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Equity markets globally finished lower over the week ended February 6. The decline was driven by a selloff in technology shares, largely in response to concerns over artificial intelligence (AI) spending and the return on that investment. The S&P/TSX Composite Index moved higher, led by the consumer staples sector. U.S. equities dropped. Yields on 10-year government bonds in Canada and the U.S. declined. The price of gold edged higher, while the price of oil declined.
Canada’s economy sheds jobs
Canada’s economy lost 24,800 jobs in January, marking its first month of job losses since August 2024.
The job losses were concentrated in the part-time sector, which shed 69,700 jobs over the month. On the other hand, the full-time sector added 44,900 jobs.
Significant job losses were seen in the manufacturing and educational services sectors. Despite the job losses, Canada’s unemployment rate declined to 6.5% in January from 6.8% in the previous month. This matches November’s rate, which was the lowest since 2024.
The job losses and slowdown in wage growth were concerning to market participants. The lower unemployment rate was a pleasant surprise, but underneath the headline was that the number of unemployed persons dropped by roughly the same amount as the number of individuals who left the labour market, which lowered the participation rate.
Canada’s labour market showed signs of stabilizing over the previous few months, but January’s report shows some lingering fragility amid economic and trade uncertainty.
U.S. manufacturing activity expands at a multi-year high
Manufacturing activity in the U.S. expanded in January, growing at its fastest pace since August 2022.
The Institute of Supply Management (ISM) Manufacturing Purchasing Managers Index increased to 52.6 in January from 47.9 in the previous month. According to ISM, this marked the first expansion in manufacturing activity in a year.
The sector benefited from a robust increase in new orders and production, which both expanded in January.
ISM cautioned that January is typically a good month, benefiting from reorders after the holiday season. The chair of the ISM also said that some of the buying activity may have been made to get ahead of expected price increases in response to ongoing tariffs.
The U.S. imposed tariffs on countries around the world. One of the goals was to bring manufacturing capabilities back to the U.S. However, manufacturing activity was contractionary over much of 2025
Central banks in Europe hold steady on interest rates
The European Central Bank (“ECB”) held its three policy interest rates steady at its first meeting of 2026. The ECB’s main refinancing rate currently stands at 2.15%.
Europe’s annual inflation rate was 1.7% in January. The ECB believes inflation is likely to be near its 2% target over the medium term. Europe’s central bank did caution that the outlook for the eurozone economy remains unclear amid geopolitical, trade and policy uncertainty.
The Bank of England (“BoE”) also held steady, keeping its policy interest rate unchanged at 3.75%, in what turned out to be another close vote among BoE officials.
Four of the nine BoE members voted for another rate cut. The BoE believes inflation may remain above target but should moderate in the months to come. On the other hand, the BoE believes a weak U.K. labour market and soft domestic demand could weigh on economic activity.
Both central banks are facing a relatively uncertain outlook in response to trade and geopolitical tensions. These central banks appear willing to change their policy interest rates should their outlooks shift due to changing economic conditions.
China sees slight improvement in business activity
Business activity in China edged higher in January, benefiting from small improvements in its manufacturing and services sectors.
The RatingDog China Composite Purchasing Managers Index rose to 51.6 in January from 51.3 in the previous month. This was the fastest pace of business activity in China since October 2025. Manufacturing and services sector activity both benefited from higher output, ahead of the Lunar New Year holiday.
Continuing to build its economy, particularly with regards to AI, electrical power will be key. Recent data showed that China added more power capacity across energy technologies in the past four years than the U.S. has in all its history.
BloombergNEF projects China will add more than 3.4 terawatts of electricity generation by 2030, which would be multiples above the amount expected by the U.S. This could help in its ambition to dominate the AI race.
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