Market Intelligence Brief: Tech Retreat and CPI Day as Tariff Costs Revealed

 

February 13, 2026 - When AI valuation fears resurface before critical inflation data

Friday begins in Asia with markets falling back from record highs after an overnight slide in US technology stocks. Renewed fears on AI stocks resurfaced as investors reassessed perceived overvaluations in this sector. The retreat comes after an upbeat week in which many indexes traded at or near their all-time highs.

Is this a blip, or some sensible profit-taking, or are we seeing the basis of a correction? As mentioned yesterday, after job data effectively put to bed any rate cuts, eyes now turn to today's CPI data.

On a geopolitical front, a New York Federal Reserve Study suggests that US businesses and consumers paid up to 90% of the costs of tariffs. Could we see the US Administration change direction on tariffs as it deals with the cost-of-living crisis? Oil slipped overall on the week amid reported surpluses. The US-Iran negotiations could stretch on for weeks, but the fact that they are talking settles markets.

Tech Retreat: AI Valuation Fears Return

The overnight slide in US technology stocks signals renewed concerns about valuations in the AI sector. After weeks of strength driven by AI optimism, investors are reassessing whether current prices reflect realistic expectations or have moved ahead of fundamentals.

The US NDAQ 100 has, albeit temporarily, run out of steam. It remains to be seen how markets see this perceived overvaluation of AI. This retreat could represent healthy profit-taking or mark the beginning of a more significant correction.

The timing is notable. Tech weakness arrives just as strong employment data has reduced rate cut expectations. Technology stocks are susceptible to interest rate outlooks because their valuations depend heavily on discounted future cash flows.

The question is whether this represents a temporary pause or a more significant reassessment. The answer likely depends on upcoming earnings, revealing whether AI investments translate into revenue, justifying current prices.

 

This Week Recap: Trading Near All-Time Highs

The retreat comes after an upbeat week in which many indexes traded at or near their all-time highs. This context matters because it explains why profit-taking pressure has intensified. When positions are substantially profitable, the risk-reward calculation shifts. Taking profits locks in gains, while holding positions risks giving them back if markets correct.

Perhaps this is just a blip, some sensible profit-taking, or the basis of a correction? This uncertainty captures the current market mood perfectly. Bulls can point to strong fundamentals and argue that any pullback represents a buying opportunity. Bears can point to stretched valuations and reduced rate-cut prospects to say that a correction is overdue.

The phrase "sensible profit taking" acknowledges that after trading near record highs, reducing exposure makes sense regardless of the longer-term outlook. Even investors who remain bullish on fundamentals can rationally decide to lock in gains and wait for better entry points on any pullback.

Dow Back in Range After Brief Breakout

Having broken through resistance levels in early February, the US 30 sits firmly back in that trading range. Is it part of a bigger correction, or are we pausing before we go up again? This return to the range after a brief breakout carries technical significance.

When markets break out of a range but then quickly return to it, it often signals that the breakout was false. Traders who bought the breakout expecting continuation find themselves wrong-footed, leading to selling pressure as they exit positions. This false breakout dynamic can lead to moves back toward the opposite end of the range.

However, the fact that the Dow broke above resistance at all demonstrates that buying pressure exists. The question is whether that buying pressure can sustain moves above the range, or whether sellers will continue to emerge at higher levels, keeping the range intact.

The uncertainty in the commentary reflects genuine ambiguity in the technical picture. Either this is an early stage of a broader correction that will test the lower end of the range, or it's consolidation before another attempt at breaking higher. Today's CPI data will likely determine which scenario plays out.

 

CPI Day: The Moment of Truth

As mentioned yesterday, after job data effectively put to bed any rate cuts, eyes now turn to today's CPI data. Yesterday's strong employment report established that labour markets remain robust, removing one potential justification for Fed easing. Today's inflation data determines whether price pressures warrant cuts or reinforce the need to maintain restrictive policy.

If CPI comes in hot, it creates a scenario where both employment and inflation suggest the Fed should keep rates elevated. Strong labour markets don't require stimulus, and persistent inflation requires restrictive policy. Rate cuts would move further into the future.

If CPI moderates, it provides the offsetting data point that keeps eventual rate cuts plausible despite substantial employment. The Fed could argue that with inflation under control, it has the flexibility to respond to any future economic softening.

Markets are positioned cautiously ahead of this release. The overnight tech weakness suggests investors are de-risking before binary data. If CPI disappoints (i.e., it comes in higher than expected), the combination of reduced rate-cut hopes and tech valuation concerns could drive broader selling. If CPI pleases, it could stabilise tech and support the narrative that a soft landing remains achievable.

 

The Tariff Cost Study: Political Implications

A New York Federal Reserve Study suggests that US businesses and consumers paid up to 90% of the costs of tariffs. This finding carries significant political and economic implications. The conventional wisdom that tariffs are "paid by China" doesn't align with the financial reality that the costs primarily fall on domestic importers and consumers.

When tariffs raise import prices, those costs get passed through the supply chain. Businesses either absorb costs (reducing margins) or pass them to customers (increasing prices). The study found that 90% falls occur domestically, suggesting minimal benefit to domestic producers and substantial cost to consumers.

Could we see the US Administration change direction on tariffs as it deals with the cost-of-living crisis? This question matters because tariff policy directly affects inflation. If the administration faces political pressure over costs, reducing tariffs would be one tool to lower consumer prices.

For markets, tariff policy changes would affect sectors differently. Import-exposed companies would benefit from reduced tariffs. Domestic producers competing with imports would face renewed pressure.

 

Oil Surplus and Iran Talks

Oil slipped overall on the week amid reported surpluses. The US-Iran negotiations could stretch on for weeks, but the fact that they are talking settles markets. These factors combine to keep oil contained despite geopolitical risks.

Reported surpluses indicate production exceeds consumption, creating inventory builds that weigh on prices. The surplus reports suggest concerns about tight oil markets have eased.

Iran negotiations stretching on for weeks removes the immediate risk of escalation that would disrupt supply. While talks haven't produced agreement, they haven't collapsed into confrontation. This middle ground keeps risk premiums minimal.

For broader markets, contained oil removes one potential source of inflation. Stable or declining oil prices make the Fed's job of managing inflation expectations easier.

 

Currency Markets: Dollar Strength Returns

The yen shows notable weakness, down 0.48%, while the Euro and sterling are marginally weaker. This pattern suggests broad dollar strength rather than currency-specific factors driving moves.

Dollar strength ahead of CPI makes sense from a positioning perspective. If inflation comes in hot, the dollar would likely strengthen further on expectations that the Fed will maintain restrictive policy for longer. Traders positioning for this outcome buy dollars preemptively.

The yen's larger move reflects continued monetary policy divergence. The Bank of Japan shows no signs of abandoning ultra-loose policy despite a modest inflation pickup in Japan. This persistent divergence supports structural yen weakness, which manifests as steady grinding lower rather than dramatic selloffs.

Euro and sterling weakness suggests European currencies aren't benefiting from dollar repositioning ahead of US CPI. This could reflect concerns about European economic conditions or simply a lack of compelling reasons to rotate into European currencies when the dollar offers higher yields.

 

Today's Earnings: Energy and Banking

Today's earnings calendar features companies from the energy infrastructure and banking sectors.

 

Enbridge: Energy Infrastructure

Enbridge reports before open with EPS at 0.60 (up 11.11%) and revenue at 11.75 billion (up 1.34%). The strong EPS growth despite modest revenue growth suggests margin expansion or successful cost management.

Energy infrastructure companies benefit from stable, contracted cash flows through pipelines and other assets. Enbridge's results will reveal whether volumes are holding up and whether contracted rates are providing the inflation protection that infrastructure assets typically offer.

 

NatWest Group: UK Banking

NatWest reports before open with EPS at 0.36 (up 2.86%) and revenue at 5.69 billion (up 16.05%). The strong revenue growth relative to modest EPS growth suggests either increased costs or lower margins despite revenue expansion.

UK banks face the challenge of maintaining net interest margins as the Bank of England navigates between above-target inflation and weak economic growth. NatWest's results will show whether UK banking conditions support earnings growth or whether competitive and financial pressures are weighing on profitability.

 

Three Scenarios for Today

Today's CPI release creates three potential scenarios.

Scenario 1: Hot Inflation

If CPI exceeds expectations, it confirms inflation remains problematic. Combined with strong employment data, this removes any near-term hope of rate cuts. Tech stocks facing valuation concerns would face additional pressure from higher discount rates. Broader correction becomes more likely.

Scenario 2: In-Line Inflation

If CPI matches expectations, markets would likely stabilise near current levels. No new information to change the existing narrative. Tech weakness might persist as valuation concerns work through, but broader indexes could hold support. This favours consolidation over decisive moves.

Scenario 3: Cool Inflation

If CPI comes in below expectations, it provides relief that pressures are moderating. While substantial employment reduces the urgency of rate cuts, cooling inflation keeps eventual cuts plausible. Tech could stabilise as reduced rate fears offset valuation concerns. This favours recovery from overnight weakness.

 

The Setup for the Session

Markets enter CPI with tech already under pressure from valuation concerns. The Nasdaq has run out of steam. The Dow has returned to its trading range after briefly breaking out.

The tariff cost study adds political complexity to discussions of inflation. Oil surpluses and ongoing Iran talks keep energy prices contained. Currency markets show broad dollar strength ahead of the release.

Earnings from Enbridge and NatWest provide sector datapoints but won't move broader markets unless results significantly surprise. Focus remains squarely on CPI at 13:30 GMT.

 

The Bottom Line

Friday brings the CPI data that markets have been anticipating after yesterday's strong employment report. Tech stocks are already under pressure from renewed AI valuation concerns, with the Nasdaq running out of steam after approaching records.

The Dow has returned to its trading range after briefly breaking above resistance in early February. This return raises questions about whether a broader correction is forming or whether markets are simply pausing before another attempt higher.

A New York Fed study finding that US businesses and consumers paid 90% of tariff costs adds complexity to inflation politics. If tariffs contribute to cost-of-living pressures, there could be political pressure to reverse course, though this would require acknowledging policy missteps.

Oil slipped on the week amid reported surpluses. Iran negotiations continue without a breakthrough or breakdown. The ongoing talks settle markets by keeping supply disruption risks minimal.

After strong employment data yesterday effectively eliminated near-term rate-cut hopes, today's inflation data determines whether cooling prices provide an offsetting reason for eventual cuts or whether persistent inflation reinforces the need to maintain restrictive policy.

Markets are positioned cautiously, with tech already showing weakness. How CPI lands relative to expectations will likely determine whether overnight tech pressure extends to broader selling or whether markets can stabilise and recover.

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