2026 Weekly Update

Market update

The S&P 500 closed the week at 7’674.37, -1.43% lower. The Dow Jones closed at 53’277.01, -0.85%, with the Nasdaq lower by -2.05%. The volatility index VIX closed the week at 15.13, up from 14.25. The Euro Stoxx 600 fell -0.56%. 

The 10-year UST closed at 4.73%, up from 4.69% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 93bps. US Corporate Bond spreads: Investment Grade spreads widened 2bps at 84bps and High Yield spreads widened 8bps at 319bps. German 10-year Bunds yield closed at +3.26% up from +3.20% a week before. In Europe, Corporate Investment Grade spreads widened 1bp at 90bps and High Yield narrowed -5bps at 305bps. 

The US Dollar Index (DXY) depreciated -0.87% last week and closed at 98.8. The Euro closed at 1.1679 (+0.94%); the Yen appreciated +0.23%, closing at 158.95 and the Swiss Franc appreciated +1.49%, closing at 0.8012. Gold closed at $4’603.07, appreciating +5.18%. Oil was higher, Brent closed at $94.39 (+6.63%) and WTI at $87.06 (+5.66%).

Macroeconomy

US Treasury

The Department of the Treasury announced an unexpected program to buyback long-dated debt including US10Y/20Y/30Y and funding them via increased issuance in T-Bills US3M/6M, etc. In terms of size, the operation would amount to at least $2Bn per purchase. They said that would kick in from September 9 and be effective for the rest of this refunding quarter, which goes up to November 4. The news took investors by surprise as well, because it was just two weeks earlier that the Treasury had released their tentative buyback schedule for the upcoming quarter as part of their regular refunding announcement. Over the weekend, Bessent said that the buybacks previously announced could be bigger than the $4bn per issue, and that Treasury had a “big toolkit” for the treasuries market. Intriguingly, he also said that the administration would be announcing an increased focus on fiscal consolidation, “probably at the end of this week, beginning of next week”, although he provided little other detail. Admittedly, the increase in buybacks isn’t a particularly big amount relative to the number of outstanding Treasuries. But it offers a signal that officials are willing to support the long end, not least after the 30yr Treasury yield closed at a post-2007 high of 5.31% on Monday.

FOMC minutes

The minutes of the July FOMC meeting said that “many participants assessed that policy tightening would likely be necessary if inflation did not decline”. So that confirmed a hawkish bias, but the wording “many” is typically used for a group that is shy of a majority, so it fell short of an imminent hiking signal. The minutes also reaffirm that officials still view the policy rate as the primary monetary policy tool, which provides some reassurance after recent uncertainty about the balance sheet and broader operating framework. Balance-sheet discussions continue, with task-force conclusions still pending. A possible reduction in the number of Fed meetings from eight to six is under consideration, with the intention of allowing more data between meetings and more time for strategic discussions. The calendar for this year remains unchanged, so any shift would only come later in 2027 or beyond. This is consistent with a preference for less transparency and less forward guidance to markets. Jackson Hole is the next major communication event, with a speech scheduled for Friday and formally centered on financial innovation, although discussion could extend to the balance sheet and the broader communication framework.

US data

The August Flash Composite PMI surged to 56.0 (highest since April 2022), with Services PMI jumping to 56.8 from 54.6. Flash Manufacturing PMI slipped slightly to 53.2 but remained firmly in expansion. The Empire State manufacturing survey unexpectedly jumped to a 4-year high of 20.6 in August (vs. 10.0 expected). Weekly jobless claims fell 6k to 206k, beating the 210k estimate. Also, housing starts fell to an annualized rate of 1.239m in July (vs. 1.345m expected). Meanwhile, industrial production only rose +0.2% in July (vs. +0.3% expected), whilst pending home sales were down -2.3% (vs. unchanged expected). Finally, the Atlanta Fed cut their GDPNow estimate for Q3 to an annualized pace of +4.0%, down from +4.3% beforehand. In Canada, the headline CPI increased by more than expected to +3.0% in July (vs. +2.9% expected). Moreover, the core measures were also above consensus, with the median core measure up to +2.0% (vs. +1.9% expected), and the trim core measure at +1.9% (vs. +1.8% expected).

Tariffs

After preliminary news pointing towards a potential deal, over the weekend trade talks between the US and Canada broke down. Canadian PM Mark Carney said they were “walking away from a bad deal” and would now “match Washington’s new tariffs dollar for dollar”. So that means Canada will now face 50% tariffs on around $20bn worth of goods, and Carney said that their own retaliatory tariffs would take effect on Sept. 8. Meanwhile on the US side, President Trump posted that “Canada wants the benefits of being a State, without being one!!! They have also charged our great farmers, for many years, massive amounts of Tariffs. No more!!!” There’s already been a market reaction this morning to the breakdown of the talks, with the Canadian dollar weakening against every other G10 currency. Otherwise, Bloomberg also reported overnight that Canada saw little chance of the talks resuming before the midterm elections.

Riksbank

Sweden’s Riksbank left its policy rate unchanged at 1.75% as expected. In the comments, the bank said that the probability of a rate hike later this year still holds. Money markets are now pricing 23bps of Riksbank hikes by December.

Eurpean data

The flash PMIs for August were generally better than expected. For instance, the Eurozone composite PMI moved up to a 9-month high of 52.1 (vs. 51.7 expected). In Germany, the latest ZEW Survey came in stronger than expected, with the expectations component rising to 34.2 in August (vs. 30.0 expected). That’s the highest level since February, before the Iran conflict began.

UK data

UK growth was solid in Q2, with GDP up 0.4% q-o-q and 1.2% y-o-y, driven mainly by private consumption and investment, while public consumption was a drag. Despite decent growth, the labor market remains soft, suggesting some potential productivity gains. There has been further slack in the economy from higher unemployment, falling payrolls and declining vacancies. As a result, wage growth continues to ease, indicating limited risk of a wage price spiral and supporting further underlying disinflation. A similar conclusion can be drawn from the inflation data, with core and services inflation remaining contained in July, despite headline inflation rising to 2.9%, in line with consensus, following a quarterly increase in household utility bills. Overall, the latest data should allow the BoE to stay on hold for now.

Japan data

Japan’s flash August composite PMI rose to a 6-month high of 53.4 (from 52.7) with both manufacturing and services activity accelerating. Meanwhile, Japan’s July national CPI rose from 1.6% to 1.9%, in line with expectations, with core-core (ex. fresh food and energy) inflation rising from 1.7% to 1.9%. The data has underlined market expectations of a September BoJ hike which stands at 80%.

Highlights

On rates

Last week's bond markets were dominated by the tension between mounting pressure on long-dated yields and the intervention from the US Treasury, whose surprise announcement of expanded buyback operations for longer-dated debt provided a sharp but short-lived rally. The 30-year yield fell 9.2bps on Wednesday before retracing into the weekend, closing at 5.27% and within 4bps of its post-2007 high of 5.31% reached earlier in the week. The 10-year ended up 4.2bps at 4.73%. The structural backdrop helps explain the persistent pressure on the long end: US gross national debt crossed USD 40 trillion for the first time on Wednesday, having doubled since 2017 and risen by approximately USD 3 trillion over the past year, the fastest pace outside of COVID, while long-dated investment-grade issuance is simultaneously on track for a record year, concentrated in technology. Together, these dynamics are forcing investors to absorb an unprecedented volume of duration from both sovereign and corporate markets, pushing required compensation higher. The Fed's July minutes added to the hawkish backdrop, with participants acknowledging that "inflation risks were skewed to the upside" and that "policy tightening would likely be necessary if inflation did not decline." In Europe, the 10-year Bund rose 5.4bps to 3.26%, with the market now pricing a 95% probability of a 25bps ECB hike in September. In Japan, the 10-year JGB briefly touched a 30-year high before retreating to close broadly unchanged at 2.88%, as weaker Q2 GDP data tempered but did not reverse the market's conviction that the BoJ will tighten further in the near term.

Earnings

Q2 earnings season is nearing its end, with S&P 500 earnings growth on track to settle at the highest profit margins in more than 15 years at nearly 17%. To note that the strength holds even after stripping out the Magnificent 7: ex-Mag7 earnings are expected to grow 31%, marking a second consecutive quarter of above 20% growth for the broader market. If full-year results meet expectations, 2026 will be the third consecutive calendar year of double-digit earnings growth, an achievement not seen in 20 years. Around 74% of companies have beaten estimates by more than 2%. Outside the US, eurozone Q2 earnings are up 14.6% y-o-y with 8 of 11 sectors positive and European equities attracting their strongest foreign inflows in five years, while Japanese companies delivered record aggregate net income of ¥21 trillion, their biggest earnings beat in five years despite soaring oil costs. Among last week's results, Walmart saw shares falling sharply on disappointing sales growth and sales guidance, Target beat and lifted its outlook though tariff refunds contributed to the upside, Alibaba missed on EPS but beat on revenue while outlining an AI-driven growth pivot, and Baidu missed on both lines. All eyes turn to Nvidia on Wednesday, the most closely watched print of the season, alongside Salesforce and Autodesk.

What to watch

• Monday: -
• Tuesday: US ADP Employment, Chicago Fed Consumer Confidence; Germany IFO Assessment; Australia RBA Minutes; HK Exports
• Wednesday: US PCE, Personal Income and Spending, Durable Goods Orders; Australia CPI
• Thursday: Jackson Hole Symposium; US Initial Jobless Claims; China Industrial Profits; South Korea BOK Base Rate
• Friday: Jackson Hole Symposium; US University of Michigan Sentiment; Canada Q2 and June GDP; Japan CPI and Jobless Rate