Global Market Outlook
February 2026
Global markets delivered a mixed set of signals as strong equity momentum contrasted with persistent inflation pressures and tightening policy dynamics across major economies. In the United States, equity markets surged, with the Dow Jones Industrial Average closing at a fresh record high after a sharp 2.5 percent rally. The move reflected improving investor confidence and renewed optimism around near term economic resilience, even as broader macro risks remain unresolved.
At the same time, inflation dynamics and central bank policy continue to dominate the global narrative. While some indicators point to easing near term pressures, longer term inflation expectations remain elevated, reinforcing a complex backdrop for policymakers and investors alike.
US Consumer Confidence Improves but Caution Remains
US consumer sentiment continued to recover modestly, with the University of Michigan sentiment index rising to 57.3. This marked the third consecutive monthly improvement, suggesting that households are beginning to stabilise after a prolonged period of pressure from higher prices and tighter financial conditions.
Despite the improvement, sentiment remains approximately twenty percent below levels seen at the start of last year, underscoring that confidence has not fully recovered. Consumers remain sensitive to inflation, interest rates, and economic uncertainty, limiting the scope for an unchallenged acceleration in demand.
Inflation Expectations Send Mixed Signals
Inflation expectations provided a more nuanced picture. Year ahead inflation expectations fell sharply to 3.5 percent from 4.0 percent, offering some relief to policymakers concerned about entrenched near term price pressures. However, longer term inflation expectations edged higher to 3.4 percent for the second consecutive month.
This divergence highlights a key challenge facing the Federal Reserve. While near term inflation pressures appear to be easing, inflation psychology over the medium term remains elevated. As a result, policymakers are likely to remain cautious, maintaining restrictive financial conditions until confidence in sustained disinflation is firmly established.
China Reinforces Reserve Strength and Strategic Diversification
In China, reserve data pointed to continued financial resilience and strategic diversification. Foreign exchange reserves rose to 3.39 trillion US dollars, marking the largest monthly increase since late 2015. The rise reflects a combination of valuation effects and capital flows, reinforcing confidence in external stability.
At the same time, the People’s Bank of China increased its gold reserves for the fifteenth consecutive month, lifting total holdings to 2,306 tonnes. This ongoing accumulation highlights a sustained effort to diversify reserve assets away from traditional currency exposure, reinforcing gold’s role as a strategic reserve asset in an increasingly fragmented global system.
Australia Tightens as Inflation Pressures Persist
In Australia, inflation remains a central policy concern. Persistent strength in price data prompted the Reserve Bank of Australia to raise interest rates by 25 basis points to 3.85 percent. The move reinforces a firm policy stance aimed at containing inflation, even as growth risks begin to emerge.
The decision underscores the difficult balance facing central banks globally. Inflation remains too elevated to justify rapid easing, yet tighter policy continues to weigh on growth momentum, contributing to increased market volatility and uncertainty.
Equity Markets Face a Challenging Balance
Despite recent strength in headline equity indices, the broader market backdrop remains mixed. Resilient consumer spending continues to support near term growth, but slowing employment momentum and persistent inflation pressures suggest that financial conditions are likely to remain restrictive for longer.
This combination of cooling labour dynamics alongside firm consumption is characteristic of a late cycle environment. Historically, such conditions have posed challenges for equity valuations, as earnings growth begins to moderate while discount rates remain elevated.
Outlook for Markets
The current market environment is defined by competing forces. Equity markets continue to find support from resilient growth and improving sentiment, while inflation pressures and restrictive monetary policy limit upside potential. Central banks remain constrained, balancing the need to control inflation against the risk of slowing economic momentum.
In this environment, ETO Markets continues to view diversification, disciplined risk management, and a cautious approach to risk assets as essential. While short term rallies may persist, elevated valuations, policy uncertainty, and lingering inflation risks suggest that volatility is likely to remain a defining feature of markets in the period ahead.
Disclaimer
This article is provided for general informational purposes only and does not constitute investment advice. Market conditions are subject to change without notice. Investors should carefully consider their financial situation and seek independent professional advice before making any investment decisions.