Weekly Market Commentary

Markets look through geopolitical uncertainty

Markets navigated a volatile week but ultimately finished on a positive note. Concerns over the Middle East initially pushed oil prices sharply higher and weighed on sentiment. As the week progressed, investors became increasingly reassured by softer US economic data and a reduced likelihood of another near-term Federal Reserve (Fed) rate hike. US equities rose +0.4% over the week after reaching a fresh record high on Thursday, while US small caps gained +1.1% and also hit a new high. Technology shares stabilised following their recent rebound, helping the Nasdaq and semiconductor sector post further gains, while market volatility fell to a new low for 2026.

Inflation provides reassurance

The week's main focus was a closely watched set of US inflation releases. Both consumer price inflation (CPI) and producer price inflation (PPI) came in broadly in line with, or below, expectations, reinforcing the view that underlying inflation pressures continue to ease. Core CPI slowed to 2.5% year-on-year, its lowest level since early 2021, while producer prices were unchanged in July against expectations for a modest increase. The data helped reduce concerns that the Fed would need to raise interest rates again in September, with market-implied expectations for a rate hike falling from above 50% to around 30% by the end of the week.

Energy prices remain an important risk

Despite the encouraging inflation data, investors were reminded that inflation risks remain. Oil markets remained highly sensitive to developments involving the Strait of Hormuz, with Brent crude briefly approaching $90 per barrel before retreating later in the week as fears eased. Elsewhere, European natural gas prices rose more than 10% over the week and wheat prices also moved higher, highlighting the broader impact geopolitical tensions can have on inflation-sensitive assets. This was reflected in bond markets, where shorter-dated yields declined as expectations for further Fed tightening eased, while longer-dated government bond yields moved higher amid concerns that inflation could prove more persistent over the longer term.

The week ahead

Attention now turns to Friday's flash Purchasing Managers' Index (PMI) surveys across the US, UK, Eurozone and Japan. These releases will provide indications of how businesses are coping with higher energy costs and an increasingly uncertain global backdrop. So far, economic activity has remained surprisingly resilient despite renewed inflation pressures, with July PMI surveys showing improving momentum across several major economies. Investors will be watching closely to see whether that resilience can be maintained, particularly as equity markets trade near record highs and expectations for fewer rate hikes remain an important support for market sentiment.