Market Commentary

Friday’s retail sales and consumer confidence rounded off a few days of softer than forecast economic data in the US – following the consumer and producer prices reports on Wednesday and Thursday respectively – triggering a further fall in the dollar on the FX markets. The euro is hovering just north of $1.16 against the US currency this morning, its highest level in a couple of months, while sterling has risen to almost $1.3570, its highest level in about a month. EURGBP is trading a touch above £0.8550, having been confined to an extremely tight range through the course of last week. It is an important week ahead for UK economic data in particular with the labour market report for Q2 out tomorrow (Tuesday) and CPI inflation for July on Wednesday. These will help shape expectations regarding the path for Bank of England interest rates and so may have a bearing on the pound.

Yesterdays Events

Government bond yields rose last week amid an increase in oil prices – Brent crude gained $5 (or 6%) to over $88 per barrel – though US 2-year yields were the exception as they edged down slightly on the back of the soft economic data and an accompanying paring back of Fed rate hike expectations. Friday saw quite a sharp rise in long-term bond yields with German and UK 10- and 30-year yields increasing by 7-9bps (and equivalent French yields by 10-12bps), while US yields were 4-5bps higher on the day. Rising yields weighed somewhat on equity markets with both US and European stocks ending marginally in the red on Friday.

Headline retail sales in the US were a good bit weaker than expected in July, falling by 0.6% month-on-month in value terms versus the consensus forecast for an increase of 0.1%. Retail sales excluding autos and gasoline were also weaker than forecast at -0.2% on the month, though this followed a number of months of solid gains, while the year-on-year pace of growth eased to 4.8% from 5.7% in June. Separately, consumer confidence fell this month according to the early estimate from the University of Michigan, though it remained above its multi-year low reached in May.

The Day Ahead

Looking to the week ahead, in addition to the labour market and inflation data in the UK, flash readings for the August PMIs are due in the Euro area, UK and US on Friday. The Fed publishes the minutes of its July monetary policy meeting (at which three members voted for a 25bps rate hike) on Wednesday, while a number of ECB members are due (back) on the wires including Chief Economist Philip Lane today and tomorrow (Tuesday) and President Christine Lagarde on Wednesday.

Market Commentary

Another benign set of US inflation data – this time producer prices – contributed to a further paring back of Fed rate hike expectations – the market is no longer quite fully pricing in a 25bps increase in the policy rate by the end of this year – and a fall in US bond yields. Despite this though, the dollar was largely unmoved, remaining in a relatively tight range. Hence EURUSD and GBPUSD are trading at around $1.1545 and just north of $1.35 respectively this morning, little enough changed from yesterday morning’s levels. Similarly for EURGBP, which continues to hover around the £0.8550 mark.

Yesterdays Events

US government bond yields fell by 4-6bps across the curve, with the largest decline occurring at the short-end reflecting the easing of rate hike expectations, while German and UK yields ended marginally lower on the day. In equity markets, US stocks had a positive session, with the S&P 500 gaining around 0.7% to close at a new record high, but European indices finished flat to a touch lower.

US producer output prices were unchanged on the month in July – an increase of 0.2% was expected – and the annual rate of increase eased for a second month running, to 4.7% from 5.5% in June and a (most recent) peak of 5.9% in May. Producer prices excluding energy and food rose by 0.2% last month – again a touch softer than expected – and the y-o-y pace of increase slowed to 4.2% from 4.7% in June.

Fed member Hammack – one of three who dissented in favour of a 25bps increase in interest rates at the July monetary policy meeting – says she “loves to see that those (inflation) numbers are coming in lower,” but she doesn’t “have confidence that we’re going to continue to see that, or that we’re going to see them low enough that it’s going to bring us back down to that 2% (inflation) target.” Hence she has been calling for “a higher federal funds rate (to) help restrain economic activity and reduce inflationary pressures”

The Day Ahead

It is quite a busy end to the week in terms of economic data. Retail sales (July) and consumer confidence / inflation expectations (August) are due in the US, while a second estimate of Q2 GDP growth (the first estimate showed the economy grew by 0.4% q-o-q) and a preliminary estimate of Q2 employment growth are scheduled in the Euro area.

Market Commentary

Yesterday’s inflation data in the US were relatively benign and in line with the consensus forecast, prompting a modest paring back of Fed rate expectations with the chances of a hike at next month’s meeting now seen at around 35% (from circa 50/50 before the data). The dollar weakened initially after the release of the data but has more than recovered ground since. This sees the euro and sterling trading at around $1.1520 and $1.3485 respectively this morning, down from yesterday’s best levels of about $1.1565 and $1.3545. EURGBP continues to trade in a very tight range, still hovering just below £0.8550. UK GDP data for Q2 published a short while ago were in line with expectations and have had little impact on the pound.

Yesterdays Events

The inflation data had little impact on US bonds with 2-year yields ending marginally lower and 10-year yields largely unchanged, while equivalent German and UK yields were broadly flat. It was something of a mixed session for equity markets, albeit the price action was fairly limited overall, with the S&P 500 in the US chalking up modest gains but European stocks ending slightly lower on the day.

Headline and core consumer prices in the US rose by 0.1% and 0.2% month-on-month in July according to yesterday’s CPI report, leaving the respective annual rates of inflation at 3.4% and 2.5%, down from 3.5% and 2.6% in June. Within core inflation, goods inflation was unchanged at 0.8% but, notably, services inflation fell for a second consecutive month to 3% (from 3.2% in June and 3.4% in May).

GDP in the UK rose by 0.4% quarter-on-quarter and by 1.2% year-on-year in Q2, having expanded by 0.6% q-o-q and 0.9% y-o-y in the first quarter of the year, with consumer spending (+0.3%) and business investment (+1.7%) both increasing in the quarter. Q2 also ended on a solid note with GDP up 0.3% in June (versus May).

The Day Ahead

For the day ahead, there is more inflation data due in the US, this time producer prices (PPI) for July, while other US data scheduled include the regular weekly jobless claims. Elsewhere, industrial production (June) is due in the Euro area.

Market Commentary

The main currency pairs remain confined to very tight ranges, ahead of important CPI inflation data (July) in the US later today. The euro and sterling are trading at around $1.1540 and $1.35 against the dollar respectively this morning, while EURGBP is hovering just below £0.8550. With the chances of a 25bps interest rate increase from the Fed at its next meeting in September currently seen at around 50/50, an in line/softer the expected inflation report today – the consensus expects headline and core consumer prices to have increased by 0.1% and 0.2% respectively last month (3.4% and 2.5% y-o-y respectively) – would see the market pare back expectations for a rate hike next month and the dollar lose ground; stronger than forecast data, on the other hand, would raise the chances of a rate increase in September and see the US currency strengthen accordingly.

Yesterdays Events

Some talk from Pakistan’s defence minister about the chances of a US-Iran deal on reopening the Strait of Hormuz saw oil prices dip yesterday – with Brent crude getting down to a low for the day of under $87 p/b – which in turn contributed to a modest decline in government bond yields in the main markets. The fall in oil prices has proved short-lived however with Brent crude back up close to $90 p/b this morning. In equity markets, similar to Monday, European stocks chalked up modest gains but US and UK stocks both ended marginally lower on the day. Some positive (technology-related) corporate earnings reports overnight sees European indices open in positive territory this morning.

Optimism among small businesses in the US rose for a second month running in July according to the latest survey from the National Federation of Independent Business (NFIB). The assessment of the economic outlook improved again last month, while there was a notable jump in hiring and investment plans for the coming months.

The Day Ahead

As mentioned, the US inflation report will be the main focus for markets today. There is little else of note due in terms of economic data releases.

Market Commentary

Oil prices have risen further as the chances of any immediate agreement between the US and Iran on reopening the Strait of Hormuz seem to have receded. Brent crude is now up at around $90 per barrel, still well off its most recent highs of circa $100 p/b in late July. Rising oil prices contributed to an increase in government bond yields, while equity markets finished flat to slightly lower. In FX, sterling is a touch firmer against both the euro and the dollar, trading at about £0.8545 and $1.3505 respectively this morning, while EURUSD has eased to around $1.1540. The yen, meanwhile, continues to give up some of its intervention-related gains against the dollar, weakening to over Y159, though this is still some way from the levels (Y164) that prompted support for the currency.

Yesterdays events

Government bond yields backed up as oil prices headed north, increasing by 5-7bps across the main markets (reversing a good chunks of last week’s decline), with UK gilts underperforming slightly on the day. US and UK equity markets ended marginally in the red, while European stocks closed broadly flat.

Fed member Hammack, one of three dissenters who voted for a 25bps increase in interest rates at last month’s monetary policy meeting, suggests that a series of rate hikes may be need to restrain economic activity in order to bring inflation back down to the 2% target. She says that “one 25-basis-point move probably doesn’t do a whole lot for the economy…so it’s probably some number (of hikes that’s needed), but I don’t want to prejudge what that number is going to be.” The market is currently pricing in about two quarter-point rate increases by the middle of next year.

Retail sales growth in the UK slowed in July according to the latest survey from the British Retail Consortium (BRC), easing to 1.3% y-o-y (in value terms) from 1.9% in June, while ‘same store’ sales growth dipped to 1% from 1.7%. The BRC notes that “household budgets remain stretched, consumer confidence is fragile, and retailers continue to grapple with rising operating costs.”

The Day Ahead

For the day ahead, US economic data due include the small business optimism index for July, existing home sales (also for July), and the latest weekly ADP employment report.

Market Commentary

Friday’s employment report in the US was weaker than expected – the economy shed almost 25k jobs in July – prompting some paring back of the chances for a Fed interest rate hike next month (to just under 50%) and a modest fall in the dollar. The euro and sterling traded up to intra-day highs of about $1.1580 and $1.3510 against the US currency respectively, but are back to around $1.1555 and $1.3490 this morning. EURGBP was confined to a very tight range last week and kicks off this week at about £0.8565. The focus for the  week ahead will be on Wednesday’s CPI report in the US. A reading along the lines expected – a relatively subdued increase in core consumer prices of 0.2% on the month – or weaker would probably see market expectations for a September rate hike pared back further and the dollar lose ground, while a stronger than forecast reading would produce the opposite effects. The market will also be watching developments in relation to the reopening of the Strait of Hormuz, with an agreement between Iran and the US still proving elusive. Oil prices are nudging higher this morning with Brent crude at around $84 p/b.

Yesterdays Events

US government bonds edged lower on the back of the jobs data, falling by around 3-5bps across the curve, while German and UK bonds ended flat to very marginally lower on the day. In equity markets, the S&P 500 closed out the week at a new all-time high, on the back of gains of just over half a percent on Friday, as did the Stoxx Europe 600, with gains of just shy of 0.5%.

Friday’s US payrolls report was a good deal weaker than expected. Employment fell by 23k in July – versus the consensus forecast for a gain of circa 80k – and the May-June outturn was revised down by a cumulative 103k. A decline in government employment dragged down overall employment last month, but the increase in private sector payrolls of 30k also fell shy of expectations. The unemployment rate declined for a second consecutive month, to 4.1%, but this was mainly due to another fall in the labour force participation rate.

The Day Ahead

For the week ahead, as well as Wednesday’s CPI report, other US economic data due include producer prices on Thursday and retail sales and consumer confidence on Friday. UK data scheduled includes GDP for Q2 on Thursday, while a second estimate of Euro area Q2 GDP growth is due on Friday.

Market Commentary

The main currency pairs continue to trade in quite tight ranges notwithstanding some souring of market sentiment (as oil prices have moved higher) and ahead of today’s employment report in the US. The euro and sterling are both a touch softer against the dollar relative to yesterday morning’s level, trading at around $1.1525 and $1.3450 respectively, while EURGBP is marginally lower at £0.8565. The US economy is expected to have added around 80k jobs in July according to the consensus forecast for today’s report, a bit more than in June (+57k), while the unemployment rate is expected to be unchanged from June at 4.2%.

Yesterdays Events

Oil prices backed up as progress on reopening the Strait of Hormuz remains unclear – it had been thought that a deal might have been agreed before now – with Brent crude up around 7% from its intra-week lows to over $83 per barrel. This contributed to a jump in bond yields in the main markets, led by the US which saw 2- and 10-year yields increase by 5-6bps on the day. US equity markets also ended in the red, albeit modestly so, while European stocks had earlier finished with small gains.

The Financial Times reported that Fed Chair Warsh “would be prepared to raise interest rates at September’s meeting if the coming weeks’ inflation readings are high”, which added to the rise in US yields. Separately, Warsh’s Fed colleague Musalem said “it is crucial that monetary policy put a meaningful restraint on underlying inflation,” adding that “a central bank’s most valuable contribution to long-run growth is to supply the stable prices backdrop against which firms can plan the investment and innovation that fuel economic growth.”

The Day Ahead

For the day ahead, as noted, the main economic data is the employment report for July in the US. Other US releases scheduled include consumer credit (July) and the New York Fed’s latest survey of consumers inflation short- and medium-term inflation expectations.

Market Commentary

Bond and equity markets were largely in consolidation mode yesterday having rallied strongly earlier in the week on hopes for a resolution to the situation in the Strait of Hormuz. There has been progress on this front it seems with reports that Iran and Oman having agreed on shipping routes through the Strait, so markets will be awaiting further news/developments, in particular of course the response of the US. In FX, the euro and sterling have been confined to fairly narrow ranges against the dollar over the course of the week. They are trading at around $1.1545 and $1.3460 respectively this morning, little changed from yesterday morning’s levels, leaving EURGBP at around £0.8580.

Yesterdays Events

Government bonds yields were flat to very marginally higher across the main markets, having fallen steadily on Monday-Tuesday. In equity markets, the S&P 500 retreated from Tuesday’s all-time high, ending a touch lower on the day, while European stocks also ended slightly in the red. Meanwhile, Brent crude oil prices are holding steady just below $80 per barrel, some $20 below their most recent peak (of $100 p/b) just a couple of weeks ago.

Growth in the US services sector remained solid in July judging by the latest ISM survey. The headline index was unchanged from June but was comfortably above the key 50 level (at 54.1), while the Business Activity (output) and New Orders sub-components both registered strong increases on the month. Separately, the ADP report showed private sector employment growth slowed for a second month in a row in July, coming in slightly shy of expectations at +44k (versus the consensus forecast of +65k). Job gains have picked up in 2026 to date relative to 2025,  averaged just over 70k a month in January-July versus +33k a month last year.

Fed Governor Cook says “the risks to the inflation side of the dual mandate (are) higher than the risks to the employment side at this point (and) as such, I am prepared to act by raising rates, if necessary, to bring inflation down.” The market is currently pricing in about a 55% chance of a 25bps rate hike at the Fed’s next meeting in mid-September.

The Day Ahead

For the day ahead, economic data scheduled for release include retail sales (June) in the Euro area, the construction PMI (July) in the UK, and weekly jobless claims and unit labour costs (Q2) in the US.

Market Commentary

It was another positive day in markets as bonds and stocks rallied again alongside a further fall in oil prices, fuelled by hopes that there may soon be some resolution to the situation in the Strait of Hormuz. It was quiet enough in FX though. The euro and sterling are in consolidation mode against the dollar – for now at least – following the gains they chalked over the latter part of last week. They are trading at around $1.1540 and $1.3460 respectively this morning, both just marginally firmer relative to yesterday morning’s levels, leaving EURGBP little changed at about £0.8575. The yen, meanwhile, is holding onto its intervention-driven gains against the dollar and the euro, trading at around Y158 and Y182 respectively.

Yesterdays Events

There was some further easing of central bank rate hike expectations as oil prices headed south – Brent crude is back below $80 per barrel having closed at $90 p/b at the end of last week – which in turn contributed to another leg lower in bond yields (with 2-and 10-year yields falling by 5-7bps across the main markets). Equity markets also rallied. The S&P 500 in the US closed at a new record high on the back of gains of over 1.5%, while European stocks added another 1% or so. Asian equities had a positive session overnight as well – Japan’s Nikkei index was up almost 4% – which should ensure a positive open for European indices this morning.

Fed member Schmid adds to calls from a number of his colleagues for higher interest rates. He says “given the strength of demand and investment, I do not see the current stance of monetary policy as restrictive…as such, I believe that bringing inflation down to the Fed’s 2% objective will require tighter policy.”  He also adds that he’s “uncomfortable ever assuming that a burst of inflation will be temporary,” noting that “how persistent a spike in inflation is ultimately depends importantly on how the Fed reacts or is expected to react.”

The Day Ahead

Looking to the day ahead, economic data due include the ISM services index and ADP employment report (both for July) in the US and producer prices (for June) in the Euro area, while final  readings for the July services PMIs are due in the main economies. There are a few Fed members due on the wires over the course of the day.

Market Commentary

Donald Trump’s announcement that he was postponing attacks on Iran to allow for talks between the two sides prompted a decline in oil prices and a rally in bonds and stocks at the start of the week. Japan and the US have confirmed that they jointly intervened in the FX market on Friday to support the yen – the US sold euros and bought yen in its intervention operation – and indicated they were prepared to do so again if necessary. The yen is currently trading at around Y158 and Y181 against the dollar and euro respectively, well off its recent lows of circa Y164 and Y187. Meanwhile, EURUSD and GBPUSD are both managing to hold onto a good chunk of the gains they made following last week’s Fed meeting, trading at around $1.1515 and $1.3435 respectively this morning, while EURGBP is little changed from Friday’s closing levels at £0.8570. Looking to the week ahead, the main focus in terms of economic data will be on the US jobs report for July on Friday.

Yesterdays Events

Bonds rallied as oil prices fell – Brent crude is down more than $5 from Friday’s close at just under $85 per barrel – with US and German 10-year yields declining by around 6bps, largely reversing last week’s increase, though UK bonds outperformed as 10-year yields fell by around 10bps on the day. Equity markets also had a positive session. The S&P 500 added around 1.5%, extending last week’s gains (+1%), while the Stoxx Europe 600 closed around 0.5% higher having advanced by around 0.7% last week.

Fed member Williams says he supported last Wednesday’s decision to keep interest rates on hold. His “forecast is for inflation to come down in ⁠the second half of this year and come down further next year” and believes “monetary policy currently is well positioned…to support that disinflationary path.” However he adds that if inflation remains elevated, then it would “absolutely be appropriate (to raise interest rates) to get us on a trajectory that does bring inflation back to 2%.”

Euro area headline inflation nudged up to 2.9% in July, from 2.8% in June, according to Friday’s flash reading, mainly due to a reacceleration in energy price inflation (to 10% from 8.5%), and is now one percentage point higher than pre-war in February (1.9%). Excluding energy, inflation was unchanged at 2.2% last month and is running slightly lower than pre-war (2.4% in February), as a sharp fall in food inflation (to 1.2% in July from 2.5% in February) has more than offset a small rise in core inflation i.e. excluding energy and food over this period (to 2.5% from 2.4%).

The Day Ahead

For the day head, economic data due include job openings, factory orders and the trade balance (all for June) in the US. Other US releases scheduled for later in the week include the ISM services index (July) tomorrow and, as mentioned, the jobs report (July) on Friday. We will also hear from a number of Fed members over the course of the week.