2026 Weekly Update

Market update

The S&P 500 closed the week at 7’483.24, +1.71% higher. The Dow Jones closed at 52’900.07, +1.89%, with the Nasdaq higher by +1.87%. The volatility index VIX closed the week at 16.15, down from 18.89. The Euro Stoxx 600 rose +2.66%.

The 10-year UST closed at 4.48%, up from 4.37% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 72bps. US Corporate Bond spreads: Investment Grade spreads stayed at 78bps and High Yield spreads narrowed -3bps at 313bps. German 10-year Bunds yield closed at +2.93% up from +2.85% a week before. In Europe, Corporate Investment Grade spreads widened 1bp at 90bps and High Yield widened 3bps at 318bps.

The US Dollar Index (DXY) depreciated -0.49% last week and closed at 100.86. The Euro closed at 1.1437 (+0.47%); the Yen appreciated +0.25%, closing at 161.34 and the Swiss Franc appreciated +0.79%, closing at 0.8033. Gold closed at $4’176.94, appreciating +2.16%. Oil was mixed, Brent closed at $72.12 (+0.18%) and WTI at $68.69 (-4.49%).

Macroeconomy

US jobs

The US economy added 57k jobs in June according to the Establishment Survey, a large drop from +129k in May and below the consensus forecast of +113k. It compares to the +36K monthly average for the last 12 months. Employment continued to trend up in professional and business services, social assistance, and health care. Leisure and hospitality employment declined by 61k in June, reflecting weaker than usual seasonal hiring. Establishment Survey revisions for Apr. and May were net negative (down 74k combined). The Household survey was even worse than the Establishment Survey, with a sharp 507k drop in the number of employed people. Earnings were in line with consensus on both a m-o-m (+0.3%) and y-o-y (+3.5%) basis. The +3.5% y-o-y represented a small acceleration from +3.4% in May. The workweek length was inline w/the Street and flat m-o-m at 34.3 hours. The unemployment rate dipped 10bps m-o-m to 4.2%, below the Street consensus at 4.3%. The participation rate tumbled 30bps m-o-m to 61.5%, missing the consensus forecast of 61.8%. The civilian labor force collapsed by 720k people in the month of June. On other jobs data, the JOLTS report for May added to the picture of labor market resilience from other recent releases. Job openings surprised on the upside, with 7.594m openings in May (vs. 7.296m expected). So that meant that the ratio of job openings per unemployed individuals reached 1.039, which takes it to the highest reading since January 2025. Moreover, the quits rate of those voluntarily leaving their jobs (a good barometer for tightness in the labor market) held steady at 1.9%.

Sintra

The ECB Forum on Central Banking (the Sintra Forum) is an annual event organized by the European Central Bank and is held in Sintra, Portugal. The main message from Sintra was that central banks are trying to buy time by managing expectations rather than acting aggressively, with both the ECB and the Fed appearing inclined to stay on hold in July while keeping September data dependent. Fed Chair Warsh declined to offer any forward guidance, but markets latched onto his comment that “inflation risks have come down”, even as he reiterated his commitment to price stability. ECB President Lagarde said that the upside inflation and downside growth risks “are probably more broadly balanced than they were a few weeks ago”.

EU inflation

Euro area HICP headline inflation eased to 2.8% y-o-y in June from 3.2% in May, coming in below expectations. The moderation was driven mainly by softer energy inflation (down to 8.7% y-o-y from 10.8%), reflecting the collapse in oil prices following the US–Iran agreement. Core inflation fell to 2.4% in June from 2.6% in May, driven by a 25bps drop in services inflation to 3.2%, while non-energy industrial goods inflation remained broadly stable at 0.9% y-o-y. Some payback in services in June, after an exceptionally strong May, was expected due to seasonal distortions. Headline inflation is now well below the ECB’s latest projections. Regarding the next ECB decision, some ECB members are still very hawkish (for example, Lagarde has stated that the recent decline in oil prices has not materially altered the ECB’s assessment) but we are starting to see some divisions emerging within the Governing Council.

US data

The Conference Board’s consumer confidence reading missed expectations, coming in at 91.2 (vs. 94.4 expected), with the present labor market sentiment the weakest since 2021. Moreover, the overall present situation indicator fell to 116.4 (vs. 123.0 expected), marking its lowest level since February 2021 when the economy was still coming out of the pandemic. Consumer sentiment/confidence numbers have long decoupled from economic growth. On housing, the FHFA House Price index showed a m-o-m decline in house prices (-0.1% vs. +0.2% expected), with y-o-y home price appreciation now near its lowest levels since 2012.

Asia data

The S&P Global Australia Services PMI improved to 50.5 from 48.7 in May, signaling a modest recovery in activity. In South Korea, exports surged by +70.9% y-o-y in June, accelerating from +53.4% in May and comfortably exceeding expectations. The increase was largely driven by strong semiconductor demand amid the global AI investment boom, reinforcing the Bank of Korea’s increasingly hawkish stance ahead of its July 16 decision. Separately, while factory activity expanded for a seventh consecutive month, the pace of growth eased slightly, reflecting softer export demand at the margin.

China data

In terms of Chinese economic activity, manufacturing activity in June slightly exceeded forecasts, supported by strong export demand and continued investment in artificial intelligence. The official manufacturing PMI rose to 50.3, above expectations of 50.1, and up from 50.0 in May. Meanwhile, the non-manufacturing PMI improved to 50.2, surpassing the 49.9 forecast and edging up from 50.1 previously, signaling modest improvement in services activity despite overall subdued demand. The non-official reading from RatingDog showed Manufacturing PMI edged down to 51.7 from 51.8, a three-month low, but still capped the strongest quarterly performance for the sector since Q4 2020. The RatingDog Services PMI eased slightly to 54.1 from 54.4 in May but beat the 53.0 expected. There was continued growth in new business, with both domestic and overseas orders increasing. Notably, services exports rose at their fastest pace since October 2024.

Highlights

Japanese Yen

The yen recently hit a 40-year low against the US dollar (USD/JPY around 162.8), raising questions about possible intervention by Japanese authorities. The main issue is that short-term rates remain too accommodative given domestic inflation and growth, with markets viewing the Bank of Japan (BoJ) as behind the curve. Another BoJ rate hike before year-end appears justified. While oil prices influenced the yen earlier this year, the focus has shifted to interest rate, growth, and inflation differentials—especially the widening policy gap with the US, which led to an upgrade of the USD view from underweight to neutral. Government growth initiatives, including large packages linked to AI and industrial policy, have increased fiscal concerns and contributed to yen weakness. Domestic conditions support further tightening: real rates remain negative, the yield curve has steepened, business confidence (Tankan survey) is solid, price expectations are at their highest since 1980, and both nominal and real wage growth are positive, supporting consumption and retail sales. Intervention remains a brake on yen depreciation, but silence from policymakers may now increase the risk of surprise action by the Ministry of Finance or the BoJ.

Equities

Remarkable Q2 for global equities. Q2 2026 was the best calendar quarter for global equities since 2020 with MSCI ACWI rising by 15% (7th best quarter in the last 30 years). More impressively, we saw the second-best quarter for EPS upgrades in 30 years with consensus 12m forward EPS estimates for MSCI ACWI rising by 11%. The same statistics are even more impressive for NASDAQ, which saw its second best ever calendar quarter for price performance (up 28%) and its best quarter ever for EPS upgrades with estimates rising 13.5%. Narrow outperformance concentrated in Asia & Tech – but justified by EPS. Emerging Markets was the best performing region over the last 3 months (up 18%), led almost exclusively by Korea and Taiwan which were up 62% and 45%, respectively. In contrast, EMEA and Latam were actually down in absolute terms over the same period as was China. The concentration was even more extreme at the sector level in 2Q with only Semis (+48%) and Tech Hardware (+33%) outperforming the MSCI ACWI index. Banks was the best performing sector outside of Tech, while Energy was the worst performer down 10%. In general, this strong concentration in performance was justified by earnings – e.g. the MSCI ACWI IT index rose 33% in price terms and saw EPS estimates raised by 29%. In Korea, the KOSPI index was up 55% in 2Q yet 12m EPS estimates were revised up even more at +58%. While this strong upgrade momentum also keeps valuations contained, some risks are building in other areas. In particular, volatility across the recent “winners” is very elevated (e.g. Nasdaq volatility is at a record high versus the VIX) and these same sectors are very highly correlated to the momentum factor which could also be due for a pause after very strong performance in Q2.

On rates

Since late March, markets have sharply reduced expectations for further central bank rate hikes in 2026, though some tightening is still priced in. We remain slightly more dovish, expecting most central banks to stay on hold as inflation eases and growth concerns return—except in Japan, where another Bank of Japan hike is likely due to persistent inflation. Switzerland stands out as the only major market not pricing further hikes. Market-based inflation expectations have dropped as oil prices normalized: US 10-year breakevens are back to 2.2%, Germany near 1.9%, and European inflation swaps (1- and 5-year) have fallen below 2%. Consumer inflation expectations are also easing, especially in Europe. This has supported sovereign bonds and pushed term premia back toward pre-conflict levels. Markets may now be too optimistic on US inflation, with front-end breakevens looking benign despite sticky inflation risks. Yields on US TIPS are attractive, offering solid real income, limited duration risk (2-5 year area), and inflation protection. TIPS have outperformed nominal Treasuries and investment-grade bonds year-to-date, supporting the case for keeping inflation protection in portfolios.

What to watch

• Monday: US ISM Services Index; Germany factory orders, Eurozone PPI, Eurozone retail sales; Singapore retail sales
• Tuesday: US ADP weekly employment; Germany industrial production; Japan labor earnings
• Wednesday: US FOMC meeting minutes; New Zealand RBNZ cash rate
• Thursday: US initial jobless claims; China PPI, China CPI, China new loans, Taiwan June exports
• Friday: Singapore Q2 GDP