Global Market Outlook | February 2026
Global markets experienced another volatile week as investors responded to sharp asset repricing, renewed policy uncertainty, and mixed macroeconomic signals across major economies. In the United States, precious metals underwent a significant correction, with gold declining around eight percent and silver falling approximately twenty five percent. The move reflected aggressive profit taking following an extended rally, although both metals remain higher on a year to date basis.
Political risk returned to the foreground after former US President Donald Trump nominated Kevin Warsh to succeed Jerome Powell as Chair of the Federal Reserve. The nomination prompted a rapid reassessment of the future path of US monetary policy and acted as a key catalyst for the abrupt shift in market sentiment.
At the same time, inflation data reinforced a cautious backdrop. US producer prices rose strongly in December, with both headline and core measures posting their largest monthly increases in several months. These data points underscored that underlying inflation pressures remain persistent even as parts of the economy show signs of cooling.
US Policy Uncertainty Triggers Market Repricing
The nomination of Kevin Warsh was widely interpreted by markets as a signal that monetary policy may tilt toward stronger inflation discipline and a more cautious approach to easing. Warsh is generally viewed as more hawkish than his predecessor, with a long standing emphasis on central bank credibility, policy clarity, and inflation control.
This shift challenged a key assumption underpinning the earlier rally in precious metals and risk assets, namely that US monetary policy would move decisively toward easier conditions under growing political pressure. As expectations for lower real interest rates were repriced, markets adjusted rapidly, leading to a sharp reversal in non yielding assets such as gold and silver.
The episode highlights how sensitive markets remain to changes in perceived policy direction, particularly at a time when positioning had become extended and confidence in a dovish policy pivot was widespread.
Inflation Pressures Complicate the Outlook
Inflation remains a central concern for markets. US producer price inflation rose sharply on both a headline and core basis, reinforcing concerns that inflation may prove more persistent than previously assumed. Elevated input costs and pricing pressures at the producer level increase the risk that inflation could reaccelerate or remain structurally higher than in the pre pandemic period.
This dynamic complicates the Federal Reserve’s task. While growth momentum has moderated, inflation remains sufficiently elevated to limit the scope for aggressive easing. As a result, policy flexibility appears constrained, increasing the likelihood that interest rates remain restrictive for longer than markets had anticipated earlier in the year.
Precious Metals Correct but Structural Drivers Remain
The correction in gold and silver reflects a recalibration of near term expectations rather than a complete reversal of the longer term investment case. Precious metals had rallied strongly on expectations of looser monetary policy, fiscal dominance, and declining confidence in fiat currencies. The nomination of a more inflation focused Federal Reserve Chair forced markets to reassess those assumptions.
Silver experienced a disproportionately larger decline due to its dual role as both a monetary and industrial metal. In addition to monetary considerations, silver prices had been supported by optimism around industrial demand linked to energy transition and manufacturing. The prospect of tighter financial conditions raised concerns that global growth and industrial activity could slow, amplifying downside pressure.
Despite the sharp sell off, structural factors supporting precious metals remain in place. Geopolitical risk, fiscal sustainability concerns, reserve diversification by central banks, and long term inflation uncertainty continue to underpin demand, suggesting that the recent move represents consolidation rather than capitulation.
China and Australia Add to the Mixed Global Picture
Economic data from China pointed to renewed weakness at the start of the year. Both manufacturing and non-manufacturing activity slipped into contractionary territory, signaling ongoing challenges for domestic demand and confidence. The composite output index also eased below the expansion threshold, reinforcing concerns that recovery momentum remains fragile despite earlier stabilisation efforts.
In Australia, inflation surprised to the upside. Headline inflation rose well above the Reserve Bank of Australia’s target range, strengthening the case for interest rates to remain restrictive for longer. This outcome adds another layer of complexity for policymakers as they balance slowing growth risks against persistent inflation pressures.
Outlook for Markets
The early weeks of February highlight an environment characterised by heightened volatility, policy uncertainty, and competing macro forces. A shift in expectations around US monetary leadership has triggered rapid repricing across markets, while inflation pressures continue to limit policy flexibility globally.
For equities, higher for longer interest rate expectations and tighter financial conditions increase near term downside risks, particularly for valuation sensitive sectors. For precious metals, the correction reflects a reassessment of near term policy expectations rather than a breakdown in long term fundamentals.
In this environment, ETO Markets continues to view diversification, disciplined risk management, and a balanced approach to real and financial assets as essential for navigating a more uncertain and policy sensitive global market landscape.
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.