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.

Rising eurozone inflation expectations are driving rate-spread convergence with the US, limiting any near-term EUR downside, while the USD gained ground, and gold dipped slightly.

Macroeconomics

Warsh’s speech at Jackson Hole was highly anticipated. He clarified the US Federal Reserve’s (Fed) reaction function and struck an even more hawkish note. With inflation still high and growth resilient, Warsh noted that monetary policy is not restrictive. In short, if the Fed does not see signs of inflation easing in the coming months, it will have to raise rates, implying the September Fed meeting will be live.

US activity data were mixed but still positive overall. Q2 growth was confirmed at 1.5%, while private domestic demand rose 4.2% after 1.7% in Q1. Durable goods orders were strong, pointing to a still-solid investment cycle. Conversely, consumer confidence dipped slightly on concerns about jobs and household finances, but inflation expectations eased (University of Michigan estimates fell from 4.2% to 4.0%). Core personal consumption expenditure (PCE) came in near expectations (up 0.2% m/m), with the year-on-year pace stable at 3.3%, while headline PCE inflation remains elevated at 3.7% y/y.

In the euro area, German indicators pointed to firmer activity: Q2 gross domestic product (GDP) growth was revised up (from 0.2% to 0.3%), the Ifo index rose again and household confidence was less negative. In France, household confidence improved, but Q2 GDP growth was revised down from 0.2% to 0.0%. Preliminary August inflation estimates are elevated given higher energy prices, pointing to a rebound in France from 2.4% to 2.7% and in Spain from 3.9% to 4.5%.

This week, the focus will be on US labour data. August payrolls are expected to rebound to 55,000 after -23,000, while the unemployment rate should hold steady at 4.1%. In parallel, the JOLTS survey should remain on a moderating trend, and the ADP report is expected to be little changed (around 47,000). Wage growth should continue to ease (3% y/y).

The ISM manufacturing and services indices, along with final Purchasing Managers’ Index (PMI) readings, should indicate solid momentum in services but some softening in manufacturing, as suggested by the preliminary PMIs.

In the eurozone, the key data release will be the first estimates of August inflation, which is expected up by 0.5% m/m and 3.3% y/y from 2.9% y/y the previous month.

Central banks will hold their regular meetings: there is the possibility of another rate hike in New Zealand, while no changes are expected in Malaysia, Canada, and Poland.

Equities

Global equities put in modest gains last week (MSCI ACWI total return +0.3%), supported by appetite for the global technology sector (best performing at +1.4%) following blockbuster results from Nvidia, which reassured investors about the durability of the artificial intelligence (AI) investment cycle. This offset a hawkish message from Fed Chair Warsh, which revived the prospect of higher rates. US equities led the week’s advances, but the gains were narrow and driven almost entirely by technology (Nasdaq +0.9%, Magnificent 7 +2.4%), with the bulk of the market moving lower.

Global price action was relatively muted heading into Nvidia’s results mid-week, with investors in wait-and-see mode. The chip giant registered revenues that more than doubled year-on-year and comfortably beat expectations, but it was the guidance that mattered: management projected around +70% revenue growth for the 2028 fiscal year, far above the roughly +40–45% analysts had estimated, leading shares and the semiconductor complex to move higher.

However, the mood shifted sharply on Friday. In his first Jackson Hole address as Fed Chair, Kevin Warsh sharpened his inflation warning and signalled that rates may need to rise in the coming months with core PCE still well above the Fed’s target. The majority of investors now expect a September rate hike, leading global equities to shed the week’s gains.

We continue to hold a constructive view and maintain a broad exposure to the equity asset class. The past week validated both sides of our House View: Nvidia’s results reinforce our structural conviction in the technology sector and AI infrastructure build-out cycle, while sticky inflation and Warsh’s tone underscore the persistent volatility and rate uncertainty we expect in the near term. As a result, further equity market gains will continue to be earnings-dependent, with the prospect of multiple expansions remaining hindered in a higher-for-longer rate environment.

In the week ahead, investors will be looking to US labour market data and further developments on the geopolitical front (US/Iran) as macroeconomic developments take the driver’s seat to market returns in the near term with Q2 earnings season coming to a close.

Nvidia reinforces our conviction in the AI cycle, while sticky inflation and Warsh’s hawkish tone keep gains earnings-dependent in a higher-for-longer environment

Fixed income

It was a big week for rates, culminating with Chairman Warsh’s speech at Jackson Hole. US 2-year yields rose 11 basis points (bps) to 4.34%, while 10-year yields fell 2 bps to 4.72%, flattening the 2s10s spread by 13 bps, almost all of which was delivered on Friday. Front ends moved the same way in Europe and the UK but with less force: 2-year Bunds were up 6 bps and 2-year gilts rose 5 bps.

Warsh was more hawkish than expected on two specific points: he reaffirmed the 2% inflation target and defined it by core PCE, in stark contrast to comments at the July FOMC press conference, where he pointed to a broader set of inflation measures; he also reiterated the primacy of the policy rate, saying short-term interest rates are the predominant tool to achieve the dual mandate. This removes the idea that he might use the balance sheet to tighten financial conditions without moving the funds rate. The implied probability of a September hike moved up to 60%, with two hikes now expected by March next year.

The data gave Warsh some backing: core PCE rose 0.25% m/m (above consensus expectations), with upward revisions to each of the previous three months. Jobless claims data came out on Thursday and were once again better than expected, continuing to point to stable job growth and downward pressure on unemployment. Warsh used both points, arguing that labour markets are consistent with full employment and that financial conditions are not restrictive, which is the case for hiking (this is still not, however, UBP’s base case).

The week started on a different note. On Monday there were reports the US Treasury could tap its General Account (TGA) to fund long-end buybacks. The previous week’s buyback announcement implied roughly USD 14 billion of additional purchases against around USD 148 billion of supply over the next quarter, an offset of under 10%. The TGA currently sits above USD 900 billion against a historical average of USD 500–600 billion, meaning there is considerably more firepower, causing the 30-year yield to close the week 7 bps lower at 5.20%. Treasury Secretary Bessent had said the week before that this is more about the message than the size, which is the point of flagging up a balance he may never need to spend. Warsh’s dismissal of the balance sheet is the more interesting consequence of Friday, because, by default, it leaves the long end to the Treasury.

The oil price remained volatile, with rumours of another memorandum of understanding during the week failing to materialise. The US unveiled an economic isolation plan for Iran early in the week, targeting intermediaries in Dubai, Hong Kong, Singapore and the UAE, and framed as leverage to force negotiation rather than escalation. Over the weekend, US forces struck two Iranian rocket launchers on Larak Island – the first US military action against Iran in a month. Brent crude was back above USD 90 this morning (Monday). Bessent is also set to bring up the issue of Iranian oil purchases with China at this week’s G20 meeting. Taken together, this is keeping up the pressure on oil prices, and hence on rates.

Spreads remained healthy, with (respectively) investment grade (IG), additional tier 1 bonds (AT1s), emerging markets (EM) and high yield (HY) 2, 4, 6 and 12 bps tighter on the week, which is impressive given the volatility in rates. For the week, Treasuries, IG and AT1s were close to flat, while HY was up 0.3% and EM added 0.5%. AT1s, HY and EM are all tied at 2.9% for the year.

Warsh’s hawkish tone on core PCE and rate primacy, reinforced by resilient data and the US Treasury’s growing role at the long end of the curve, raises the odds of further tightening ahead

Forex and Commodities

The USD edged higher on Friday against most G10 currencies, following Fed Chair Warsh’s comments at Jackson Hole. Markets moved to raise expectations of a 25-bp rate hike from 35% to 60%, which benefitted the USD. Warsh’s focus on inflation means that forthcoming labour market data are likely to have a limited impact on the USD, meaning that if non-farm payroll (NFP) data print in line with consensus estimates it will have little to no meaningful impact on the USD. This means that the EUR/USD is likely to trade within recent ranges, and we are sticking with our estimate of 96.00–100.00 for the US Dollar Index in the near term.

The main event risk for the EUR is the publication of August consumer price index (CPI) data, which are expected to rise to 3.3% (headline) and 2.5% y/y (core). Markets expect to see some pass-through from higher energy prices, meaning that swap markets could move to price in higher terminal rates. This is consistent with recent ECB comments, and such a move would be constructive for the single currency. This would edge markets closer to a rate spread convergence narrative, which would limit euro downside in the near term.

The CAD should remain well within recent ranges ahead of this week’s Bank of Canada (BoC) rate meeting. Lower inflation prints give the BoC plenty of room to keep rates on hold, despite better-than-expected activity data in recent weeks. Overall, a meaningful CAD appreciation is unlikely.

Gold fell modestly following Fed Chair Warsh’s comments at Jackson Hole, and there is room for modest profit-taking ahead of the NFP data publication later in the week. The underlying narrative for gold remains highly constructive given the clearly divergent narratives between the US Treasury (long-end yield buybacks) and the Fed’s views on market prices informing its decisions. We maintain our year-end target of USD 4,800 per oz.

Rising eurozone inflation expectations are driving rate-spread convergence with the US, limiting any near-term EUR downside

The opinions expressed herein are correct as at 31 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.