Weekly Market Note - Week Ending August 7, 2026

TL;DR: Global equities recorded their strongest week in several months as strong corporate earnings, lower oil prices and falling Treasury yields created a considerably more supportive backdrop for risk assets. The S&P 500 returned to record highs, but Friday's unexpectedly weak U.S. employment report changed the macro debate by reducing expectations for a September Federal Reserve rate increase.

The question for next week is whether markets can retain that combination of strong equities and lower yields once inflation returns to the centre of the discussion. U.S. CPI, PPI and retail sales arrive as the labour market shows clearer signs of slowing, while uncertainty around the Strait of Hormuz means the decline in oil cannot yet be treated as permanent.

U.S. equities produced their strongest weekly performance since April. The S&P 500 gained 3.58 percent, the Nasdaq Composite rose 5.19 percent and the Dow Jones Industrial Average advanced 2.96 percent. The S&P 500 finished Friday at a record closing high of 7,757.64.

The rally initially reflected two supportive developments. Corporate earnings continued to exceed expectations, particularly across technology and companies exposed to AI infrastructure spending, while optimism around negotiations over the Strait of Hormuz drove oil sharply lower. By Friday, 85.1 percent of the 436 S&P 500 companies that had reported results had beaten analyst expectations, substantially above the long-term average.

The technology trade nevertheless remained selective. Strong guidance continued to produce aggressive upside reactions, but companies unable to meet elevated expectations around growth, margins or capital requirements remained vulnerable. That distinction matters because the semiconductor index is still more than 15 percent below its late-June high despite being up more than 70 percent this year.

European markets also participated in the advance. The STOXX 600 gained approximately 2 percent over the week, supported by healthcare and technology, while UK equities recorded a fourth consecutive weekly gain. The MSCI All-World Index rose approximately 2.4 percent, its strongest weekly performance in three months.

Asian technology markets remained substantially more volatile. South Korea's KOSPI surged almost 6 percent on Wednesday before falling around 4 percent the following session, while Japan and South Korea both traded lower into Friday. The moves showed that investors were willing to return to AI-related exposure, but conviction remained weaker after July's sharp semiconductor correction.

Treasuries ultimately reinforced the equity rally rather than challenging it.

The U.S. 10-year Treasury yield ended Friday around 4.65 percent after reaching approximately 4.75 percent in late July. The two-year yield fell to around 4.25 percent after Friday's employment report caused markets to reduce expectations for a September Federal Reserve rate increase.

That marks an important change from the previous week. Late July had produced rising equities alongside rising long-term yields, leaving valuations increasingly dependent on corporate earnings. This week, falling oil prices and softer labour-market data allowed yields to retreat while equities continued higher.

The strongest rates reaction came after nonfarm payrolls unexpectedly fell by 23,000 in July. Markets reduced the implied probability of a September Federal Reserve increase to roughly 44 percent, from 67 percent a week earlier.

The move does not mean the inflation debate has disappeared. Federal Reserve officials continued to signal that further tightening remains possible if price pressures fail to moderate, leaving the market increasingly dependent on next week's inflation releases.

The dollar weakened as U.S. rate expectations moved lower.

The dollar index ended the week around 99.50, down approximately 0.3 percent and recording a second consecutive weekly decline. The euro gained around 0.4 percent against the dollar to trade near $1.157.

The yen remained the more important currency story. Dollar-yen ended Friday near 157.6 after falling sharply following the U.S. employment report. The move came only a week after rare coordinated U.S.-Japanese intervention to support the Japanese currency, leaving traders sensitive to the possibility of further official action.

The yen's underlying problem has not been resolved. Intervention can change positioning and near-term momentum, but a sustained reversal will probably require either tighter Bank of Japan policy or a narrower U.S.-Japan interest-rate differential.

Oil produced one of the largest cross-asset moves of the week.

Brent crude settled Friday at $83.55 per barrel and lost more than 8 percent over the week. WTI finished at $78.18 and fell more than 7 percent. Prices dropped sharply early in the week as markets responded to signs of progress towards an agreement involving Iran, Oman and shipping through the Strait of Hormuz.

That decline materially improved the broader market backdrop. Lower crude reduced the near-term inflation premium in Treasury yields and made further Federal Reserve tightening appear less urgent.

The problem is that the geopolitical story remains unresolved. Iran said on Saturday that an agreement with Oman over the strait was close, but also said such an agreement would not by itself reopen the waterway. Tehran continues to attach additional conditions to unrestricted passage, while the UAE accused Iran of another missile attack against an ADNOC-linked vessel.

Gold delivered the opposite commodity signal. Spot gold rose more than 7 percent over the week, its strongest weekly gain since January, and ended Friday around $4,336 per ounce. Falling Treasury yields and a weaker dollar provided support, while continuing geopolitical uncertainty preserved demand for defensive exposure.

U.S. economic data produced an increasingly unusual combination of resilient activity, elevated price pressure and a weakening labour market.

The July ISM Manufacturing PMI increased to 55.6, its highest level in more than four years. New orders strengthened and factory employment returned to expansion, but the prices-paid index remained elevated at 71.1.

Services activity also remained firm. The ISM Services PMI came in at 54.1, with stronger new orders but continued input-cost pressure. Private payroll data from ADP showed only 44,000 jobs added, already pointing towards softer employment before Friday's official report.

Friday then materially changed the labour-market picture. Nonfarm payrolls fell by 23,000 in July against expectations for an 80,000 increase, while June's gain was revised down to just 20,000. The unemployment rate fell to 4.1 percent, but that decline reflected weaker labour-force participation, which dropped to 61.4 percent.

Europe offered a somewhat firmer growth signal. The euro-area composite PMI increased to 52.0 in July, its strongest reading in eight months, with services returning to expansion and employment stabilising. Germany's services contraction also moderated substantially.

The week's strongest signal was not simply that equities rallied. It was that the macro constraint which had been working against equities during July temporarily eased.

Oil fell, Treasury yields moved lower, the dollar weakened and global equities rallied. That is a considerably cleaner cross-asset combination than the one seen in late July, when strong earnings were pushing equities higher while oil and long-term yields were simultaneously increasing.

Corporate earnings remain the foundation of the equity narrative. Markets have continued to tolerate demanding valuations because profit growth has been strong enough to support them. The fact that more than 85 percent of reporting S&P 500 companies have beaten expectations helps explain why equities were willing to look through both Middle Eastern uncertainty and increasingly mixed macro data.

Friday's employment report makes that narrative more complicated. Falling yields following weaker employment can initially support equity valuations, but weaker labour demand is not automatically bullish. There is a distinction between slower growth that gives the Federal Reserve room to remain on hold and a deterioration in employment that eventually threatens household spending and corporate revenues.

The next test is therefore inflation. If CPI confirms that price pressure is moderating while employment weakens, the market can continue to price a more patient Federal Reserve without substantially reducing growth expectations. If inflation surprises higher, policymakers would face a significantly less comfortable combination of weak employment and persistent inflation.

Oil remains the second major variable. Markets have already priced a substantial probability of progress around Hormuz into crude prices. Saturday's developments show that a political agreement and a functional reopening of the strait are not the same thing. Shipping activity, insurance availability and actual cargo flows remain more important than statements around negotiations.

July U.S. consumer inflation is the central event of the week.

Economists surveyed by Reuters expect headline CPI inflation of approximately 3.4 percent year-on-year and core inflation of 2.5 percent. The report will arrive only days after the weak employment release caused markets to cut the probability of a September rate increase below 50 percent.

A benign inflation report would reinforce the argument that the Federal Reserve can remain on hold while assessing the labour market.

An upside surprise would be significantly more difficult for markets. It would reintroduce the possibility of further tightening at exactly the point when employment momentum appears to be weakening.

PPI will provide a second reading on upstream inflation pressure.

The manufacturing and services surveys both showed elevated input costs during July, making producer prices particularly relevant. A stronger reading would raise questions about whether recent declines in headline inflation can continue once higher energy and supply-chain costs move through the economy.

Retail sales will help determine whether the weaker labour market is beginning to affect household demand.

This matters because consumer spending has remained one of the more resilient parts of the U.S. economy. A weak report following negative payroll growth would make the slowdown look more broad-based. A strong report would support the view that July's employment weakness was temporary rather than the beginning of a sharper deterioration.

Updated euro-area GDP data and UK growth figures are due during the week.

The releases will be watched against improving euro-area business surveys and still-elevated energy costs. The euro-zone composite PMI returned to expansion in July, but the region remains exposed to the economic consequences of Middle Eastern energy disruption.

The Reserve Bank of Australia is expected to leave rates unchanged on Tuesday after three increases earlier this year.

Inflation has recently moderated, but policymakers have maintained a tightening bias. The decision will provide another indication of how central banks are balancing slower inflation against the possibility that energy costs could produce another price shock.

The U.S. earnings calendar becomes lighter, but technology remains relevant.

Cisco, Applied Materials and CoreWeave are among the companies scheduled to report. Applied Materials will be particularly important for the semiconductor and AI infrastructure trade, where strong long-term demand remains offset by extreme expectations and elevated volatility.

The geopolitical situation remains a direct macro variable.

Iran and Oman appear closer to an agreement on passage through the Strait of Hormuz, but Tehran said on Saturday that such an agreement alone would not trigger a reopening. Disagreement remains around U.S. involvement, sanctions, shipping fees and the conditions required for safe transit.

The market test is straightforward: whether physical oil flows through the strait begin to normalise.

Until that happens, the decline in crude should be treated as a reduction in the geopolitical risk premium rather than confirmation that the supply disruption has ended.

Markets ended the week in a considerably more supportive configuration than they began it. Strong earnings supported equities, lower oil reduced the inflation premium, weaker employment pushed Treasury yields lower and the dollar softened. The result was a powerful global equity rally and a return to record highs in the United States.

The setup is not without tension. Employment is weakening at the same time that inflation remains above target, while markets have already priced significant geopolitical improvement into oil without a functioning agreement to fully reopen the Strait of Hormuz.

Next week's inflation data will determine whether the current combination of higher equities and lower yields can persist. A benign CPI report would reinforce the recent move. A renewed inflation surprise would place the Federal Reserve, bonds and equity valuations back into direct conflict.

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