Global financial market wrap February

2026 is well underway, and markets are displaying a familiar expression: cautiously optimistic, but with an eyebrow raised. There’s enough good news to stay invested, yet enough uncertainty to keep portfolios diversified and risk-aware. Across the globe, the data has been mixed, shaping how we’re positioning portfolios.

Australian business confidence edged higher, with the NAB Business Confidence index rising to 3 from 2. It’s not euphoric, but it’s heading in the right direction and quietly supportive for the Australian dollar.

In the US, durable goods orders surprised to the upside, jumping 5.3% after a sharp fall previously. That’s a strong signal that businesses are still investing in equipment and capital. It is encouraging for equity markets, signalling confidence in future demand.

US jobs data also came in stronger than expected. Interestingly, the US dollar softened as markets recalibrated expectations around Federal Reserve policy. While fewer rate cuts aren’t automatically “good news” for markets, a resilient labour market is still one of the best indicators of economic strength. Put simply, people with jobs tend to spend money.

China also delivered some modestly positive signals. Industrial profits showed signs of stabilisation late last year, and manufacturing activity finally moved back into expansion territory, with the official PMI lifting to 50.1. After eight months of contraction, this matters. Add to that President Xi’s pledge of more proactive macro policies for 2026, and markets are starting to believe that Chinese growth may have found a floor.

Australian inflation surprised on the upside, prompting the RBA to raise the cash rate, complicating the outlook for households and interest-sensitive sectors.

Inflation pressures popped up elsewhere as well. UK shop price inflation came in well above expectations, reminding investors that the global inflation problem isn’t neatly solved. In Europe, manufacturing remains firmly in contraction, with weak PMI data and disappointing German business confidence reinforcing a cautious outlook for the region.

Japan’s core inflation staying above the Bank of Japan’s target has kept yen volatility at the forefront, while China’s services sector slowed to its weakest pace in six months. That’s particularly disappointing given Beijing’s focus on boosting domestic demand.

Our base case, and the one portfolios are positioned for, carries a 79% probability. We expect markets to enter 2026 with a cautiously constructive tone. Corporate earnings remain resilient, fiscal spending continues, and financial conditions remain relatively supportive. That said, high investor confidence and crowded equity positions leave markets vulnerable to short-term shocks. Tariffs, inflation surprises, central bank pivots, or bond market stress could all trigger bouts of volatility.

Inflation is the wild card. While our expectation for subdued inflation in early 2025 played out, inflation outside China remains elevated compared to pre-pandemic norms. That uncertainty alone is enough to keep markets jumpy.

We remain constructive on global growth and risk assets, supported by fiscal expansion and structural themes such as AI and energy infrastructure. At the same time, we continue to hold inflation hedges, including precious metals, given the scale of refinancing activity expected in 2026 and the importance of liquidity.

There are alternative paths. Our bear case (8% probability) involves a sharper slowdown in consumer spending, renewed banking stress, stubborn inflation and limited central bank flexibility. In that world, we would pivot defensively, more cash, fewer equities and a focus on resilient sectors.

The bull case (13% probability) is more fun. Growth accelerates, inflation falls without derailing activity, AI boosts productivity, and governments lean into stimulus. If that plays out, risk assets could enjoy a renewed upswing.

For now, our stance remains clear: biased toward growth over the medium term, realistic about short-term volatility, and ready to use pullbacks as opportunities. Markets don’t need perfection; they just need things to be “less bad than feared”. And for now, that’s still on the table.

Our goal is to help you focus on long-term growth and wealth preservation.
Cayle Petritsch, Director and Wealth Advisor, is a leading financial advisor on Sydney’s North Shore.

He has helped many Australians maximise their financial positions and leverage opportunities, leading to sustained, profitable wealth accumulation.

Contact Cayle today.