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

Global equities resumed their upward trend on fading macro and geopolitical risks, renewed AI enthusiasm, and solid corporate earnings, even as energy lagged behind with the weaker oil price. The US dollar weakened ahead of inflation data, major currencies firmed up, and gold benefited from a shift towards defensive assets.

Macroeconomics

Over the past week, US labour ADP and JOLTS surveys came in below expectations, and the largest negative surprise came from July non-farm payrolls (NFP), which declined by 23,000, alongside downward revisions to job creation over the previous two months. Losses reflected reversals in services such as the retail trade, leisure, finance, and local government. Wage growth remained modest, slowing to 3.2% y/y. The decline in the unemployment rate from 4.2% to 4.1% stemmed from parallel decreases in both the number of unemployed and the labour force.

Elsewhere, business confidence (PMI and ISM) edged up on higher new orders in both manufacturing and services. However, prices paid continued to rise in services. Last, productivity remained solid in Q2, up 1.4% q/q annualised and 2.1% y/y.

In Europe, the rebound in business sentiment was more pronounced in services than in manufacturing. In services, the improvement was driven mainly by peripheral countries, while France’s and Germany’s services PMIs stayed below 50. There was also a large rebound in German factory orders (3.1% m/m in June), driven by domestic demand and public support. Other eurozone indicators – industrial production and retail sales – continued to show wide disparities across sectors and countries. In the United Kingdom and Switzerland, services PMIs rebounded strongly.

This week, the spotlight will be on US inflation, which is expected to rise modestly by 0.1–0.2% m/m for both headline and core CPI, with the annual headline rate easing back to 3.4% y/y and core to 2.5% y/y. July US PPI should also bring good news, with the annual trend declining to 4.8% y/y from 5.5% despite volatile monthly changes. In parallel, US retail sales should be a touch softer than in June, and preliminary August Michigan consumer confidence is expected to moderate slightly. In Europe, the key UK release will be the Q2 GDP figure, which is set to be up by 0.4% q/q after 0.6% in Q1. July inflation will be published in China and India, along with Germany’s final CPI (estimated to be 2.8% y/y). Regular central bank meetings are due in Australia and Norway, with no rate changes expected from either.

Equities

Global equities rallied to their strongest week in about three months (MSCI ACWI total return +2.9%), supported by clear risk-on sentiment as US-Iran negotiations resumed, oil prices tumbled, and near-term rate-hike expectations receded on the back of softer-than-expected US jobs data.

Growth and cyclical areas of the market surged the most, with global materials up +7.1%, technology +5.3%, and industrials +3.2%, while energy was the only sector to finish the week negatively at -3.1% (Brent crude fell -7.3% to USD 83.6/bbl as at 7 August). US equities remained in charge, notching up fresh record highs (S&P 500 +3.6%, Nasdaq +5.2%), supported by renewed enthusiasm for the artificial intelligence (AI) trade, as well as continued strong corporate earnings.

As of Friday, 88% of S&P 500 constituents had reported Q2 results, with an 86% beat rate. Earnings per share (EPS) growth for the quarter now stands at +50.3%, however, much of this is attributable to outsized investment gains at Alphabet and Amazon; excluding these, overall Q2 earnings growth is still trending above expectations at +32.0%, versus +23.1% initially expected at the end of June.

After three months of being rangebound by a familiar set of headwinds – geopolitical tensions, interest-rate uncertainty, and doubts over AI-related spending – global equities have finally broken higher as these concerns fade, leaving corporate earnings as the market’s primary driver. We remain constructive but selective: resilient, and increasingly broad-based, earnings growth is what underpins the case for further gains, even as the sheer scale of AI-related investments keeps volatility elevated.

The easing of financial and geopolitical risks has prompted global markets to resume the upward trend in global equities

Fixed income

Yields reversed course across developed markets. Energy did the work again after Trump called off the planned military strike, sending Brent crude briefly below USD 80/bbl, even if the situation remains anything but resolved. US Treasuries returned 0.3% on the week, with the 10-year down 9 basis points (bps) to 4.65%. Europe followed, with Bunds shedding 7 bps to reach 3.13% and gilts declining by 13 bps to 4.92%.

The arrangement for the Strait of Hormuz currently under review is harsher than the market had priced in: it would bar US and Israeli vessels outright and carries the precondition for any deal of Washington lifting its naval blockade first. For now, the Strait of Hormuz remains closed. Given how reliably de-escalation has given way to re-escalation this year, we remain wary.

Friday’s employment report also provided some comfort. Payrolls fell by 23,000 compared with a consensus expectation of an 83,000 increase, representing the first decline since February, while average hourly pay rose 3.2% compared with a year ago, the lowest since May 2021. Unemployment fell to 4.1%, a 1-year low, as the labour force shrank. This reset the near-term US Federal Reserve (Fed) path, with the probability of a September hike dropping from 70% to 40%. Several officials had argued publicly for a September move only days earlier, so the print took pressure off Warsh, as his July justification – that higher nominal and real yields were already tightening financial conditions – reads better after a soft payroll number than it did on the day. All eyes are now on Wednesday’s July consumer price index (CPI) data.

The August Treasury Refunding statement carried a small change of language. Sizes were held for ‘at least the next several quarters’ but one word changed: the Treasury now evaluates potential future changes to coupon auction sizes rather than increases, with a stated focus on trends in structural demand. Read literally, this implies a two-sided risk to sizing, which sits oddly against the funding gaps opening up in FY27 and beyond. We read it as the Treasury creating ambiguity to take bearish pressure out of the long end.

Credit added to the rally. Investment grade (IG) returned 0.5% for the week, after spreads tightened for eight sessions, while high yield (HY) tightened by around 20 bps over the same stretch and returned 0.7%. Emerging markets (EM) led at 0.9% on the longest duration, the exact mechanism that made it the laggard through July’s sell-off.

On the hyperscalers, which continue to draw attention, Alphabet came to market with a USD 25 billion jumbo deal – its third in a year –, catching markets off guard as hyperscaler spreads had rallied nearly 20 bps over the previous week. Demand still held, with books covered 4.6 times, and three of the six hyperscalers have now signalled they are done for the year. With September issuance still looking heavy and the Jackson Hole meeting falling at the end of the month, the unwind has left dislocations in the higher-quality end of the AI complex that we continue to find attractive.

We remain constructive on credit given resilient earnings and technical data, and we are keeping duration neutral.

Friday’s disappointing labour market data eased the pressure on Fed Chair Warsh to raise interest rates in the near term

Forex & Commodities

The USD weakened following worse-than-expected labour market data. Non-farm payroll (NFP) data for July printed at -23,000, with a negative two-month revision of over 100,000. Average hourly earnings also printed at only +0.1% m/m, showing that underlying wage growth momentum has fallen. The data raise the bar towards a Fed rate hike, and front-end swap spreads moved against the USD. The main event for the USD over the coming week is the publication of US CPI data for July, which are expected to print just below the June data. A weaker-than-expected print should weigh on the USD, putting the US Dollar Index back in a 96–100 range.

The EUR/USD rose to levels of above 1.1550 last week, reflecting the broadly weaker USD. Eurozone activity data have improved materially in recent months, with PMI and GDP data surprising on the upside. We note that short EUR positioning has increased in recent weeks, giving upside risks for the EUR/USD on a short squeeze. There are few important data releases this week, meaning that the EUR/USD should be largely influenced by US data releases.

The AUD/USD traded higher to levels of above 0.70 last week, reflecting the weaker USD. The main event for the coming week is the Reserve Bank of Australia’s (RBA) monetary policy committee (MPC) meeting, at which it is expected to keep rates unchanged at 4.35%. Underlying inflation data have wobbled in recent months, reducing rate hike expectations. RBA Governor Bullock has continued to illustrate a hawkish stance, however, the data continue to underwhelm. Overall, a significant upside move for the AUD/USD is unlikely in the near term.

The USD/CNY traded lower to levels of 6.75, and we note that downside momentum has slowed in recent weeks. Chinese economic data have underwhelmed lately, with the exception of export data. The coming week’s main event will be the release of monthly activity data (industrial production, fixed asset investment, and retail sales). It appears that the People’s Bank of China (PBoC) has slowed the pace of CNY appreciation, suggesting that most of the gains for the year have already been priced in. We anticipate that the USD/CNY has room to fall towards levels of 6.70 by year-end.

Gold traded higher to levels of above USD 4,350 per oz following the publication of US NFP data. We note that gold risk reversals flipped towards a strong bid to XAU calls/USD puts, illustrating a rapid improvement in sentiment towards the yellow metal. The easing of tensions in the Strait of Hormuz and questions regarding the US Fed’s commitment to its inflation-fighting mandate have renewed interest in the long gold trade. Large ETF outflows have continued in recent months, showing a peak-to-trough decline of around 4% of total gold ETF holdings.

Dollar weakness could be reinforced by softer July US CPI data

The opinions expressed herein are correct as at 10 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.