2026 Weekly Update

Market update

The S&P 500 closed the week at 7’411.98, -0.61% lower. The Dow Jones closed at 51’947.25, -0.38%, with the Nasdaq lower by -2.13%. The volatility index VIX closed the week at 18.58, down from 18.77. The Euro Stoxx 600 rose +0.46%.

The 10-year UST closed at 4.68%, up from 4.55% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 77bps. US Corporate Bond spreads: Investment Grade spreads widened 2bps at 82bps and High Yield spreads widened 8bps at 321bps. German 10-year Bunds yield closed at +3.17% up from +3.12% a week before. In Europe, Corporate Investment Grade spreads widened 1bp at 89bps and High Yield widened 3bps at 305bps. 

The US Dollar Index (DXY) appreciated +0.70% last week and closed at 101.47. The Euro closed at 1.137 (-0.60%); the Yen depreciated -0.88%, closing at 163.83 and the Swiss Franc depreciated -1.35%, closing at 0.8182. Gold closed at $4’052.79, appreciating +0.88%. Oil was higher, Brent closed at $96.78 (+9.85%) and WTI at $89.31 (+8.27%).

Macroeconomy

Fed meeting

Wednesday brings the FOMC decision, where economists expect the Fed to hold rates unchanged, though the meeting is unusually finely balanced this late in the cycle. The renewed Middle East escalation and sharp rise in energy prices have complicated the inflation outlook, pushing market-based inflation compensation higher and reviving fears of a more persistent supply-side shock, precisely the scenario that could force the Fed's hand despite recent evidence of moderating inflation. Markets are pricing a 38% probability of a hike, a level of uncertainty rarely seen this close to a decision, and unlike during the post-Covid hiking cycle, the current Fed regime makes pre-meeting press steers unlikely, leaving the statement and press conference as the sole source of guidance. The decision sits within a dense data week: durable goods Monday and the advance trade balance Tuesday will feed into Thursday's first estimate of Q2 GDP, meaning the macro picture will continue to evolve even as the Fed deliberates.

Eurozone data

Eurozone flash PMIs for July surprised to the upside, signaling an unexpected return to expansion at the start of Q3. The composite manufacturing PMI rose to 52.0 from 51.4, while services rebounded to 51.6 from 49.4 in June, well above the 49.8 consensus, snapping several months of stagnation. The breadth of the improvement, with both sectors above the 50 threshold, suggests the eurozone economy may be proving more resilient than feared despite the ongoings energy shock and tightening financial conditions.

European Central Bank

The ECB held rates unchanged at 2.25% last Thursday, in line with expectations. However, President Lagarde flagged renewed Middle East tensions and rebounding oil prices as upside risks to the eurozone inflation outlook, even as headline inflation eased to 2.8% in June from 3.2% in May. Lagarde warned that inflation is expected to remain "well above target" until the first half of 2027, adding that "the longer energy prices stay high, the more likely they are to drive up broader inflation through indirect and second-round effects." Markets are now pricing a 25bps hike in September, and the ECB reiterated its readiness to adjust rates to ensure inflation returns to its 2% target.

UK CPI

UK headline CPI fell more than expected to 2.6% in June, driven by lower fuel prices and a slowdown in food inflation to 1.7%. However, core CPI held steady at 2.6% and services inflation remained elevated at 3.6%, highlighting persistent domestic price pressures. The relief is likely temporary ahead of July's energy tariff increases, reinforcing expectations for the Bank of England to hold rates at 3.75% at its 30 July meeting.

BoE meeting

The Bank of England is expected to hold rates at 3.75% on Thursday. Despite oil prices pushing above 90 USD/bbl, UK inflation came in below the BoE's own forecasts at 2.6% in June, providing cover for a pause. However, the energy-driven inflation risk is keeping markets alert, with futures now pricing a two-in-three chance of a 25bps hike in September and nearly three moves by mid-2027.

Japan data

In Japan, the government approved its annual economic blueprint, which reaffirmed BoJ independence and committed to aggressive public and private investment in strategic areas including AI, semiconductors and defense, revisions designed to reassure investors after an earlier draft had raised concerns over potential political pressure on monetary policy. Against this backdrop, inflation data reinforced the case for further tightening: June core CPI rose to 1.6% y-o-y from 1.4%, its first acceleration since March, pushing the 10-year JGB yield up to 2.80% from 2.70%. The yen meanwhile weakened to a 40-year low of JPY 164 against the dollar, pressured by the wide US-Japan rate differential and renewed geopolitical-driven dollar strength, with repeated intervention warnings from Finance Minister Katayama failing to stem the decline.

BoJ meeting

The BoJ is expected to hold rates at 1% on Friday, having just hiked in June, while leaving the door open to further tightening through its communication. The quarterly outlook report will be closely watched: the board is expected to revise growth forecasts higher as fears of a severe energy shock recede, while any downgrade to inflation projections is likely to remain modest given persistent price-setting behavior among Japanese firms. The BoJ is also expected to signal that both downside risks to growth and upside risks to inflation have subsided relative to three months ago. Notably, this will be the first meeting for Ayano Sato, the second board member appointed by Prime Minister Takaichi. Markets currently expect the next hike in December, though September or October remains possible if inflation data surprises to the upside.

Highlights

Earnings

Q2 earnings season accelerated last week, with the blended S&P 500 earnings growth rate jumping from 24.8% to 37.9%, driven almost entirely by Alphabet, who accounted for 92% of the week's net dollar earnings increase. Seven sectors are now reporting double-digit growth, led by Energy (+128%), Communication Services (+112%) and IT (+65%). Beyond Alphabet, Intel and GM both delivered double beats, while Tesla disappointed as margin pressure and heavy AI investment weighed. In Europe, BNP Paribas and Total posted strong beats, and SAP beat on cloud revenue growth of 24%. On the other side, STMicroelectronics missed severely on a slow automotive recovery, and Nestlé missed. The week ahead is critical: around 35% of S&P 500 market cap reports, with Microsoft and Meta on Wednesday and Apple and Amazon on Thursday, together representing 17% of the index, making AI capital expenditure guidance the central narrative to watch. In Europe, luxury names LVMH, Hermès and L'Oréal report alongside Safran and Banco Santander.

On rates

Sovereign bond yields rose sharply last week as the continued escalation of the US-Iran conflict pushed oil prices higher, reviving fears of a prolonged inflation shock and forcing markets to reprice Fed tightening expectations. The probability of a Fed hike on Wednesday jumped from 14% to 38% over the course of the week, driving the 10-year Treasury yield up 12.9bps to 4.68%, its highest close since January 2025, while the 30-year real yield hit a post-2008 high of 2.97%, reflecting growing conviction that the neutral rate may be structurally higher. In Europe, the 10-year Bund yield rose 4.7bps to 3.17%, briefly touching a post-2011 high of 3.20% on Thursday, while in the UK, better-than-expected services PMI and retail sales data kept BoE cut expectations in check despite early fiscal uncertainty surrounding the new Burnham government.

What to watch

• Monday: US Durable Goods Orders; Germany IFO Assessment and Retail Sales; China Industrial Profits; HK Exports
• Tuesday: US ADP Employment, US Conference Board Consumer Survey
• Wednesday: FOMC Decision; Australia CPI
• Thursday: US Personal Income & Spending, Initial Jobless Claims, Q2 GDP, PCE; Eurozone, France & Germany Q2 GDP; BoE Policy Meeting
• Friday: US University of Michigan Sentiment; Eurozone Flash CPI; BoJ Policy Meeting, Japan Retail Sales