While ‘hard’ data has been fading modestly in recent weeks, ‘soft’ survey data has bounced back but today we get a first glimpse at February’s PMIs from S&P Global to see if that survey-based confidence is continuing.

It is not as both Manufacturing and Services PMIs dropped notably.,

Flash US Services PMI Business Activity Index: 52.3 (January: 52.7). 10-month low.

Flash US Manufacturing PMI: 51.2 (January: 52.4). 7-month low.

Source: Bloomberg

Overall that dragged the US Composite PMI down to its lowest since April 2025 (and weaker than UK and Japan)…

“A combination of weakened demand, high prices, and adverse weather colluded to dampened business activity in February,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, “resulting in the slowest expansion of output for ten months.”

Customer demand growth has softened, with orders even falling in factories, curbing jobs growth to a crawl across both manufacturing and services.

The PMI data so far this year are indicative of GDP rising at an annualized rate of just 1.5%, signaling a marked cooling of the economy in the first quarter compared to the robust growth rates seen in the second half of last year.

Williamson notes that “companies are suggesting that at least some of this slowdown may prove temporary, partly as extreme weather passes, with business growth expectations rising sharply to the highest for just over a year in February. “

However, confidence remains subdued on the whole, as companies worry about the political environment and impact of policies such as tariffs, the latter once again blamed for widespread price rises, in turn hitting affordability and limiting sales growth for many businesses.

US and Chinese fighter jets engaged in a brief aerial standoff over waters near the Korean Peninsula this week, according to South Korean media, in a rare and dangerous incident that underscores ongoing simmering tensions between Washington and Beijing.

Yonhap, citing military sources, reported that China scrambled aircraft on Wednesday after roughly 10 US jets took off from an American airbase in South Korea for planned drills. The US had reportedly filed its flight plan in advance.

F-16 fighters assigned to US Forces Korea (USFK) launched from Osan Air Base in Pyeongtaek, about 60 kilometers south of Seoul, and flew near the overlapping air defense identification zones (ADIZ) of South Korea and China. The US aircraft did not enter China’s ADIZ, according to the report, but alarm bells still went off for the Chinese PLA military.

Chosun Daily: The South Korean and U.S. Air Forces conduct a joint formation flight, escorting a US Air Force B-1B ‘Lancer’ strategic bomber with fighter jets, following North Korea’s ICBM provocation in February 2023. 

In response, “The Chinese People’s Liberation Army organized naval and air forces to monitor and effectively respond to the activities throughout the process in accordance with laws and regulations,” China’s Global Times reported Friday.

The outlet described the episode as US warplanes operating in airspace facing China over the Yellow Sea – a move that prompted Beijing’s rapid response.

“The F-16s reportedly flew to an area between the respective air defense identification zones of South Korea and China, prompting the Chinese military to dispatch its own fighter jets to the scene, but no clash occurred,” Yonhap writes.

According to more unusual aspects to the incident:

The paper also noted an “unusual” number of US jets in the air, adding that it could suggest that the exercise had been “aimed at signaling deterrence toward China.”

Yonhap news agency said that Washington had informed Seoul of the planned mission, but did not elaborate.

China’s Global Times acknowledged the incident, saying that Beijing’s military “organized sea and air forces to conduct continuous monitoring… and effectively responded to and handled the situation.”

In the background, President Trump has continued to positively tout his highly anticipated trip to Beijing the first week of April. On China’s red lines concerning handing over to Taiwan record-breaking arms packages, Trump has remained ambiguous…

Trump says he “wouldn’t answer” a question on how the US would respond if Taiwan were attacked by China.

“I would have just said that it’s none of your business right now … When it comes to war, you don’t talk about your strategy,” he says.pic.twitter.com/kcih0jRPBI

— Rosie Birchard (@RosieBirchard) February 20, 2026

As for other tensions, Beijing is not happy that Washington is accusing it of conducting banned nuclear weapons detonation tests.

The CCP has responded to the accusation of an alleged 2020 test via state mouthpiece (@HuXijin_GT), saying there is an ulterior motive for the timing of this announcement: “Trump is eager to resume nuclear testing and needs a plausible reason, and accusing China of conducting nuclear tests is the perfect pretext.”

Authored by David Parsons via BondVigilantes.com,

The sharp sell‑off across software names in recent weeks has prompted questions from investors, many centred on whether the rapid rise of agentic artificial intelligence marks the beginning of a deeper structural shift in enterprise technology.

The catalyst was the latest demonstration from Anthropic’s Claude platform, whose new “Cowork” and “Code” capabilities promise to automate tasks that were once firmly in human hands, from drafting documents and synthesising research to generating production‑ready code. Equity markets were quick to draw conclusions, punishing enterprise software companies without drawing any distinctions, based on the assumption that their software tools and embedded long term relationships were significantly devalued.

Discussions among technology specialists, both within M&G and across the broader industry, agree that the market move has been overdone. Rather than reflecting the pace or scale of disruption in the software environment, prices have been driven lower by perceived risk rather than evidence that software company valuations have been impaired by the AI revolution. The degree of weakness bears little resemblance to what is actually happening inside real enterprise businesses. Instead of a measured repricing based on a quantifiable change in credit quality, this has been a largely sentiment-driven reaction to a headline‑grabbing demonstration.

Source: M&G, Bloomberg Indices (Ref. S5SOFWTR, NDX, SPX, SISCSE, SXXP) as at 13 February 2026.

Most enterprise software vendors have already embraced the need to incorporate AI into their architecture. Many large vendors have spent years developing their products, integrating machine learning into their platforms and automating processes in compliance, risk management, customer analytics, IT operations and more. The emergence of tools like Claude sits within this longer term evolution rather than representing a sudden and existential shock. While impressive in isolation, few AI tools are ready for large scale integration into client processes. Corporate buyers, whilst keen to embrace the latest technologies, struggle to keep pace with the constant rollout of AI-led applications. In practice, procurement cycles, organisational constraints, audit trails and governance requirements will continue to slow adoption, particularly in regulated, core business processes or critical IT systems.

Existing enterprise software systems sit at the heart of major businesses, making software companies more resilient than current market pricing would suggest. Enterprise platforms anchor trading desks, risk management, regulatory reporting, client‑servicing infrastructure and internal control frameworks. They are embedded in workflows and integrated within legacy systems creating substantial financial, operational and regulatory switching costs that represent a significant ‘moat’ for software businesses. For most large organisations, reliability and continuity matter far more than theoretical productivity gains.

Despite the noise around AI agents, there is little evidence of customers abandoning incumbents. A more likely scenario is the opposite, that new AI tools reinforce the competitive position of established software vendors. Incumbents also hold decades of proprietary, structured, client specific data. This could materially improve AI model performance and suggests that partnerships between software vendors and AI agent developers such as Anthropic is a likely out-turn. Far from being disrupted, many Software companies could actually become strategic partners in the development of next‑generation AI tools and systems.

As with any period of rapid technological change, there will be winners and losers. Vendors offering more client-centric or commoditised applications with low switching barriers may potentially face challenges. Pricing structures will likely evolve and we may see linkages to cost savings or productivity introduced alongside more traditional licence based models may evolve too. Change is inevitable from the introduction of AI into almost every business over the next few years, but it is too early to assume AI is sounding the death-knell of large parts of the software sector, or as we have also seen recently, the wealth management sector.

M&G, Bloomberg Indices (Ref. LUACTRUU, I00394US, I40257US) as at 13 February 2026

For credit investors, the more important question is whether the equity‑led repricing signals underlying stresses in cashflows, leverage or financing risk. On this point, the picture remains reassuring. Credit spreads have widened and valuations have compressed, especially among lenders to private software companies where sentiment is fragile, but the underlying credit characteristics of most public issuers remain solid. Software revenues are sticky, renewal rates remain high, and long‑term contracts continue to anchor client relationships. What the sector is experiencing reflects sentiment rather than a permanent change in credit fundamentals.

Markets seems likely to continue trying to anticipate winners and losers across the sector, with software currently at the centre of concern. Current market price action feels overdone and without evidence to the contrary should correct. AI will embed itself into many (possibly most?) industries in the next few years, and market participants will have to inevitably become more pragmatic and discerning as to the likely winners and losers based on evidence rather than over-hyped expectation. Our view remains that AI will enhance rather than replace incumbent software, strengthening rather than weakening the sector’s long‑term foundations.

The narrative that “AI will eat software” has run far ahead of reality. Agentic AI tools marks an important evolution, but it does not constitute an existential threat to the core of the enterprise software industry. For bond investors, this sentiment‑driven repricing may create pockets of value in fundamentally strong issuers whose long‑term strategic positioning remains intact. The foundational advantages enjoyed by enterprise software providers should prove far more durable than current market pricing suggests.

There was a big surprise at 8:30am ET when the BEA reported the (delayed) GDP print for the last quarter of 2025: With consensus expecting a 2.8% print  (and the Atlanta Fed GDPNow model even higher) which would already be a big drop from the 4.4% in Q3, the BEA instead reported that the US economy grew at just 1.4% in the fourth quarter, the slowest growth since the tariff shock of Q1 2025.

According to the BEA, the contributors to the increase in real GDP in the fourth quarter were increases in consumer spending and investment. These movements were partly offset by decreases in government spending and exports. Imports, which are a subtraction in the calculation of GDP, decreased. 

Overall, the economy expanded 2.2% last year, data from the Bureau of Economic Analysis showed.

Specifically, the Q4 breakdown was as follows:

Personal consumption slowed notably, from 2.34% of the bottom line GDP to just 1.58% or more than 100% of the final 1.42% GDP print
Fixed Investment contributed to 0.45% of bottom line GDP, up from 0.15% in Q3
Change in private inventories added 0.21%, up from a decline of -0.12% in Q3
Net exports (exports less imports) continued to normalize and in Q4 added just 0.08% to the GDP number, down dramatically from 1.62% in Q3
Last and definitely worse, government was actually a major drawdown, reducing the Q4 GDP by 0.9%, a sharp reversal from the 0.38% addition in Q3.

And visually:

Of the above, the most notable variable was government spending, which due to the government shutdown in Q4 tumbled by 5.1% – the biggest drop since covid – and subtracted 0.9% from the final GDP number.

Knowing in advance how bad the number would be due to the shutdown, less than an hour before the data were released, Trump posted on social media that the shutdown would cost the US “at least two points in GDP.”

That may be an exageration, but it is modest: if one takes the average growth in recent quarters due to government which is about 0.5-0.6% and subtracts the 0.9% hit in Q4, the actual swing is about 1.5%. 

Of course, this is just a delayed reversal, and expect to see Q1 GDP offset by this much if not more, meaning Q1 GDP will likely print around 4%.

Government slowdown aside, perhaps an even more notable print is the continued explosion in spending on computers/peripheral equipment courtesy of AI, which has surged 70% in the past year and has more than doubled to $300BN at the end of 2025, more than double since the launch of chatGPT in 2022. 

Despite the year-end slowdown, the data capped a solid year for the US economy, which shrank in the first quarter amid a monumental pre-tariff surge in imports, only to round out 2025 with one of the strongest growth rates in years. The turnaround came after Trump backed off of his most punitive levies and the Federal Reserve lowered interest rates, helping drive the stock market to record highs and enabling wealthier Americans to keep spending.

Separate monthly data out Friday showed the Fed’s preferred measure of underlying inflation — the core PCE index — rose 0.4% in December, the most in nearly a year. On an annual basis, the core PCE, which excludes food and energy, climbed 3%, compared to 2.8% at the start of 2025. All of these prints were hot…

… suggesting that all else equal, the US is once again flirting with stagflation, although as has so often been the case, the Q4 GDP print is an outlier, as is the December PCE, the first impacted by the government shutdown the second heated up by higher commodity prices which will reverse as soon as the geopolitical circus involving Iran quiets down.