2026 Weekly Update

Market update

The S&P 500 closed the week at 7’718.6, +0.09% higher. The Dow Jones closed at 53’414.25, -0.27%, with the Nasdaq higher by +0.40%. The volatility index VIX closed the week at 14.53, up from 14.43. The Euro Stoxx 600 fell -0.81%. 

The 10-year UST closed at 4.78%, up from 4.72% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 92bps. US Corporate Bond spreads: Investment Grade spreads widened 1bp at 83bps and High Yield spreads stayed flat at 306bps. German 10-year Bunds yield closed at +3.34% up from +3.28% a week before. In Europe, Corporate Investment Grade spreads widened 2bps at 93bps and High Yield widened 3bps at 310bps. 

The US Dollar Index (DXY) depreciated -0.53% last week and closed at 99.18. The Euro closed at 1.1614 (+0.25%); the Yen appreciated +2.39%, closing at 156.26 and the Swiss Franc depreciated -0.17%, closing at 0.8105. Gold closed at $4’429.98, depreciating -0.56%. Oil was higher, Brent closed at $96.28 (+7.80%) and WTI at $91.48 (+9.69%).

Macroeconomy

US jobs

The Aug. US jobs report was very strong on the Establishment Survey, with 162k additions (above the forecast of 55k, higher than the 12-month average of +31k, and better than the ADP report earlier on the week). The Establishment Survey revisions were positive - employment in June and July combined is 55k higher than previously reported. To highlight, employment in food services and drinking places and local government education stood out. Other positive contributors were employment in manufacturing and health care. Information employment declined by 23k in August, following losses that had averaged 8k per month over the prior 12 months. The Household Survey was even stronger with a 569k m-o-m increase in the number of employed people. The unemployment rate was in line with expectations and flat at 4.1% m-o-m as strong gains in the number of employed people were offset by a sharp jump in the civilian labor force (+683k) and an uptick in the participation rate (which ticked up 20bp m-o-m to 61.6%). Wage growth was inline (+0.3% m-o-m and +3.1% y-o-y). Finally, workweek was a bit longer than anticipated at 34.4 hours vs. 34.3 hours expected.

Fedspeak

Fed Governor Waller cast doubt on whether the Fed would hike rates this month. For instance, he said that “recent data suggest we are finally seeing some signs of disinflation”, and that if this continued, he would be “inclined to support holding” rates. In addition, he said “my take is that underlying inflation is doing better than the core numbers suggest”. In addition, we also heard some more dovish comments from NY Fed President Williams, who said “I am actually seeing the trend in inflation moving slowly down as some of the effects of the tariffs move into the rearview mirror”. Lastly, Fed Governor Barr said the Fed should raise rates in September if “inflation appears not to be moderating sufficiently”.

US data

The ISM services index for August beat expectations, rising to a 6-month high of 55.4 (vs.  54.1 expected). And digging into the details, the prices paid component moved up to a 4-year high of 72.6 (vs. 70.0 expected), which is notable given that this series is strongly correlated to inflation with a 3-month lag. On the other hand, a weaker-than-expected ISM manufacturing print came up, which fell to 54.6 in August (vs. 55.2 expected). And the components softened also, with new orders down to 53.7 (from 56.7), and employment down to 51.2 (from a post-2022 high of 52.8).

Europe data

Euro Area-wide flash CPI print for August yesterday came in at 3.3% as expected (from 2.9% in July), largely on energy. Though we already had the releases from the biggest member states except for Italy (+3.2% vs +3.4% expected) beforehand. However, Euro Area core CPI was slightly on the downside at +2.4% (vs. +2.5% expected). Interestingly, the ECB’s Simkus said in an interview that “this September hike is not going to be enough” based on the current data, suggesting that more of the ECB Governing Council members are open to keeping a hawkish signal following the hike that is fully priced for next week. Second-round effects are still limited, but inflation remains too elevated for the ECB’s comfort, making a September hike effectively a done deal. The key policy issue has therefore shifted from September itself to whether energy-driven persistence forces another move later in the year. ECB communication is expected to remain meeting-by-meeting and data dependent, but with a hawkish tone that keeps December tightening on the table even if it is not the central scenario. The longer current conditions in Hormuz persist, the more likely a 25bps hike in December becomes. In parallel, final PMI figures showed the Euro Area manufacturing revised marginally lower (52.7 vs 52.8 previously). A downward revision from the flash reading in France and somewhat weaker outcomes in Italy and Spain were mostly offset by an upward revision in Germany. The data further reinforces the view that recent improvement in Euro Area manufacturing remains primarily a German story, which registered the highest manufacturing output index in the region.

Japan data

Japanese household spending contracted in July at the fastest annual pace in two and a half years, underscoring weak private consumption ahead of the BoJ policy meeting two weeks from today. Consumer spending fell -3.6% y-o-y, significantly worse than the market expectation of a -1.6% decline, marking the eighth consecutive month of contraction. The drop was the steepest since January 2024, when household spending declined by -6.3% y-o-y. On the contrary, Japan's services sector expanded at its fastest pace in five months in August. In terms of monetary policy, BoJ’s Takata suggested there could be a bigger hike than usual, saying that a 25bp hike “is not necessarily set in stone”. Also, the BoJ’s Governor Kazuo Ueda also indicated that the central bank would continue to consider rate increases and assess whether economic and price developments remained consistent with its outlook. Finally, US Treasury Secretary Bessent stated that he preferred the BoJ to raise interest rates to help the yen, rather than see repeated inventions in the market.

Swiss data

Swiss data have surprised on the upside, with headline inflation rising to 0.8% y-o-y in August from 0.4% in July and core inflation edging up to 0.4% (from 0.3%), helped in part by rents. Even so, inflation remains within the Swiss National Bank’s 0% to 2% comfort zone and broadly consistent with its June forecast, while domestic and second-round pressures remain limited. Analysts still expect the Swiss National Bank to stay on hold, with the policy rate at 0%. Nonetheless, the stronger August print, the recent appreciation of the franc, the stronger growth and upside risks to energy prices have shifted the balance if risks for inflation and rates slightly upwards.

China data

China's services sector expanded faster than expected in August, supported by stronger business activity and new orders, while employment increased for a fourth consecutive month, signaling a modest improvement in domestic demand. The RatingDog Services PMI rose to 51.4 in August from 50.4 in July, surpassing market expectations of 50.6. However, the reading remained the second-lowest level in the past 14 months, highlighting that the pace of expansion is still relatively moderate. Meanwhile, the Composite PMI increased to 52.1 from 50.8, pointing to an acceleration in overall private-sector activity. On other data, China’s private manufacturing sector expanded at a faster pace in August, with the Caixin Manufacturing PMI rising to a two-month high of 51.5, up from 50.9 in July (51.0 expected). Stronger output and an increase in new orders pointed to improving demand conditions across the sector.

Australian data

Australian economy expanded 0.4% q-o-q in Q2, surpassing expectations of 0.3% growth. On an annual basis, GDP rose 2.1%, ahead of the consensus estimate of 1.8%. Australia’s trade surplus came in above expectations in July, although the surplus narrowed from the previous month as exports fell more sharply than imports. The country posted a trade surplus of A$1.92bn, above the consensus forecast of A$1.50bn, but down from a revised surplus of A$2.34bnin June. Exports fell -3.3% m-o-m, reversing June’s +9.6% increase, while imports decreased -2.5%, following a 0.7% decline in the prior month. Also, the S&P Global Australia Manufacturing PMI was unchanged at 52.0.

Central banks

The Bank of Canada kept their policy rate at 2.25%, in line with expectations. However, the decision was received hawkishly, as their statement said that “the upside risks to inflation have increased”, and investors dialed up their expectations for a rate hike later this year. Additionally, the Reserve Bank of New Zealand (RBNZ) raised its official cash rate by 25bps to 2.75%, marking its second consecutive rate increase as it continues its efforts to curb inflation. The move was largely anticipated amid growing concerns over renewed energy-price-driven inflation pressures. Updated RBNZ projections suggest the possibility of one additional 25bps rate hike before year-end. The central bank now expects inflation to ease to 3.9% in Q3, higher than its previous estimate of 3.3%, and forecasts inflation will return to the 2% midpoint of its target range in early 2028, later than the previously expected Q3 2027.

Highlights

France’s markets

French equities have emerged as the weakest major eurozone market over the past months, with the sell-off accelerating since early August as political risk moved higher on investors' agendas. France is now the worst YTD performer among eurozone peers, though the weakness predates the political story, broader factors were already weighing before politics became the dominant driver. Relative valuations look optically compelling near a 30-year low versus MSCI EMU (Economic and Monetary Union index), but in absolute valuations the market trades at roughly 14 times earnings, broadly in line with its 10-year average. Domestically exposed sectors have suffered the most, with utilities, banks, real estate and consumer names the weakest areas, despite the fact that only around 20% of French equity revenues are generated domestically. The broader implication for EMU equities depends on contagion: if stress remains idiosyncratic to France, the damage can be contained, but if OAT widening begins to infect other sovereign markets, the pressure on European equity valuations more broadly would intensify.

On oil

Oil markets remain under strong pressure, with OECD inventories down nearly 300 million barrels since the crisis began. Despite this, the inventory picture is less uniformly alarming than the headline figures suggest. US total inventories point to the minimum operational threshold only being approached in October 2027 at the current pace of decline, while China's position is even more comfortable, the equivalent threshold would not be reached until May 2028, partly because weaker refinery activity has cushioned the impact of lower imports. The stress is most acute in refined products, and particularly in Europe. Diesel margins on the continent are at record highs, compounded by the war in Ukraine weighing on Russian diesel export capacity. European gas prices have risen 126% since the end of February, and the situation is set to worsen: European countries refrained from rebuilding inventories over the summer in anticipation of a Hormuz reopening that has not materialized and are now facing the prospect of aggressive restocking at elevated prices heading into the winter. On the diplomatic front, the picture remains stagnant. Treasury Secretary Bessent stated at the G20 that the Strait will be "bypassed" within two years through land pipeline alternatives, while also revealing plans to target British Virgin Islands accounts linked to Iran and airline leasing companies as part of efforts to tighten economic isolation. Iran's foreign ministry responded that the current situation does not allow for a return to any agreement with the US, citing prior violations by the American side.

On rates

Sovereign bond yields rose to multi-year highs across the board last week, driven by a combination of mounting inflationary pressures and a strong US jobs report that reinforced expectations of near-term Fed tightening. In the US, the 10-year yield climbed 6.3bps to 4.78%, briefly touching 4.80% on Tuesday, its highest since October 2023, before pausing mid-week after Fed Governor Waller indicated he would be inclined to hold rates if incoming data confirmed continued disinflation. That reprieve was short-lived: Friday's jobs report reignited the move, with futures pricing a 62% probability of a September hike by the close. On the fiscal side, Treasury Secretary Bessent suggested that a fiscal consolidation package would be discussed "in the coming weeks or months", walking back an earlier indication that a proposal could come as soon as this week, while also playing down the view that his buyback program was designed to "change the direction of bonds." In Europe, the driver was energy: European natural gas futures posted a fourth consecutive weekly gain, fueling fears that the inflation shock could prove more persistent than expected and pushing the 10-year Bund up 6.1bps to 3.34%, briefly touching a post-2011 high of 3.37% on Wednesday. Sentiment stabilized later in the week as the energy and yield moves paused. In Japan, the 10-year JGB briefly exceeded 3.0% for the first time since 1996, driven by higher oil prices, fiscal concerns and the global bond sell-off before retreating to end the week around 2.9%. Governor Ueda signaled that policymakers would assess whether rising inflation risks warranted a near-term hike, sending the yen higher mid-week as markets brought forward BoJ tightening expectations.

What to watch

• Monday: US markets closed (Labor Day); Germany Industrial Production
• Tuesday: China Trade Balance; Canada counter-tariffs on US imports enter into force
• Wednesday: China CPI and PPI; US Treasury expanded buybacks take effect; Inditex earnings
• Thursday: US PPI; ECB Rate Decision; Adobe and Oracle earnings
• Friday: US CPI; UK Monthly GDP; University of Michigan Survey