to support oil and gas exploration in Venezuela. The license permits US companies to provide goods, software and services for the exploration, development and production of oil and gas. The US Energy Information Administration estimates that this could increase Venezuela's crude production by up to 20% in the coming months.

The US Congressional Budget Office forecasts that the US government will run a $1.9 trillion budget deficit in 2026, which is little changed from 2025.

German Chancellor Friedrich Merz said on Wednesday that Europe is “falling behind” in AI due to “overly complex rules” and that it needs to close the AI gap with the US and China.  He also pointed out that over the past two decades, Europe's economic growth has lagged significantly behind that of the US and China, resulting in Europe falling behind.

Six Republican members of the House of Representatives crossed the aisle to vote with Democrats to pass a resolution aimed at overturning President Trump’s 25% tariffs on Canada. Trump has vowed to veto any measure to limit tariffs that reaches his desk.  

Facing what he describes as a "dual crisis" of intense economic competition from China and growing instability in the United States, French President Emmanuel Macron called this week for a shared European debt capacity to fund critical strategic investments. German Chancellor Merz has rejected the idea.

Existing home sales in the US fell 8.4% month-over-month in January amid dreadful winter weather across much of the country. The median home price rose 0.9% to $396,800.

On Thursday, the US and Taiwan signed a trade agreement that will see the US lower tariffs on imports from Taiwan to 15% from 20%. Additionally, Taiwan has agreed to invest $250 billion in the US semiconductor supply chain. Taiwan will also lower tariffs on a range of US goods, including autos.

Funding for the US Department of Homeland Security is expected to lapse on Saturday; the US Senate failed to pass an appropriations bill on Thursday as disagreement persists over immigration enforcement tactics. Essential services, such as airport security screenings, are expected to continue during the departmental shutdown.

EARNINGS NEWS

With about three-quarters of the constituents of the S&P 500 Index having reported, blended earnings per share (which combines reported data with estimates for those that have yet to report) rose 13.2% compared with the same quarter last year, according to data from FactSet. Blended sales have risen 9.1% year-over-year. 

THE WEEK AHEAD

Monday: US closes for Presidents’ Day; Japan GDP

Tuesday: UK unemployment; Canada CPI

Wednesday: Japan trade balance; UK CPI; US durable goods, industrial production

Thursday: US trade balance

Friday: Global preliminary February PMIs; Japan CPI; UK retail sales; US PCE, GDP

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Past performance is no guarantee of future results.

Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.