2026 Weekly Update

Market update

The S&P 500 closed the week at 7489.72, +1.05% higher. The Dow Jones closed at 52’485.03, +1.04%, with the Nasdaq higher by +1.59%. The volatility index VIX closed the week at 15.99, down from 18.58. The Euro Stoxx 600 rose +0.73%.

The 10-year UST closed at 4.73%, up from 4.68% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 96bps. US Corporate Bond spreads: Investment Grade spreads widened 1bp at 83bps and High Yield spreads widened 3bps at 324bps. German 10-year Bunds yield closed at +3.21% up from +3.17% a week before. In Europe, Corporate Investment Grade spreads widened 2bps at 91bps and High Yield widened 14bps at 319bps. 

The US Dollar Index (DXY) depreciated -1.53% last week and closed at 99.91. The Euro closed at 1.1527 (+1.38%); the Yen appreciated +3.92%, closing at 157.4 and the Swiss Franc appreciated +1.31%, closing at 0.8075. Gold closed at $4’046.15, depreciating -0.16%. Oil was lower, Brent closed at $90.12 (-6.88%) and WTI at $84.67 (-5.20%).

Macroeconomy

Fed decision

The Fed held rates unchanged at 3.50%–3.75% on Wednesday, as widely expected, but the decision came with three hawkish dissents: regional presidents Hammack, Kashkari, and Logan all voted for a 25bps hike, the most dissenters in favor of tightening in several years, signaling growing internal pressure around above-target inflation. Chair Warsh made no substantive changes to the policy statement and again avoided forward guidance, a deliberate stance that has now become a defining feature of his tenure. He offered little color on the FOMC's deliberations beyond reiterating a commitment to bring inflation under control, yet his language carried unmistakable hawkish undertones: he insisted the discussion "was the furthest thing from inertia imaginable" despite the hold, referenced "all of the action we're going to have between September and December," and noted there was "a lot of agreement on the hard questions" among the committee, implying the next move may be up rather than down. The lack of clarity contributed to volatile trading in the aftermath, with the on-hold decision triggering initial dovish repricing that solidified through the press conference. With Warsh having provided so little on the Fed's reaction function, the August 19 minutes release may prove a more significant market-moving event than usual.

BoJ decision

The BoJ held rates unchanged at 1% on Friday, as expected, in a decision that carried a mildly dovish tilt relative to anticipations (only one dissent materialized) with board member Hajime Takata advocating a hike to 1.25%, against the two dissenters markets had penciled in. The central bank raised its GDP growth forecast for the current fiscal year to 0.6%, reflecting confidence that the economy remains on track for further policy normalization following last month's hike, which brought the benchmark rate to its highest level since 1995. On inflation, the BoJ trimmed its core CPI forecast to 2.5% from 2.8%, attributing the revision to government subsidy programs and lower energy prices. 

Yen intervention

The yen was the other dominant macro story of the week, ending +3.92% against the dollar, its biggest weekly gain in almost two years, following a coordinated US-Japan intervention. With the yen approaching a 40-year low near JPY 163.7, Japanese authorities intervened on Thursday, buying yen and selling dollars in a move that drove a surge of over 2% in under thirty minutes, the sharpest intraday move since December 2023. A second intervention followed on Friday during New York trading hours, subsequently confirmed officially by Japan's Ministry of Finance and the US Treasury. Both governments warned that further coordinated action remains possible to correct what they characterized as a substantial undervaluation.

BoE decision

The Bank of England held Bank Rate at 3.75% for a fifth consecutive meeting, as widely expected, though the internal dynamics shifted modestly with three MPC members voting for a hike, up from two in June. The hawkish minority was more than offset by dovish signals elsewhere: the MPC expressed confidence that underlying disinflation has continued, and Governor Bailey explicitly stated the Bank was not "edging towards a rate hike."

Australia CPI

Australian CPI came in softer than expected, easing pressure on the RBA for further tightening. Headline CPI rose 0.6% q-o-q, slowing sharply from 1.4% in Q1, with annual inflation edging down to 4.0% from 4.1%. More significantly, the trimmed mean core measure rose 0.8% quarterly, below the 0.9% forecast and the RBA's own projection of 3.8% on an annual basis, suggesting the initial energy price pass-through from the Middle East conflict has not continued to feed through. Markets moved swiftly, cutting the probability of an August RBA hike from 21% to just 3%, though a hike by year-end remains approximately 50% priced. The RBA has raised rates three times this year to 4.35%, and Governor Bullock had noted just a day earlier that it remained unclear whether the tightening to date was sufficient to return inflation to target.

Eurozone data

The eurozone economy proved more resilient than expected in Q2, with GDP expanding 0.4% q-o-q, double the consensus estimate of 0.2%, after stagnating in Q1, bringing annual growth to 1.0% from 0.5% in Q1. The strength was broad-based: all four of the bloc's largest economies surprised to the upside, with Germany expanding 0.2%, France and Italy also at 0.2%, and Spain at 0.7%. Ireland led the pack at 3.9%, though growth excluding the Irish effect remained solid. Among the larger economies, only Belgium and Austria failed to expand, posting flat growth for the quarter. The EU as a whole grew 0.5% q-o-q and 1.2% y-o-y, accelerating from 0.1% and 0.8% respectively in Q1.

Highlights

Oil update

Oil markets were characterized by sharp volatility last week, with prices swinging in both directions as geopolitical developments in Iran drove successive waves of risk repricing. The more significant development is the strategic shift now underway: rather than pursuing an outright closure of the Strait, Iran appears to be moving toward monetizing transit through a long term service-fee model. Legal precedent exists, with Turkey, Denmark, and Russia already operating comparable fee regimes on strategically important waterways. Dollar settlement would, however, be complicated by US sanctions, a dynamic that could paradoxically create a diplomatic opening for broader US-Iran negotiations. Meanwhile, OPEC agreed to a 188,000 bpd production increase for September, completing the unwinding of voluntary cuts agreed in 2023.

Earnings

Q2 earnings season maintained its strong momentum, with 61% of S&P 500 companies having reported, 86% have beaten EPS estimates and 77% revenue estimates, well above historical averages. The blended earnings growth rate jumped to 47.4% from 38.0% last week, which would mark the strongest quarterly growth since Q2 2021. Eight sectors are now reporting double-digit growth, led by Energy (+135%), Communication Services (+110%), Consumer Discretionary (+91%), and IT (+69%). Among last week's highlights, Microsoft surged +21.75% and Amazon +17.00% after their results, the latter driven by AWS revenue growth accelerating to +37% y-o-y, its fastest since 2021, alongside a capex raise from USD 200bn to USD 220bn. On the other side, Apple fell -7.24% after issuing a disappointing sales growth forecast for the current quarter of +9 to 11% against the +12% expected. In Europe, Safran posted record results driven by aerospace maintenance and defense, LVMH reported organic revenue growth of +2% despite a -3% reported decline, and Hermès demonstrated resilience though a slight Q2 sales miss weighed. The week ahead brings AMD, Caterpillar, McDonald's, and Toyota on Tuesday, followed by Eli Lilly, Disney, and Uber on Wednesday. In Europe, Novo Nordisk and Siemens Energy report Wednesday, with Siemens and Rheinmetall on Thursday, while Japan sees SoftBank and Nintendo also on Thursday.

On rates

Rates markets saw steepenings last week, with long-dated yields hitting multi-year highs after the latest central bank decisions. The main catalyst was the FOMC meeting, where Chair Warsh provided little clarity on the reaction function, leaving markets to reprice on their own, and the front-end rallied modestly as year-end hike pricing fell to 37bps from 44bps, pushing the 2-year yield down 4.1bps to 4.29%. The 10-year rose 5.8bps to 4.74% and the 30-year surged 11.5bps to a post-2007 high of 5.27%, marking the sharpest weekly steepening of the 2s10s slope since the post-Liberation Day sell-off last April. In Europe, moves were more contained: the ECB held but signaled a September hike as probable, keeping 10-year Bund yields 3.4bps higher at a post-2011 high of 3.20%, while gilts saw a milder sell-off of 1.8bps after the BoE pushed back against imminent tightening, September BoE hike pricing fell to 30% from 61%, while ECB September pricing held near 90%. In Japan, the 10-year JGBs fell 1.1bps to 2.81%, supported by a stronger yen.

What to watch

• Monday: US ISM Manufacturing; Switzerland CPI; UK and Eurozone Manufacturing PMIs; Japan, South Korea, and Taiwan Manufacturing PMIs
• Tuesday: US JOLTS, Durable Goods Orders, and Exports; Japan Monetary Base; Hong Kong Retail Sales
• Wednesday: US ADP Employment, ISM Services; UK and Eurozone Services and Composite PMIs; Japan Cash Earnings
• Thursday: US Initial Jobless Claims, Labor Costs; Eurozone Retail Sales; Germany Exports
• Friday: US Nonfarm Payrolls, Fed 1-Year Inflation Expectations; Taiwan and China Exports