2026 Weekly Update

Market update

The S&P 500 closed the week at 7’711.76, +0.49% higher. The Dow Jones closed at 53’559.99, +0.53%, with the Nasdaq higher by +0.85%. The volatility index VIX closed the week at 14.43, down from 15.13. The Euro Stoxx 600 rose +0.15%.

The 10-year UST closed at 4.72%, down from 4.73% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 90bps. US Corporate Bond spreads: Investment Grade spreads narrowed -2bps at 82bps and High Yield spreads narrowed -13bps at 306bps. German 10-year Bunds yield closed at +3.28% up from +3.26% a week before. In Europe, Corporate Investment Grade spreads widened 1bp at 91bps and High Yield widened 2bps at 307bps. 

The US Dollar Index (DXY) appreciated +0.91% last week and closed at 99.7. The Euro closed at 1.1585 (-0.80%); the Yen depreciated -0.72%, closing at 160.09 and the Swiss Franc depreciated -0.99%, closing at 0.8091. Gold closed at $4’455.11, depreciating -3.21%. Oil was lower, Brent closed at $89.31 (-5.38%) and WTI at $83.4 (-4.20%).

Macroeconomy

Jackson Hole

The overall speech was on the hawkish side, as Warsh is much more concerned about prices than employment. Some of the highlights were: 1) the extensive discussion of AI, including very specific aspects of the industry (like token consumption, token economics, etc.); Warsh seemed very bullish on AI; 2) the firm commitment to the 2% inflation goal as measured by the PCE (as there has had been some worry Warsh would try to redefine inflation away from the PCE); 3) there is still no explicit identification of a “reaction function” – Warsh punts on this topic; 4) Warsh did not sound worried about labor conditions; and 5) Warsh sounds increasingly worried (but not panicked) about inflation. Regarding inflation he mentioned that “the Fed's price-stability objective of 2%, as measured by the personal consumption expenditures (PCE) price index, is a firm, fixed target”, and “Inflation is running above our 2 percent target. The Fed's predominant focus right now should be on prices”. In terms of Fed policies, he mentioned that “short-term interest rates are the predominant tool to achieve the dual mandate. Unconventional policies to spur economic activity may suit genuine crises but should otherwise be used sparingly, if at all” and that “in normal times, the role of forward guidance should be limited and circumscribed. Otherwise, it risks creating ambiguity in the name of clarity”.

Fedspeak

Some Fed speakers suggested that more restrictive policy was required, including Cleveland Fed President Hammack, who voted for a hike last time. She reiterated that “I think it’s appropriate for us to put some restraint there to help bring inflation back down to target”. Meanwhile, Kansas City Fed President Schmid (a non-voter this year) said “I would probably put myself in that camp” of colleagues who dissented. But Boston Fed President Collins said that “I continue to see rates as mildly restrictive”. And Chicago Fed President Goolsbee said he wanted “evidence that this inflation shock is not going to be persistent”, but he also said “I’m OK with waiting as we’re getting that”. Also, Boston Fed President Collins published an essay saying that without more sustained disinflation progress, it would be “appropriate to tighten policy soon”.

US Treasury

CNBC reported that the US Treasury could use the cash in the Treasury General Account (TGA) to help fund the increase in the buyback operations announced last week. Using the TGA may help fund the larger buyback operations without resorting to higher issuance of short-term debt. Note that while “excess” cash represents a relatively small portion of the $953bn currently in the TGA, this should still be easily sufficient for the larger buybacks planned for the weekly operations in September and October, which were increased from a maximum of $2bn to at least $4bn. However, the amounts involved are trivial in the context of the roughly $2trn annual US federal deficit. It’s also not clear if this reported TGA use will actually take place – Bessent refrained from any new signals on debt management strategy when asked during his last press conference.

US data

July core PCE inflation came in line with consensus at +0.2% m-o-m however, the details of the release were more inflationary. The unrounded reading was +0.246%, so just shy of rounded +0.3%. That’s stronger than had been implied by the CPI and PPI prints as super core services PCE rose by +0.28% m-o-m. There were also upward revisions to core PCE inflation for the previous three months, leaving the 3- and 6-month annualized rates at 3.0% and 3.5% respectively, so showing little sign of progress on disinflation. And other details of the PCE release were on the stronger side, with personal income rising +0.4% m-o-m (vs +0.2% exp.). Other US data releases pointed to strong economic momentum. Durable goods orders rose by +1.1% in July (vs +0.5% expected), with capital goods shipment growth (+1.4% m-o-m vs +1.1% exp.) accelerating to an impressive +11.3% y-o-y. Finally, the second release of the Q2 GDP print saw consumer spending revised higher (from +3.2% to +3.4% annualized). That meant real final sales to private domestic purchasers, a key metric of underlying domestic demand, rose by +4.2% annualized in Q2, their strongest gain since early 2023, even as the Iran energy shock dragged on purchasing power. Another encouraging labor market signal came from the ADP weekly employment report, which rose by 11.75k in the week ending Aug 8 (vs. 9.5k prior), its highest reading in a month. On the other hand, consumer confidence for August slipped once more to 89.4 (vs 90.2 expected), its lowest reading since January. Yet despite the overall drop, the survey’s labor market differential saw its biggest monthly improvement since 2022 (from 2.7 to 7.5) after falling to a post-2021 low in July.

Tariffs

Tariff refunds have slowed sharply to around USD 10bn in August, bringing the cumulative total to about USD 120bn, while tariff revenues have eased closer to USD 20bn. This implies that tariffs are not yet offsetting the recent widening in the US public deficit. New measures such as the 50% tariffs on selected Canadian goods cover only about USD 20bn, or roughly 5% of Canadian exports, so the macro revenue impact will likely be limited. The administration is still rebuilding its tariff wall, but much remains at the stage of intentions, pipeline actions and sectoral replacement rather than concrete realized revenue.

Eurpean data

Euro area activity has been more resilient than expected since the Middle East war began, with incoming data surprising on the upside through the summer. The Citi economic surprise index has rebounded since mid-year, reinforcing the message that macro data have turned more constructive. After flat growth in Q1, the first estimate for Q2 GDP came in at 0.4% quarter on quarter, above expectations. The upside surprise was driven mainly by Spain and Germany, where domestic demand appears robust and exports, especially in Germany, have supported manufacturing activity. The overall assessment is that the euro area has absorbed the energy shock better than feared, even though country-level volatility remains significant. Survey evidence remains consistent with solid growth in Q3 pointing to around 0.3% q-o-q GDP growth for the euro area. Activity remains particularly strong in peripheral economies and is holding up in Germany, while France is beginning to show anecdotal signs that political uncertainty is affecting economic conditions. Bank credit adds to the resilience message: despite tighter credit standards flagged by the bank lending survey and expectations of weaker lending to households and corporates, actual loan flows remained fairly solid through July. The near-term macro picture is therefore one of resilience rather than deterioration, although political noise is increasingly likely to shape market behavior over coming weeks.

Central banks

The Bank of Korea (BoK) raised its policy rate for the second consecutive time, hiking from 2.75% to 3.0%. Although the hike was widely expected, the market surprise came from the bank’s upgraded growth projections, with GDP for 2026 now at 3.3% (2.6% previously) and 2027 at 2.9% (2.1% previously). In Australia, the Reserve Bank of Australia's (RBA) minutes confirmed that policymakers considered a 25bps hike at their August meeting, reflecting growing concerns about inflation risks, though this was weighed against the possibility of a sharper slowdown in employment, housing activity, and overall demand. The board ultimately concluded that, after earlier hikes, there was sufficient time to wait before making further policy adjustments. Also, Australian inflation print saw headline CPI rise +3.5% y-o-y in July, down from 3.8% in June but clearly ahead of the +3.3% consensus. Trimmed mean CPI came in at +3.6% (vs. 3.5% expected).

Highlights

On rates

Rates markets last week were shaped by Chair Warsh's hawkish tone at Jackson Hole, where he flagged that further tightening remains possible if disinflation does not proceed "clearly and at sufficient speed." The curve flattened in response, with the 2-year yield rising as markets priced a higher probability of near-term action, market pricing now 0.59 hikes for the September meeting. Partially offsetting the pressure on the long end, Treasury Secretary Bessent confirmed that the buyback program announced the prior week will step up meaningfully from September 9, with the maximum size per operation doubling from $2bn to at least $4bn, Barclays estimates this represents a 15% reduction in long-end supply, as an attempt to cap long-dated borrowing costs. In Europe, the picture remains divergent: Germany revised Q2 GDP up to +0.3% and its IFO hit a one-year high, while France stagnated and inflation diverged sharply across the region, complicating the ECB's path. In Japan, the 10-year JGB rose to 2.93% from 2.88%, driven by Tokyo CPI acceleration and a further pickup in services producer prices, reinforcing near-term BoJ hike expectations, while PM Takaichi's plans for a consumption tax cut added a layer of fiscal uncertainty that kept the yen and JGB markets on edge.

Earnings

With 97% of S&P 500 companies having reported, Q2 earnings season is effectively complete. The headline numbers are exceptional: 86% beat EPS estimates, the highest since Q2 2021 and well above the 5 and 10-year averages, while the blended earnings growth rate settled at 52.0%, also the strongest since Q2 2021 and the seventh consecutive quarter of double-digit growth. The aggregate earnings surprise of 26.5% is the highest on record since 2008, though the usual caveat applies: stripping out Alphabet and Amazon, whose GAAP beats were driven by $98bn and $53.4bn respectively in non-operating investment gains, brings the surprise to 10.8% and growth to 33.8%, still above historical norms and still a second consecutive quarter above 25%. Ten of eleven sectors reported earnings growth, nine at a double-digit pace, with healthcare the only decliner. In Europe, Q2 EPS growth was the strongest in nearly four years, with 54% of companies beating and another 10% reporting in line, broad-based outperformance led by technology, healthcare, financials and energy, with consumer discretionary, staples and telecoms the relative laggards. The usual late season's standout print came from Nvidia, which reported a 106% y-o-y revenue surge, issued stronger than expected Q3 guidance and signaled continued rapid growth in AI infrastructure spending, sending shares +8.7% and driving a broader technology rally.

What to watch

• Monday: China Manufacturing PMI; Germany Preliminary CPI
• Tuesday: Eurozone Preliminary CPI; US ISM Manufacturing PMI
• Wednesday: Australia GDP; RBNZ Rate Decision; US ADP Employment; Bank of Canada Rate Decision
• Thursday: China Services PMI; Switzerland CPI and GDP; BoE Monetary Policy Hearings; US ISM Services PMI
• Friday: Eurozone Retail Sales; Canada Employment Report; US Nonfarm Payrolls