Michaël Lok

Our outlook for risk assets remains constructive, supported by broadening earnings growth, though tempered by persistent inflation and an oil market showing little sign of easing. Against this backdrop, we are raising our target range for US 10-year yields to 4.25–4.75%, with rising yields and oil prices standing out as the principal risks to our central scenario.

Strong jobs data reignited inflation concerns and increased rate-hike odds, as escalating US-Iran tensions pushed Treasury, Bund, and gilt yields higher, though September Fed odds held steady at 60%.

Warsh’s hawkish tone on core PCE and rate primacy, backed by resilient data, raised the odds of a September rate hike, while Nvidia’s guidance kept the AI cycle intact, though equity gains stayed narrow and earnings-dependent.

Global PMIs held up despite high energy costs, with inflation easing in the US and eurozone, although not by enough to fully dispel concerns. 

July’s softer inflation leaves a September US Federal Reserve (Fed) rate hold as the most probable scenario.

July reinforced our convictions on companies positioned to benefit from artificial intelligence (AI), despite the marked underperformance of US technology stocks at the beginning of the month, as a result of investor concerns about the monetisation of AI-related investments.

US labour data softened, easing pressure on the Fed to hike its interest rates anytime soon.

The Fed left rates unchanged but gave little forward guidance, sending bond yields higher and weakening the dollar.

Escalating tensions in the Middle East sent oil prices surging and long-term US yields to their highest levels since early 2025 as inflation risks resurfaced and markets repriced the possibility of future rate hikes on both sides of the Atlantic.