Midweek Market Note - August 5, 2026

TL;DR: Global equities have started August strongly as robust corporate earnings and renewed optimism around U.S.-Iran negotiations pushed oil prices and government-bond yields lower. The combination has allowed markets to price resilient economic growth with less immediate inflation pressure, sending major U.S. and European equity indices to record highs.

The setup remains conditional rather than fully settled. Oil is still responding to unconfirmed diplomatic progress, while elevated manufacturing costs, a divided Federal Reserve and demanding expectations across AI-related companies leave markets vulnerable to incoming U.S. services and employment data.

U.S. equities began the week with a broad advance. The S&P 500 gained approximately 1.5 percent on Monday and another 1.8 percent on Tuesday, while the Nasdaq Composite rose more than 2 percent in both sessions. The Dow Jones Industrial Average and S&P 500 finished Tuesday at record highs as falling oil prices reinforced a strong corporate-earnings backdrop.

The rally was led by companies linked to artificial intelligence, data-centre investment and infrastructure spending. Palantir rose almost 30 percent after raising its revenue outlook, while Caterpillar gained after reporting stronger demand for equipment used in power generation and data-centre construction. The Philadelphia Semiconductor Index rose 6.6 percent on Tuesday.

The earnings response has not been uniformly positive. AMD traded lower before Wednesday’s U.S. session despite results exceeding consensus expectations, while SpaceX also came under pressure as investors focused on heavy capital expenditure and future funding requirements. The divergence suggests that the market continues to reward AI-related revenue growth, but is becoming more selective around valuation, margins and cash generation.

European equities have participated in the advance. The STOXX 600 gained 0.5 percent on Monday and closed at a record high on Tuesday after rising another 0.7 percent. Technology and mining shares led the move, while lower oil prices weighed on the energy sector and produced significant company-level dispersion. European shares were modestly higher again on Wednesday morning.

Asian equities strengthened sharply on Wednesday as the technology recovery broadened. Japan’s Nikkei gained 3.7 percent and South Korea’s KOSPI rose 3.8 percent, supported by renewed demand for semiconductor and AI-related companies. The rebound reduced some of the immediate stress seen in Asian technology markets during July, although volatility remains elevated.

Government bonds have rallied alongside equities as lower oil prices reduced the immediate inflation premium embedded in yields.

The U.S. 10-year Treasury yield fell towards 4.61 percent on Wednesday, compared with last week’s high of approximately 4.75 percent. The decline followed a sharp pullback in crude prices and a reduction in the market-implied probability of a Federal Reserve rate increase in September.

The move represents a material change from last week, when equities were rising despite higher long-term yields. This week, equities and bonds are delivering a more consistent signal: stronger earnings are supporting the growth outlook, while lower oil prices are reducing concerns that energy inflation will force central banks into additional tightening.

The message is not entirely dovish. Kansas City Federal Reserve President Jeff Schmid argued on Tuesday that further policy tightening may still be required to bring inflation back towards the Federal Reserve’s target. The market is therefore reducing the probability of an imminent rate increase rather than removing the possibility altogether.

The dollar has remained under pressure near a six-week low as lower oil prices reduced safe-haven demand and weakened the immediate case for a September Federal Reserve hike.

The euro traded around $1.154 and sterling near $1.346 on Wednesday morning. These moves were relatively contained and did not indicate a broader flight from U.S. assets, but they were consistent with the easing in Treasury yields and rate expectations.

The yen remained the main source of volatility in currency markets. Dollar-yen traded near 157.7 after briefly moving towards 155 on Monday, following joint Japanese and U.S. intervention last week. Intervention has slowed the yen’s decline, but the subsequent reversal shows that lasting support will probably require a change in Japanese or U.S. interest-rate expectations rather than official purchases alone.

Oil has been the most important cross-asset variable so far this week.

Brent crude fell around 5 percent on Monday and extended the decline on Tuesday as investors responded to claims of progress in negotiations aimed at ending the U.S.-Iran conflict and restoring more normal shipping through the Strait of Hormuz. Brent traded near $80 per barrel on Wednesday, well below its July peak above $100.

Prices moved modestly higher during Wednesday’s European session following reports of an attack on a vessel in the Red Sea, showing that the geopolitical risk premium has not disappeared. The market is balancing improving shipping flows and diplomatic optimism against the possibility of another breakdown in negotiations.

Gold rose more than 2 percent on Wednesday to approximately $4,164 per ounce, its highest level in around one month. The move was supported by lower Treasury yields and a softer dollar. Gold’s advance alongside equities indicates that the move was driven more by falling opportunity costs and continued policy hedging than by a conventional risk-off shift.

The first U.S. activity data of the week remained consistent with resilient growth.

The July ISM Manufacturing PMI increased to 55.6 from 53.3, its highest level since May 2022. New orders and employment strengthened, but the prices-paid component remained elevated at 71.1 as higher transport and energy costs continued to pass through supply chains. The report therefore combined stronger activity with persistent input-price pressure.

Tuesday’s JOLTS report showed that U.S. job openings were broadly stable at 7.4 million in June. Hiring, quits and layoffs also changed little, suggesting that labour demand is moderating but has not deteriorated sharply. The data did not resolve the debate around September Federal Reserve policy and left Friday’s payroll report as the more important labour-market test.

The U.S. trade deficit narrowed in June as imports declined more quickly than exports. Together with the manufacturing survey, the data point to stable domestic activity, but they do not remove concerns around elevated prices or the inflationary consequences of disrupted global supply chains.

The main change this week is that the equity and bond markets are no longer moving against each other.

Last week, strong earnings supported equities while rising oil prices pushed long-term yields higher. That divergence raised questions about whether equity valuations could continue to absorb a more restrictive rates environment. This week’s decline in oil has reduced that tension. Treasury yields have fallen, equity indices have reached records and the dollar has softened as the market reduced expectations for a September rate increase.

The rally is being driven by two separate but reinforcing developments. Corporate earnings are supporting the growth and investment narrative, while hopes of a U.S.-Iran agreement are reducing the inflation risk attached to oil. Either factor can support equities independently, but the combination has produced a significantly stronger market response.

The underlying macro signal remains more complicated. The U.S. manufacturing sector is accelerating and employment conditions remain stable, but input costs are still elevated. If oil remains near $80 and shipping conditions continue to normalise, the Federal Reserve will have more flexibility to respond to growth and employment data. If negotiations fail and crude reverses higher, the market could quickly return to the previous combination of rising yields and greater policy uncertainty.

The earnings reaction also shows that investors are not treating all AI expenditure equally. Companies demonstrating strong revenue growth, order backlogs and cash generation have been rewarded. Companies requiring large amounts of additional capital have faced a more difficult response. The broad AI narrative remains supportive, but valuation discipline has not disappeared.

The July ISM Services PMI is due later on Wednesday and will provide a broader reading on the largest part of the U.S. economy. The activity, employment and prices-paid components will be particularly important.

A strong headline accompanied by elevated prices would reinforce the case for tighter monetary policy. A softer report, particularly in employment, would place greater emphasis on Friday’s payroll data and could further reduce expectations for a September hike.

The ADP employment report is due on Wednesday afternoon, followed by weekly jobless claims on Thursday and the official July employment report on Friday.

Friday’s payrolls, unemployment rate and wage-growth figures are the most important scheduled events remaining this week. Strong employment and wage data would support the Federal Reserve’s more hawkish members. A weak report would lower the probability of further tightening, but could also challenge the market’s current assumption that corporate earnings and economic activity will remain resilient.

The U.S. Treasury’s quarterly refunding announcement is due later on Wednesday. Investors will assess the expected size and composition of upcoming note and bond issuance.

The announcement matters because long-term Treasury yields remain elevated despite this week’s decline. A heavier-than-expected concentration of longer-dated issuance could place renewed upward pressure on term premiums and test the equity market’s sensitivity to higher borrowing costs.

Federal Reserve Governors Lisa Cook and regional presidents Mary Daly, Alberto Musalem and Thomas Barkin are scheduled to speak between Wednesday and Friday.

The key question will be whether officials support the view that lower oil prices justify a more patient approach, or whether they focus instead on strong activity data and persistent underlying inflation. Recent comments from Jeff Schmid show that support for additional tightening remains present within the Federal Reserve.

The earnings calendar remains active, with results from Disney, Uber, Eli Lilly and several data-storage and technology companies due during the second half of the week.

The market will continue to distinguish between companies benefiting from AI infrastructure spending and those absorbing the associated capital costs. After the positive responses to Palantir and Caterpillar and the weaker reaction to AMD and SpaceX, guidance on margins, cash flow and investment requirements may matter more than headline revenue alone.

The direction of oil remains at least as important as the scheduled economic calendar.

Market pricing currently assumes that negotiations will produce an improvement in regional shipping conditions. Officials have described progress, but details remain limited and there is no completed agreement. Physical traffic through the Strait of Hormuz and the Red Sea will provide a more reliable indication than diplomatic statements alone.

The cross-asset backdrop has improved since the start of the week. Strong earnings have reinforced confidence in economic and technology-related investment, while lower oil prices have reduced pressure on bond yields, the dollar and near-term Federal Reserve expectations.

Unlike last week, equities and bonds are currently sending a broadly consistent message. Markets are pricing resilient growth with less immediate inflation pressure. That interpretation will be tested by U.S. services data, Friday’s employment report and whether diplomatic optimism produces a verifiable improvement in Middle Eastern shipping conditions.

Subscribe to IronPeak Research for concise weekly market notes and cross-asset macro context