Fresh Anxiety about Coming AI Disruption Adding to Existing Worries about Trade & Geopolitical Tensions
February 5, 2026
The jittery mood of investors is generating big and sudden swings in world financial markets. While last year showcased a suspect dollar but buoyant equity markets, stocks, Bitcoin and precious metals have lately been the objects of most volatility. In overnight action up to this morning’s interest rate decision announcements by the the European Central Bank and Bank of England,
- Net dollar movements against the euro, yen, Canadian dollar and Swiss franc were limited to plus or minus 0.1%.
- Bigger dollar advances were experienced of 0.5% versus sterling and 0.4% against the Australian dollar, Mexican peso and South Korean won.
- Prices for silver, oil, Bitcoin and gold had slumped by 9.9%, 2.3%, 5.0% and 1.5%.
- Sharp and pretty much across-the-board share price declines had been experienced such as 3.9% in South Korea, 1.5% in Taiwan, 1.4% in Spain, 0.9% in Italy and Japan, 0.8% in Germany, and 0.6% in China and India. Key U.S. stock indices had lost around 0.5% in pre-open trading of futures.
The Bank of England’s nine-person Monetary Policy Committee left its Base Rate unchanged at 3.75%. As expected, the vote was narrowly split (5 wanting no change to four dissents favoring another 25-basis point reduction. The prior review in December had agreed to a 25-bp cut, the fourth such move during 2025 and bringing the drop from peak to 150 basis points. The only change between December’s vote and now was Governor Bailey’s switch from siding with the rate cutters in December to joining the rate holders. A released summary of the committee’s latest discussion underscores the primacy of medium-term inflation aligning with the 2% target and characterizes the latest thinking on the matter:
Members had different views on the extent to which the near-term reduction in headline inflation, which predominantly reflected one-off factors, would be sufficient to curb remaining risks of persistence in underlying inflationary pressures.
In considering how monetary policy should be set to balance these risks around inflation settling sustainably at the target, the Committee judged that, on the basis of the current evidence, Bank Rate was likely to be reduced further, although there were different views on the timing and extent. Judgements around further policy easing would become a closer call. With uncertainty around how precisely a neutral level of Bank Rate could be estimated, slowing the pace of further easing could provide space to gain assurance about how the risks were evolving.
The interest rate structure at the European Central Bank (a 2.15% refinancing rate surrounded by a 2.0% deposit rate and 2.40% on the marginal lending facility rate) had likewise been expected not to change, and that is what happened. Those rates have been in place since mid-2025, and the Governing Council’s thinking, summarized below, has not changed since the prior review.
The economy remains resilient in a challenging global environment. Low unemployment, solid private sector balance sheets, the gradual rollout of public spending on defence and infrastructure and the supportive effects of the past interest rate cuts are underpinning growth. At the same time, the outlook is still uncertain, owing particularly to ongoing global trade policy uncertainty and geopolitical tensions. The Governing Council is not pre-committing to a particular rate path. Decisions will be based on its assessment of the inflation outlook and the risks surrounding it.
In advance of tomorrow’s scheduled release U.S. January labor situation data, weaker-than-forecast information was learned both yesterday and today. First, ADP’s estimate of only a 22k rise in private-sector employment last month was only half as much as the street’s consensus and also less than occurred in December. Secondly, the latest weekly readings for new and continuing jobless insurance claims were each larger than forecast.
December retail sales volume in Euroland during December reported today also proved disappointing. Their 0.5% monthly drop was the largest decline in 12 months and cut the 12-month rate of increase nearly in half to a 3-month low of 1.3%. Euroland’s construction purchasing managers index meanwhile also touched a 3-month low in January and held solidly in sub-50 constractionary territory with a reading of 45.3. Germany’s construction PMI had edged above 50 ion December for only the first time in 32 months but relapsed to 44.7 last month. The French and Italian construction PMI’s remained below 50, too, and were at respective 2- and 5-month lows of 43.5 and 47.7.
French industrial production lost momentum over the course of last year’s final quarter, dropping 0.7% in December after upticks of 0.1% in November, 0.2% in October and 0.9% in September.
German industrial orders, on the other hand, far exceeded market expectations in December, with increases of 7.8% from November and 13.0% compared to December 2024. Orders in 4Q exceeded those in 3Q by 9.5%.
The British construction purchasing managers index jumped 6.3 points in January to a 7-month high of 46.4 but stayed below 50.
Ireland’s composite and service sector PMI indices fell to four-month lows last month but stayed in expansionary territory with scores of 53.3 and 54.5.
Indonesian on-year GDP growth in 2025 — 4.9% in 1Q, 5.1% in 2Q, 5.0% in 3Q and 5.4% last quarter — was the epitome of stability and resulted in an average growth rate for the whole year of 5.16% that was likewise indistinguishable from 5.03% the year before.
Consumer price inflation in the Philippines edged up 0.2 percentage points to an 11-month high of 2.0% but well under the cyclical high of 8.7% in January 2023.
The policy interest rate of the National Bank of Moldova was kept steady at 5.0% at the latest scheduled review. The rate had been cut by 150 basis points total in three moves during the second half of 2025, as CPI inflation receded from 9.1% in January to 6.8% in December. Officials are now hoping to see the effects of previous moves toward a less restrictive stance.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of England, Euroland and British construction purchasing managers surveys, European Central Bank, German industrial orders, National Bank of Moldova
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