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

Equities fell back as bond yields hit multi-decade highs and AI stocks wobbled, even as earnings growth stayed strong. US Treasury yields rose despite a surprise, politically-timed boost to long-end buybacks. The USD slid to a three-month low on financial-repression concerns, which also lifted gold.

Macroeconomics

H2 2026 seems to have started strongly, judging by the latest business surveys.

Elevated energy costs have done little to dent Purchasing Managers’ Indexes (PMIs). US business optimism rose in August, with the composite PMI at 56.0 (vs. 54.5 in July) as services (56.8 vs. 54.6) more than offset a cooling manufacturing sector (53.2 vs. 53.9), whose earlier boost from safety-stock building is now fading. Services posted stronger new orders, pointing to firm demand ahead, while price pressures in both sectors eased, though they remain elevated by historical standards, keeping the inflation question very much in people’s minds. Employers hired at pace, and with jobless claims still low, labour-market worries should remain contained.

The eurozone added to the upbeat mood: the composite PMI rose to 52.1 (from 52.0), continuing to signal expansion. Manufacturing led the advance (52.8 vs. 51.9), while services held steady at 51.7, as strength in tourism-dependent economies offset softer activity in Germany and France. Price pressures eased across both sectors, but not by enough to shift stubborn inflation, or to rule out a European Central Bank (ECB) rate hike to 2.5% in September.

The story in different in the UK: a stronger-than-expected composite PMI (52.5 vs. 52.2) and sticky core inflation (steady at 2.6%) are keeping the inflation question open. However, unlike the eurozone, the labour market is loosening: employment fell by 13,000 in July, against expectations of no change, while private-sector regular pay, the Bank of England’s (BoE) preferred gauge, slowed to 2.8% in the three months to June (down from 2.9%). This should be argument enough for the BoE to leave its interest rates where they are.

This week’s US Personal Consumption Expenditures (PCE) print will show whether the slight disinflation seen in the latest Consumer Price Index (CPI) holds. Also due are US consumer spending and confidence data, and – perhaps more consequential for markets – the Fed’s Jackson Hole symposium. In the eurozone, German consumer confidence and flash CPIs for France and Spain round out the calendar.

Equities

Global equities pulled back from record highs last week (MSCI ACWI total return -0.9%), breaking a three-week winning streak, as long-term bond yields pushed to multi-decade highs, oil spiked on continued tensions in the Middle East, and weakness in artificial intelligence (AI) infrastructure trade (global semiconductors -3.9%) all weighed on investor sentiment. Reporting from major US retailers also gave a mixed reading on the US consumer, with household spending still resilient but increasingly under pressure.

US and Japanese equities led the week’s declines (S&P 500 -1.4%, Nasdaq -2.0%, MSCI Japan -3.4%), with the global technology and industrial sectors among the weakest performers (-2.6% and -2.7%, respectively), and both regions holding sizeable exposures (45% of S&P 500 combined; 43% of MSCI Japan).

With bond markets taking centre stage, equity markets are playing second fiddle as investors grapple with a potentially ‘higher-for-longer’ interest rate environment. This is creating a tug-of-war between continued appetite for risk assets and renewed pressure from higher yields. The former is supported by strong global corporate earnings projections (MSCI ACWI 2026 expected earnings growth +33% vs. +15% expected at the start of the year) and a still resilient global economy, while the latter is holding back valuations, with global equities (MSCI ACWI) having de-rated from 18.9x forward earnings on 1 January to 16.9x currently.

While we remain constructive on equities, we are selective in the current earnings-led market environment, where we expect volatility to persist. In the week ahead, investors will be looking to results and commentaries from Nvidia on the AI infrastructure build-out cycle, Fed Chair Warsh’s first address at Jackson Hole, and any further developments in the Middle East, along with the resulting impact on oil prices/inflation expectations.

With bonds in focus and rates potentially being ‘higher for longer’, equities are sidelined – pulled between investor optimism and the drag from rising yields

Fixed income

The US Treasury spent the week fruitlessly trying to talk the long end down: yields finished higher, with 10-year Treasuries up 4 basis points (bps) to 4.73%, gilts 2 bps to 5.06% and Bunds 5 bps to 3.26%, a 15-year high. 30-year Treasuries closed Monday at 5.31%, their highest since 2007. Long-end yields ending the week higher is the more striking part, given the mid-week announcement from the Treasury to double its buybacks in the 10-year to 30-year segment, which sent yields down only momentarily. The added buybacks amount to roughly USD 14 billion against about USD 148 billion of long-end supply over the same timeframe, which is not nothing, but also not enough to matter significantly.

What is most uncommon is the timing: buyback sizes are set at the quarterly refunding, and the US Treasury had set them two weeks before it raised them. Outside the global financial crisis, the only comparable off-cycle announcement was the Mnuchin Treasury reintroducing the 20-year bond in January 2020. Bessent said the purpose was orderly trading in a thin summer market, though the operations run from 9 September to 4 November, the day after the midterm elections. In essence, the Trump administration cannot afford higher long-end yields going into the vote, as mortgage rates are tied to that part of the curve.

For market observers, the surprise came in how quickly rates reversed. Bessent dismissed the move and added that operations could be increased further, conceding that part of the exercise is signalling. He also promised a fiscal consolidation package, against a deficit on pace to top USD 2 trillion this fiscal year and total public debt which just crossed the USD 40 trillion mark. What seems palpable is that the administration is acutely aware of the elevated yield levels, and increasingly not comfortable with where they sit.

US data pulled the other way, with the flash services PMI jumping to a 20-month high on a surge in hiring and consumption, following softer jobless claims the day before. The July Federal Open Market Committee (FOMC) minutes showed growing impatience with inflation above target, but no hint of imminent tightening, with September now pricing in a roughly one-in-three chance of a rate hike, against 82% in mid-July. On Friday, Warsh will give his first Jackson Hole keynote speech as chair, having said he intends to frame big questions rather than provide guidance, and that the Fed is not constrained by market prices.

Energy kept the pressure on rates, with Brent crude posting another weekly gain, as traffic through the Strait of Hormuz is running at only 20% of the pre-conflict levels. The tone is also hardening, with the US expected to unveil sanctions that Trump has called ‘an economic D-Day’, while Iran’s security council threatened to halt all oil movement through the Strait and to target neighbours that assist Washington.

Credit remains calm, with spreads unchanged on the week, so the upward move in rates did the work: returns were slightly negative across the board, with Treasuries at -0.1%, investment grade (IG) -0.2%, high yield (HY) -0.1%, additional tier 1 bonds (AT1s) flat, and emerging markets (EM) at -0.4% on higher duration.

The US Treasury’s surprise increase in long-end buybacks briefly pulled yields down, but they nonetheless closed the week higher

Forex & Commodities

Last week, the US Dollar Index fell by over 1%, taking it to its lowest level since May. The decline followed the US Treasury’s decision to increase the scale of its buybacks at the long end of the curve. The action raises the prospect of financial repression over the longer term, and the USD fell because of this. US PMI data released on Friday were highly constructive, however, this did not benefit the greenback. Overall, the bar for USD appreciation is now a lot higher than before, and the dollar should struggle to appreciate in the near term.

The EUR/USD traded higher to levels of above 1.17 and eurozone August PMI data printed above expectations. The main data release for the EUR is the publication of Germany’s IFO index, which is expected to edge higher on all three subcomponents. Overall, the EUR/USD should trade at the upper end of recent ranges.

The USD/JPY rose to levels of around 159 – wiping out most of JPY’s gains since the FX interventions in late July. Japanese inflation data for July printed just below 2%, giving little reason for aggressive Bank of Japan rate hikes above and beyond what has already been priced in. Consequently, the yen is unlikely to appreciate significantly in the near term.

Gold traded higher to levels of USD 4,650 per oz, following the US Treasury’s decision to increase the scale of its long-end buybacks. The decision raises the prospect of a move towards financial repression, which typically benefits gold. ETFs experienced significant inflows for the first time in six months, and futures data showed a large increase in net longs, showing that both retail and institutional investors increased their exposures. Our Q1 2027 target of USD 5,200 per oz remains unchanged.

Financial-repression concerns pushed the US dollar to a three-month low, while the same dynamic drove gold higher

The opinions expressed herein are correct as at 24 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.