2026 Weekly Update

Market update

The S&P 500 closed the week at 7’354.02, -2.98% lower. The Dow Jones closed at 51876.11, +1.65%, with the Nasdaq lower by -4.69%. The volatility index VIX closed the week at 18.41, up from 16.78. The Euro Stoxx 600 rose +0.04%. 

The 10-year UST closed at 4.37%, down from 4.45% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 61bps. US Corporate Bond spreads: Investment Grade spreads widened 2bps at 78bps and High Yield spreads widened 13bps at 316bps. German 10-year Bunds yield closed at +2.85% down from +2.98% a week before. In Europe, Corporate Investment Grade spreads stayed flat at 89bps and High Yield widened 2bps at 315bps. 

The US Dollar Index (DXY) appreciated +0.50% last week and closed at 101.36. The Euro closed at 1.1384 (-0.76%); the Yen depreciated -0.27%, closing at 161.74 and the Swiss Franc depreciated -0.32%, closing at 0.8097. Gold closed at $4’088.74, depreciating -1.61%. Oil was mixed, Brent closed at $71.99 (-10.65%) and WTI at $69.23 (-9.62%).

Macroeconomy

US PCE

May core PCE (Personal Consumption Expenditures) inflation was broadly in line with expectations, with a monthly increase around 0.32% and the y-o-y rate rising to about 3.4%. Three and six month annualized core PCE growth remains clearly above the Fed’s target, but there are early signs of relief from goods prices: core goods posted the first negative monthly reading since late 2025 and y-o-y goods inflation looks to be peaking. A renewed phase of core goods disinflation underpins their baseline of gradual overall disinflation into the first half of 2027. At the same time, “supercore” services inflation remains elevated, driven by PPI related categories such as financial services, healthcare and airfares that still reflect the earlier energy shock. Median and trimmed mean PCE are running roughly one percentage point below core PCE, around 2.4–2.5% y-o-y and have not re-accelerated. Chair Warsh did not mention these at the last press conference, but such measures are a focus of the Fed’s internal task forces on alternative data and call into question how persistent the underlying inflation trend really is. New York Fed President Williams, a key FOMC figure, expects headline inflation to be about 3.5% by year end yet still sees policy as appropriately calibrated. Near term market pricing for hikes is likely to remain sticky absent a decisive softening in incoming data.

US data

The latest revision to Q1 GDP raised the contribution from net exports but downgraded consumption, with final domestic demand – GDP excluding net exports and inventories – revised down. This suggests there was no genuine acceleration in underlying demand, and consumption was already slowing into Q2 before the latest upside surprise in May spending. Overall, last week’s data did not add further hawkish pressure. Looking ahead, this week’s payrolls release (brought forward due to the 4 July holiday) is the key near term risk event for both the Fed outlook and market pricing, given its importance for assessing labor market tightness and wage driven inflation risks. The US composite PMI hit a 5-month high of 52.2 (vs. 51.1 expected), a level we haven’t seen since the Iran conflict began.

EU data

After very weak readings in May, PMIs (flash) were slightly better in June but still point to stagnation in Q2. Importantly, most of the responses used to calculate the June flash PMI were received prior to the signing of the memorandum of understanding for a cessation of hostilities between the US and Iran on June 17. The euro area flash composite PMI rose by 1 point to 49.5 in June, above consensus expectations (49.2). Sector-wise, the downturn in services activity eased (+1.2 points to 48.9), helped by a recovery in tourism- and leisure-related industries, while manufacturing output was broadly stable at 51.2. Meanwhile, inflationary pressures started to ease off, with input costs rising at their slowest pace since the outbreak of the war in the Middle East and output prices increasing at the weakest rate in three months. Overall, the PMI survey showed some resilience in a challenging economic environment. In Germany, the Ifo Institute’s business climate indicator rose to 85.6 in June (vs. 85.5 expected), marking a second monthly gain after falling back in March and April. Interestingly, the current assessment indicator was up to 87.0, its highest since July 2024, but the expectations indicator only rose to 84.1, still clearly beneath its levels before the Iran conflict. About monetary policy, the recent correction in oil prices and easing inflationary pressures make an additional near-term ECB hike less likely, but risks remain: most ECB members still sound hawkish and the drop in energy prices may not be sufficient to dispel concerns about persistent inflation. In this regard, following four consecutive monthly increases, HICP headline and core inflation should ease somewhat in June. Part of this decline should come from a pullback in services inflation due to volatile components (hotels and airfares). The recent fall in energy prices is welcome, as it reduces upside risks, but energy is still likely to make a significant contribution to overall inflation throughout H2 2026.

Japan data

Japan's private sector activity expanded at its fastest pace in three months in June, driven by strong manufacturing output and a return to growth in the services sector, although firms faced the sharpest rise in input costs in nearly four years. The S&P Global flash Japan manufacturing PMI rose to 54.9 in June while the services PMI climbed to 51.8 from 50.0, indicating a renewed expansion in business activity after stagnating in May. As a result, the flash composite PMI, advanced to 52.5 from 51.1, marking the strongest pace of overall private-sector growth since March. Other data showed retail sales rose 5.3% y-o-y in May, well above expectations of 3.0% and up from April’s downwardly revised 2.8%.

Australia data

Australia’s CPI rose +4.0% y-o-y in May (vs. +4.3% est and +4.2% prior). Trimmed mean CPI edged up to +3.6% y-o-y from +3.4% prior. So, while the softer headline suggests easing inflation—helped by lower oil prices amid easing US–Iran tensions—underlying pressures remain sticky, likely keeping the RBA on a hawkish footing.

China data

On the policy front, the PBOC has introduced an overnight reverse repo facility, setting the rate at 1.25%. This marks another step in modernizing its monetary policy framework and improving short-term liquidity management. The new rate sits 15bps below the existing seven-day reverse repo rate of 1.40%, which remains the main policy benchmark.

Highlights

Oil update

The recent fall in Brent has been almost as abrupt as the initial war-related spike, with prices now slightly above USD 74 per barrel after briefly dipping below pre-war levels. The futures curve shows a bit of contango at the very front end and is otherwise very flat, having shifted lower at longer maturities. The abrupt price decline is due to a temporary oil glut stemming from the number of tankers that had accumulated in the Persian Gulf and are now being released as the Strait of Hormuz has reopened. The attack on a vessel last week caused a price rebound and confirms that the process is likely to remain bumpy. However, Iran still has an interest in keeping the Strait open, at least during the current 60-day negotiation window. Global demand for oil fell by 6 mbd during the war, more than initially expected; this decline is temporary in nature. In our baseline scenario, we assume that demand returns to pre-crisis levels within two months. On the supply side, we assume that 80% of the 15 mbd lost will be recovered within two months. In addition, OECD oil inventories have dropped by 250 million barrels over 90 days, implying an average draw of around 2.7 mbd. We assume that inventories will be rebuilt at a pace of 1 mbd. Under these conservative assumptions, the market is likely to remain in deficit through the summer, with a deficit of about 2.7 mbd still projected around September. Balance should be reached in Q4 2026, providing key fundamental support for prices. As a result, in the near term we could see some choppy price action before Brent price stabilizes, implying that the stronger disinflationary impulse from oil is more a 2027 story than a theme for the second half of 2026.

On rates

US Treasuries rallied last week as easing oil prices and an in-line May PCE print led investors to dial back their expectations for Fed tightening, with hikes priced by December falling 7.3bps to 32bps. The 2-year Treasury yield declined by 8.7bps, while the 10-year dropped 8.4bps to 4.37%, its lowest level in over a month. Even so, economists continue to pencil in two rate hikes for later this year, and markets will look to Fed Chair Warsh's appearance at the ECB's Sintra forum on Wednesday for further signals. In Europe, the same forces drove a broad sovereign bond rally, with ECB hike pricing falling 12.8bps to 24bps. German yields fell across the curve, the 2-year bund by 12.9bps and the 10-year by 13.4bps. UK assets outperformed, as Prime Minister Starmer's resignation and Andy Burnham's emergence as his successor helped ease political uncertainty; the 10-year gilt yield fell 11.1bps over the week, while the FTSE 100 rose 1.40%. In Asia, the first rise in Tokyo consumer inflation in eight months reinforced expectations that the Bank of Japan will continue its tightening cycle, keeping JGB yields elevated near their highest levels in around thirty years.

What to watch

• Monday: Eurozone May M3 and economic confidence; Japan May retail sales; ECB Sintra forum begins (through July 1); ECB's Lagarde, BoE's Pill speak
• Tuesday: US June Conference Board consumer confidence, May JOLTS; China June official PMIs; Germany June CPI; Canada April GDP; ECB's Schnabel, Lane speak; BoE's Breeden speaks
• Wednesday: US June ISM manufacturing index, ADP report; Eurozone June CPI; Japan Q2 BoJ Tankan survey; Fed's Warsh, ECB's Lagarde, BoE's Bailey, BoC's Macklem speak 
• Thursday: US June jobs report, initial jobless claims; Eurozone May unemployment rate; Switzerland June CPI; US bond markets close early 
• Friday: US Independence Day holiday (market closed); France May industrial production; ECB's Lagarde; Nagel speak; BoE's Bailey speaks