Market Spinner

2 February 2026

THE WEEK THAT WAS

MARKET MOVES

• Fed upbeat on growth, constructive on inflation implying no rate cut soon. Warsh nominated next Fed chair. Perceived as hawkish by markets.
• Compromise makes full US shutdown unlikely. US data on balance positive (cons. conf. down but durables, factory orders up).
• Pres. Trump's remarks in favor of a weak dollar pushed EUR/USD temporarily above 1.20 for the first time since 2021.
• EA Q4 GDP (0.3% qoq) and Jan. ESI above exp. defying concerns from stalling comp. PMI and ifo about the recovery.
• Short-dated Bund yields depressed by ECB key rate cut speculation.
• IG credit spreads at tightest level since 2007 but concerns about the tech sector a risk.
• Q4 reporting season strong. More market differentiation in tech sector.
• Geopolitical tensions (Iran) drove up oil prices.

COMING UP!

KEY EVENTS

• EA in focus this week. Jan flash inflation rate (Wed) to fall below 2.0% yoy due to energy price base effects but core to stay at 2.3% yoy. ECB (Thu) to leave rates unchanged but watch out for comments on recent EUR appreciation (see box).
• US: Non-farm payrolls (Fri) key. Market exp. of +85k looks challenging but unemp. rate set to stay low. Uni. of Michigan cons. conf. (Fri) an important ingredient to assess state of US economy following weak Conference Board sentiment last week.
• Snap elections in Japan on Feb. 8 (Sun) amid lingering fiscal worries. US: Following a bipartisan funding deal the current partial shutdown should end early this week.
• Monetary policy meeting in Poland (Wed), the UK (Thu) and Czech Rep. (Thu). We have some doubts about market exp. of a cut in Poland but agree with constant rates by the Czech CB and BoE.

A CHART SPEAKS A THOUSAND WORDS

TO THE CORE

On Jan 27 Pres. Trump asked if the dollar had fallen too much replied "I think it's great... the dollar's doing great." Albeit Treasury Sec. Bessent later reaffirmed the U.S. "strong dollar" policy established in 1995 his assurance offered little respite to the dollar.

IGNORE AT YOUR PERIL

Euro strength reanimating rate cut speculation

January's brief rise of the euro above 1.20 USD/EUR revived speculation about an ECB response. The trade-weighted euro has also firmed and now stands about 2.2% above last year's average, versus 1.6% in the ECB's latest staff assumptions. An ECB study suggests that a 1% euro appreciation trims headline inflation by only ~0.04pp within a year, implying the Governing Council (GC) can largely look through it for now.

Still, euro strength lands in a tough global backdrop of U.S. tariffs and intense competition with China. And the risk remains of a sharper euro upswing, for instance if U.S. confidence is shaken. While the ECB repeats that the exchange rate isn't a policy target, it matters for the inflation outlook. Recent remarks by Governor Villeroy de Galhau that a "strong euro" will guide policy signals that the exchange rate has become a more explicit input to the reaction function. Generally, latest GC members' comments were dovish highlighting also uncertainty and tariffs as risks.

At the 5 Feb. meeting we expect President Lagarde to stick to a data dependent, wait-and-see stance, while hinting that persistent euro appreciation could warrant policy rates below the 2% level currently seen as a 'good place'.

Martin Wolburg (Martin.Wolburg@generali-invest.com)

Market Spinner

2 February 2026

IMPORTANT INFORMATION

Sources for charts and tables: Datastream, Bloomberg, own calculations

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