AI Disruption Fears Intensify

For the week ending 6 February 2026

As of midday Friday, global equities were lower on the week, as was the yield on the US 10-year Treasury note, which declined to 4.20% from 4.24% a week ago. The price of a barrel of West Texas Intermediate crude oil fell about $1 from last Friday to $62.75. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 20 from 17.25. 

MACRO NEWS

AI disruption fears roil software stocks

Fears that AI will cannibalize existing software platforms fueled a deepening downdraft in software stocks this week. The declines follow Anthropic's recent launch of new AI productivity tools, which have created concerns that products offered by legal and data service companies could be quickly made obsolete. At the same time, earnings reports from the some of the largest megacap tech names reveled roughly $650 billion in combined capex from the group in 2026, reviving overinvestment fears. Amid the tumult, which extended to the broader tech sector, as well as to private equity and debt firms with significant exposures to the industry, value stocks were in demand. The Russell 1000^® Value index reached a record high on Wednesday.

US and India reach trade deal

While the details are still being ironed out, the US and India have reached a trade agreement whereby the US will lower its tariff rate on imports from India from 50% to 18%. India had been subject to a 25% reciprocal tariff along with a 25% tariff linked to its purchases of oil from Russia. In a social media post, President Trump said that India has agreed to purchase $500 billion of US goods, switch to buying US and Venezuelan oil, and eliminate tariffs on US imports. India then clarified that the purchase commitments are to extend over five years and will include existing projects, plus investments in datacenters and energy.

Key US data rescheduled

A brief government shutdown this week prompted the US Bureau of Labor Statistics to reschedule the January US employment report from Friday, February 6 to  Wednesday, February 11. In addition, the Consumer Price Index Data will now be released on  Friday, February 13. The US House of Representatives passed a bill on Tuesday funding five of the six departments that had yet to receive appropriations for the balance of the fiscal year while passing  a brief continuing resolution that funds the Department of Homeland Security through February 13 while negotiations over immigration enforcement continue.

Japan PM likely to receive fresh mandate

Ahead of Japanese parliamentary elections this weekend, polling shows that the ruling Liberal Democratic Party/Japan Innovation Party coalition is expected to win about 65% of the seats in the lower house. The LDP/JIP group needs to win 310 of 465 seats to secure a super-majority, which would allow it to override the upper house. Prime Minister Sanae Takaichi’s campaign says that her government will pursue proactive fiscal policy accompanied by fiscal discipline to avoid triggering market volatility. President Trump announced Thursday that PM Takaichi will visit the White House on March 19. 

QUICK HITS

Global purchasing managers’ indices mostly gained ground in January, led by a revival in the US manufacturing index. 

A confluence of weaker anecdotal labor data helped send yields lower late in the week: outplacement firm Challenger, Gray and Christmas reported that layoff announcements more than doubled in January; weekly jobless claims rose (though that was likely weather related); and US job openings fell in December. In addition, the job openings rate fell to 3.9% from 4.2%, though the quits and layoff rates held steady at 2% and 1.1%, respectively.

Famed investor Stanley Druckenmiller — a mentor to Kevin Warsh, President Trump’s nominee to head the Fed — said in an interview with the Financial Times this week that the notion that Warsh is always hawkish is incorrect. Druckenmiller went on to say that Warsh is “very open minded” to the monetary policy approach of former Fed chair Alan Greenspan, who led the central bank in the 1990s during a period of sustained productivity growth. Warsh’s ties and proximity to Silicon Valley as a fellow at Stanford University have him well positioned to understand both the possibilities and risks of AI, Druckenmiller added.

Chinese President Xi Jinping this week called for the Chinese renminbi to become a global reserve currency. For that to happen, China would need to deepen its financial markets and liberalize its rigid capital controls.

Precious metals prices fell back to earth this week after a blistering rally was derailed last Friday by Kevin Warsh’s nomination for Fed chair, which has eased fears of the Fed losing its independence. Gold has retraced about 9% from its record high above $5,400 while silver has fallen more than 35% from its $116 high.  

The European Central Bank and the Bank of England held rates steady this week, but the BOE opened the door to resuming its easing cycle after cutting its inflation forecast. European Central Bank President Christine Lagarde said inflation and ECB policy are in a good place and that she “very much welcomes” Kevin Warsh’s nomination as Fed chair.

Australia raised rates 0.25% for the first time since late 2023 after an uptick in inflation. Its policy rate stands at 3.85%.

A summary of opinions from the Bank of Japan’s January policy meeting indicated a growing awareness of the need to raise interest rates in a timely fashion as authorities monitor the impact of the weak yen on inflation.

Negotiators from the US and Iran are meeting in Oman today to discuss US demands that Iran end its nuclear program.

On Wednesday, Senator Tim Scott of South Carolina, the Republican chair of Senate Banking Committee, said that while Fed Chair Jerome Powell might be “inept,” he hasn’t committed a crime. Earlier in the week, President Trump said the US Attorney in Washington, DC should continue its probe of Powell “to the end.”

After months of political wrangling, the French parliament passed a 2026 budget this week. Prime Minister Sébastien Lecornu resorted to a special constitutional power that allows the government to enact a budget without parliamentary support as long as it survives a no-confidence vote.

Recent data compiled by Barclays PLC shows that since 1930, the S&P 500 Index has experienced significant average drawdowns following the appointment of a new Fed chair. These "market tests" have historically resulted in average maximum declines of 5% within one month, 12% within three months, and 16% within six months of a new chair taking office.

On Thursday, Canada rescinded its requirement that all new vehicles sold in the country be electric by 2035.  

Canada shed 24,800 jobs in January, though the unemployment rate fell to 6.5% from 6.8%.

EARNINGS NEWS

With about 59% 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 12.9% compared with the same quarter last year, according to data from FactSet. Blended sales have risen 8.8% year-over-year. Earnings are on pace for their fifth-straight quarter of double-digit growth.

THE WEEK AHEAD

Monday: Eurozone investor confidence index

Tuesday: US retail sales

Wednesday: China, CPI, PPI; US employment report

Thursday: UK GDP, industrial production; US existing home sales

Friday: Eurozone GDP, trade balance, employment; US CPI 

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