2026 Weekly Update

Market update

The S&P 500 closed the week at 7’656.98, -0.80% lower. The Dow Jones closed at 52’573.29, -1.57%, with the Nasdaq lower by -0.66%. The volatility index VIX closed the week at 15.84, up from 14.53. The Euro Stoxx 600 fell -1.66%. 

The 10-year UST closed at 4.97%, up from 4.78% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 95bps. US Corporate Bond spreads: Investment Grade spreads narrowed -2bps at 81bps and High Yield spreads widened 2bps at 308bps. German 10-year Bunds yield closed at +3.50% up from +3.34% a week before. In Europe, Corporate Investment Grade spreads stayed flat at 93bps and High Yield narrowed -1bp at 309bps. 

The US Dollar Index (DXY) depreciated -0.05% last week and closed at 99.12. The Euro closed at 1.1599 (-0.13%); the Yen appreciated +1.70%, closing at 153.61 and the Swiss Franc depreciated -0.81%, closing at 0.8165. Gold closed at $4’349.08, depreciating -1.83%. Oil was higher, Brent closed at $104.61 (+8.65%) and WTI at $100.05 (+9.37%).

Macroeconomy

US prices

The August CPI was mostly in line, with headline +3.4% y-o-y (vs. consensus at +3.4% and compared to July at +3.4%). Core CPI came in at +2.4% y-o-y (vs. consensus at +2.4% and compared to July at +2.5%). On a m-o-m basis, headline was as expected at +0.4%, but core ran a touch higher at +0.3% (vs. consensus +0.2%). Energy was a big driver of the m-o-m headline advance (+2.1% m-o-m) while food ticked up only 0.1%. Services inflation accelerated to +0.3% m-o-m (compared to +0.2% in July), with a large jump in shelter (+0.3% vs. +0.1% in July) and transportation services (+0.5% vs. +0.3% in July, on the back of a large increase in airfares). Shelter was fueled by hotels, which spiked 2.7% m-o-m (vs. sharp m-o-m declines in the prior two months) while OER (Owners’ equivalent rent) actually cooled modestly, coming in at +0.2% m-o-m (down from +0.3% in July). Earlier in the week, August PPI inflation showed headline PPI up +0.4% on the month, with the July print revised up a tenth to +0.1%. So that pushed the y-o-y reading up to +5.4% (vs. +5.3% expected). But significantly, the components that feed into PCE came in on the stronger side.

ECB

The ECB (European Central Bank) delivered a 25bps rate hike as expected, taking their deposit rate up to 2.50%. The statement had a new line that “inflation is set to remain well above target for an extended period”, and ECB President Lagarde called the hike “a no brainer”. In addition, their latest forecasts also moved hawkishly, with both inflation and growth upgraded for the years ahead. Most notably, the 2028 core inflation forecast was revised up two-tenths to +2.3%, so price pressures are seen staying visibly above the 2% target throughout the forecast horizon. The statement language on growth and the labor market was also more upbeat. During the Q&A, President Lagarde didn’t really reinforce the hawkishness, as she said that the Governing Council was not taking a view on the direction of policy going forward and avoided endorsing market pricing.

US data

NFIB’s small business optimism index fell more than expected to 98.7 in August (vs. 99.3 expected), falling back again after rising over June and July. Also, the NY Fed’s latest Survey of Consumer Expectations showed growing pessimism about unemployment, as the mean probability of the US unemployment rate being higher in a year rose to 44.4%, the highest in the survey since April 2020 during the initial phase of the pandemic.

Fed preview

The FOMC meeting is scheduled for this coming Wednesday. Investors expect the FOMC to raise rates 25bps, to 3.75-4.00%, with a 90% probability. The main reason should be the insufficient progress on inflation, in line with Chairman Warsh's Jackson Hole comments. Based on recent comments, there should be a robust majority in support of a hike, but at least one dissent for a hold (Waller). Analysts expect the FOMC statement to remain broadly unchanged, however the new Summary of Economic Projections (SEP) should show a slight upward revision to headline inflation and a downward revision to core inflation that primarily reflects upcoming changes in BEA methodology, along with downward revisions to GDP growth and unemployment rate projections. In terms of median dots, they should be revised up, showing one 25bps hike this year, no change in 2027, and 25bps cuts in 2028 and 2029. In line with the speech at Jackson Hole, chairman Wash should mention in his press conference that inflation is elevated and has not shown enough evidence that it is returning clearly and at sufficient speed toward the target, amid solid economic growth, the labor market near full employment and renewed energy price pressures. We expect him to reiterate the committee's commitment to price stability and explain that the majority of the committee supported raising rates to reduce the risks that inflation remains elevated for long.

Boj preview

The BoJ (Bank of Japan) will meet on Friday this week. Markets expect a 25bps rate hike to 1.25%, accelerating the pace of hikes from the previous one of roughly one hike every six months to about one every three months. At this meeting Governor Ueda's comments about the pace of future hikes and any dissenting votes will be in focus. Analysts expect Ueda to say that the timing and pace of rate hikes are not predetermined and that policy will respond flexibly and nimbly to economic and price developments. While avoiding any impression of a preset path, the BoJ may emphasize that every meeting is live. Based on recent comments, dovish members Asada and Sato are expected to oppose the hike, resulting in a 7-2 vote, though uncertainty remains high, given competing pressures from the Takaichi administration and Treasury Secretary Bessent, making their votes a key focus. Past week, BoJ Policy Board member Masu’s speech showed support for a September rate hike, but offered no guidance beyond that. Inflation expectations have risen, with August CPI expected at 2% y-o-y on Friday. If prices continue to increase at this pace, the risk of underlying inflation overshooting the price stability target could materialize.

BoE preview

As the BoE (Bank of England) is expected to meet on Thursday, markets expect the MPC to hold the Bank Rate at 3.75% with a 6-3 vote, with risk of additional dissenters. The minutes are expected to highlight that risks around the inflation outlook have skewed further to the upside, driven largely by developments in the Middle East, but that this is mitigated partially by tightening financial conditions and a lack of evidence of second-round effects in the data flow. Guidance should remain noncommittal about future meetings but reiterate that the committee stands ready to act if necessary. On QT, analysts expect the MPC to announce that it will continue to unwind its gilt holdings by £50bn. On the data front, this week BoE’s one- and five-year ahead inflation expectations slowed, both to 3.2% y-o-y. However, a new survey provider may have increased the slowing in expectations, and the window closed on 7 August, not accounting for recent moves in energy prices. UK growth has shown resilience, with the monthly GDP print coming in at 0.4% m-o-m in July. Services activity grew a robust 0.4% m-o-m, driven by the ICT and administrative services sectors.

Japan data

Japan’s business sentiment index for large corporations across all industries turned positive for the first time in two quarters (at 5.3). Manufacturers posted +7.6, driven by strong demand for semiconductor manufacturing equipment and other production machinery amid expanding AI and data center investment. Separately, PPI slowed slightly in August but remained close to its highest level in over 3 and a half years as high energy costs and a weak yen factored into rising business costs. The PPI grew +7.6% year-on-year in August, higher than expectations of +7.4% but cooled slightly from the +7.7% print seen in July, which was revised up from +7.2%.

China data

China's inflation pressures picked up in August, with both factory-gate and consumer price growth accelerating. The move was driven largely by higher energy costs linked to supply risks stemming from the Middle East conflict, even as underlying domestic demand remained subdued. Producer prices rose +3.8% y-o-y, above economists' expectations of +3.6% and up from +3.5% in July. Meanwhile, consumer prices increased +0.8% from a year earlier, in line with forecasts and accelerating from July's +0.5% gain.

Highlights

On oil

Oil markets escalated further last week, with Brent approaching USD 109 up from roughly USD 70 in early July, though still below the YTD high of USD 113 reached in April. Attacks on Saudi energy infrastructure pushed Saudi output to its lowest level since 1990, culminating in the precautionary shutdown of a major Saudi pipeline late on Friday, while Houthi rebels' capture of Yemen's port city of Mokha, near the Bab el-Mandeb Strait, raised fresh concerns over Red Sea shipping. Diplomatic efforts also stalled: a planned meeting between Iran and Gulf states to discuss a temporary shipping corridor through the Strait of Hormuz was postponed, adding to signals that a near-term resolution remains out of reach. President Trump's own remarks suggested the war would not end before the midterm elections in November, while White House advisers have privately raised the prospect it could extend through the remainder of his term (WSJ). Contributing to the pressure, Ukrainian strikes on Russian refining infrastructure are further tightening refined product supply. The downstream impact is clear: US diesel prices surpassed USD 6 per gallon for the first time, a level that carries significant political sensitivity ahead of the midterms.  

On rates

Last week's bond markets suffered one of their sharpest selloffs in months, with sovereign yields surging to multi-year highs across the board as a fresh spike in energy prices stoked stagflation fears and forced a broad repricing of central bank tightening paths. In the US, higher-than-expected core CPI data reinforced the hawkish momentum, pushing the probability of a Fed hike at the upcoming meeting from 62% to 88% over the course of the week. The move was most pronounced at the front end: the 2-year Treasury yield posted its biggest weekly jump since the Liberation Day tariff turmoil in April 2025, rising 25.9bps to 4.63%, its highest closing level since July 2024, while the 10-year saw its largest weekly move since May, up 18.5bps to 4.97%. In Europe, the 10-year Bund rose 16.5bps to 3.50%, a post-2009 high, as the energy shock compounded existing inflation concerns and left the ECB with little room for a dovish pivot. In Japan, the 10-year JGB rose to 2.98% from 2.90%, with economists now near-unanimous in expecting a 25bps BoJ hike at the September 17–18 meeting. BoJ board member Masu added to the hawkish tone, warning that the central bank could ultimately need to tighten more rapidly if inflation continued to accelerate.

What to watch

• Monday: Canada CPI; Japan Industrial Production
• Tuesday: US ADP Employment, Empire Manufacturing; UK Earnings and Employment; German ZEW; China August Data
• Wednesday: FOMC Decision; UK CPI; Japan Exports
• Thursday: US Initial Jobless Claims; BoE Policy Rate; Eurozone CPI
• Friday: UK Retail Sales; BoJ Policy Rate