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

US growth slowed slightly while Europe surprised on the upside. Stocks still rose, helped by strong earnings and a rebound in AI-related shares, though results varied widely between big tech names. Oil prices swung on Middle East tensions but eased later in the week. The Japanese yen jumped sharply after officials intervened to support it. All eyes have now turned to upcoming US jobs data for the next signals on where rates are heading.

Macroeconomics

Over the past week, the Federal Reserve (Fed) kept its rates at 3.50–3.75% while offering no forward guidance; Kevin Warsh reiterated the 2% inflation target, associated with a slightly hawkish tone, but markets penalised the lack of detail and clarity. The Bank of England (BoE) also held its rates at 3.75%, stayed cautious on growth and the labour market, and expected inflation to peak at 3.20% y/y in Q4 26, favouring a flexible stance amid existing upside inflation risks. The Bank of Japan (BoJ) left its rates unchanged, slightly upgraded growth forecasts and lowered those on inflation.

US Q2 GDP data disappointed at 1.5% q/q SAAR (vs. 2.0% expected), held down by net exports (-1 percentage points) and inventories (-0.7 percentage points), while consumption was strong (+3.2% q/q) and investment – especially in equipment and artificial intelligence (AI) – remained robust, lifting imports to a higher trend.

In the eurozone, Q2 GDP came in at 0.4% q/q (0.3% ex. Ireland), with broad-based gains: France, Germany, and Italy at +0.2% q/q and Spain at +0.7% q/q; domestic demand supported France and Italy, exports aided Germany, and capex drove Spain, while governments deployed measures in Q2 to cushion energy costs.

This week, the US data focus is on labour, which is expected to stay healthy, JOLTS openings are set to ease, ADP should be near 65,000 (from 98,000), but non-farm payrolls are expected to be around 80,000 (from 57,000), unemployment should hold steady at 4.2%, and wage growth at 3.5% y/y. The ISM Manufacturing should confirm elevated confidence, and the ISM Services should improve further. In the eurozone, final purchasing managers' indexes (PMIs) should confirm the sharp rebound in manufacturing and services, while June retail sales are set to be modestly higher; in the UK, final PMIs should confirm a more constructive backdrop. Central banks in Brazil, India, and Mexico will hold their regular meetings.

Equities

Global equities advanced through a volatile and event-heavy week (MSCI ACWI total return +1.4%), as resilient corporate earnings and a late-week relief rally in AI infrastructure companies outweighed a hawkish Fed, rising long-term yields and firmer oil prices as tensions in the Middle East persisted.

While the Fed held rates steady (as expected), markets continued to price in a ‘higher-for-longer’ interest rate environment. Investors seemed less convinced that inflation was under control and a growing wave of long-dated bonds issued by Big Tech also pushed long-term yields higher. The latter could act as a cap on valuations, with global equities trading more or less in line with their 10-year averages in terms of the 12-month blended forward price-to-earnings (P/E) ratio at 16.9x, despite expected earnings growth of +30% in 2026.

Mega-cap results drove sharp dispersions rather than a uniform move. Microsoft (+15.5%, post-results) and Amazon (+15.3%) were rewarded for cloud revenue strength, seen as a robust defence of AI-related capital expenditure, while Apple (-7.3%) fell heavily on supply-constrained guidance, and Meta (-8.0%) tumbled on increased AI spending concerns.

Another of the week’s defining stresses was also the forced unwinding of a large, highly leveraged AI hedge fund (Situational Awareness), which put pressure on the technology complex, namely semiconductors and South Korean memory names, before a violent relief rally at the end of the week as the overhang cleared (South Korea’s KOSPI Index +18% on Friday after -16% over Monday through Thursday).

As at Friday, 61% of the S&P 500 had reported results with an 86% beat rate. Q2 earnings growth is now estimated to reach +47.3% vs. +23.2% expected initially. While the bulk of the upward revision can be attributed to earnings per share (EPS) strength from Alphabet and Amazon (driven by gains in their respective investment portfolios), excluding these two companies, overall earnings growth is still trending above initial expectations at +28.8%.

Looking ahead, another 136 constituents of the S&P 500 are set to report results this week. Although a ‘higher-for-longer’ interest rate environment and persisting geopolitical tensions could continue to provide headwinds, last week’s dispersion illustrates the selectivity that anchors our current House View: an equity market led primarily by earnings growth with the broad uptrend intact but the technology investment cycle warranting close attention.

The Fed left rates unchanged, but markets are still betting on a ‘higher-for-longer’ rate environment

Fixed income

Government bond markets spent the week digesting a Fed that told them very little. Yields’ twists steepened, with 10-year Treasuries closing 6 bps higher at 4.73%, while 2-year yields fell 4 bps to 4.29%, and 30-year yields finished at new year-to-date highs, above their autumn-2023 cycle peaks and back to levels last seen in mid-2007. European yields followed a similar path but with less enthusiasm: 10-year Bunds rose 3 bps to 3.21% and gilts 2 bps to 5.05%.

The Fed left its funds rate at 3.50–3.75% on a 9–3 vote, with Hammack, Kashkari and Logan dissenting in favour of a 25-bp rate rise (this is the most dissenters pointing the same way since September 2016). All three have skewed hawkish all year and dissented previously over language, so they signal less about the middle ground of the Committee than the headline count implies.

The press conference is where credibility leaked: Warsh opened hawkishly and said the Fed would not hesitate to act, then gave no direct answer when asked how that resolve translates into policy. He also noted markets were reacting to real economic developments rather than to the Fed, which is one way of describing a central bank that has stopped guiding. A roughly two-in-three chance of a hike has been priced in for September, based on the July and August payroll and consumer price index (CPI) data points.

Elsewhere, central banks were quiet. The BoE held its rates at 3.75% on a 6–3 vote, with Greene, Mann and Pill voting for 4.00%; this represents a fifth consecutive hold and a more hawkish split than in June. The BoJ held its rates at 1.00% on an 8–1 vote, warning for the first time that underlying inflation is likely to run well above 2% into year-end.

Energy did the rest of the work. Brent crude gained 24% in July, its largest monthly rise since March, as attacks in the Strait of Hormuz, the Houthi blockade at Bab el-Mandeb, and strikes near Black Sea export infrastructure all put pressure on supply at once. The correlation between developed markets (DM) front-end rates and energy, which faded during the ceasefire, has been rebuilt since early July, most visibly in Europe. Last week, oil fell, closing near USD 90/bbl after brushing USD 100/bbl the previous Friday as Hormuz throughput recovered. New tariffs of 10–12.5% on 60 trading partners added marginally to the inflation impulse.

The weekend saw a shift in tone: on Saturday, Trump called off a planned strike on Iran at the request of Gulf allies and said talks with Tehran would begin. The reported framework covers reopening the Strait of Hormuz and lifting the US naval blockade in exchange for constraints on Iran’s nuclear programme, even though no deal exists yet and Tehran did not confirm its side of the bargain. Brent fell by more than USD 5 as Asian markets opened and rates followed in step.

Spreads were quiet on the surface. However, investment grade (IG) yields hit fresh highs (USD 5.15%, EUR 3.65%) after a press conference that appeared content to let financial conditions do the tightening, while high yield (HY) widened modestly against a light USD 3 billion issuance, even though Q2 results beat strongly. HY yields rose 25 bps over July to 7.42% in USD and 5.75% in EUR. Emerging markets (EM) were the clear laggards given higher duration, albeit while offering compelling yields.

On the hyperscalers, which we flagged last week, the supply picture is becoming structural. July was the second-largest month for gross technology supply on record at USD 49 billion, but the more telling number is the share at 34% of total monthly issuance and the highest ever recorded, with spreads moving materially wider throughout the month. Hyperscalers and data centres now span 31 issuers and more than half a trillion dollars of bonds.

In dollars, Treasuries, IG and HY each returned 0.1% on the week, additional tier 1 (AT1s) 0.4% and EM -0.1%, but the full month was harsher given the upward move in rates: Treasuries -0.3%, IG -0.6%, HY -0.2%, AT1s -0.1% and EM -1.4%.

The press conference is where credibility leaked: hawkish in tone, but silent on how that resolve translates into policy

Forex & Commodities

Last week, the USD weakened following the Federal Open Market Committee (FOMC) meeting. Fed Chair Warsh’s new communication strategy failed to convince investors, as he did not articulate how the Fed would reduce inflation. Warsh also did not give clarity on potential inflation measures, and long-end yields steepened in tandem with rising inflation expectations (5-year inflation swaps). The USD weakened even further on Friday evening following the decision by Japan’s Ministry of Finance to intervene in the USD/JPY exchange rate to strengthen the yen. The coming week’s main event is the publication of labour market data (ADP and NFP). For the moment, it appears that the bar to USD appreciation is now a lot higher than before, and the recent phase of USD appreciation has probably come to an end.

The JPY appreciated following the Ministry of Finance’s intervention in the USD/JPY on Thursday, where it spent over USD 50 billion of its FX reserves. The intervention was not flagged ahead of time, and the USD/JPY fell from levels of just below 164 to lows of around 158, with some modest declines since then. Investors remain on alert for further interventions, and the large short JPY position in the market is likely to contract as investors reduce portfolio risks and cover their shorts, meaning further short-term downside is entirely feasible over the coming days. Longer-term fair value is at levels of around 140, which is consistent with 2- and 10-year yield spreads.

The GBP traded sideways last week, as the BoE’s MPC kept rates on hold at 3.75%. BoE Governor Bailey stressed that the bank was in no rush to raise rates. The overnight index swap (OIS) market continues to price in just over two rate hikes from current levels, which may be excessive, and gives scope for a repricing over time and subsequent GBP weakness. The data calendar is pretty light this week, so sterling will trade as a function of external risk sentiment.

Gold rose modestly following the Fed meeting last week, reflecting the rise in inflation expectations mentioned above. The World Gold Council issued its Q2 report, showing still-robust demand conditions across most sectors, with the exception of the jewellery industry. Central bank demand surged in Q2, and demand for investment coins and gold bars remained strong. These dynamics underpin a generally constructive stance on bullion.

An unflagged intervention pulled the USD/JPY from just below 164 to around 158 and investors remain on alert for more

The opinions expressed herein are correct as at 3 August 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.