Global equity markets mostly advanced last week. Despite the ongoing stalemate in the Strait of Hormuz, softer-than-feared US inflation data and a sharp rise in expectations that the Federal Reserve will not hike rates this year supported risk assets. The S&P 500, Nasdaq and Philadelphia Semiconductor Index all posted gains. The 10-year Treasury yield climbed and consolidated near a high of 4.7%, pressured by elevated rates at long-end auctions and the New York Fed’s pause in reserve management purchases.
See this week’s WEFC analysis for details.
This Week's WEFC Preview
1. Weekly Market Roundup: Soft Inflation Lifts Risk Assets
- Global equities mostly advanced, with Asia leading the rebound. Softer-than-feared US inflation and a sharp rise in expectations that the Fed will not hike this year supported risk assets, despite the ongoing stalemate in the Strait of Hormuz. The S&P 500, Nasdaq and Philadelphia Semiconductor Index all gained, while European equities lagged with more muted advances.
- The 10-year Treasury yield climbed and consolidated near a high of 4.7%. Elevated rates at long-end auctions and the New York Fed's pause in reserve management purchases kept pressure on the long end. The US dollar index traded sideways.
- Commodities broadly recovered. WTI crude reclaimed the $80/barrel level, while gold, copper and agricultural prices also bounced. Wheat (+5.35%) and corn (+4.73%) led the weekly move; Henry Hub natural gas fell 4.37%.
- Sector and FX breadth confirmed the risk-on tone. Utilities (+2.59%) and energy (+2.56%) led S&P 500 sectors while consumer discretionary (-2.24%) lagged. TWD (+0.58%) and AUD (+0.44%) firmed against a softer dollar.
▌Related Charts: Forex market, Commodity market, Bond market
2. All's Cool: Inflation Cools and September Hike Odds Slip Below 50%
- Headline CPI rose 3.3% YoY and 0.07% MoM, matching consensus. Energy fell 1.5% MoM (prior -5.7%) despite the July collapse of the US-Iran ceasefire and a rebound in oil prices that lifted gasoline futures.
- Core CPI eased to 2.47% YoY and 0.22% MoM, the lowest annual rate since early 2026 and the fourth consecutive month of deceleration from the prior peak.
- Rent and services outweighed a goods rebound. Core goods turned positive at 0.2% MoM on used vehicles, but rent rose only 0.14% MoM and non-rent services 0.19% MoM; their combined weight pulled core CPI to its year-to-date low.
- FedWatch odds of a September hike fell below 50% after the CPI release, extending a decline that began with the prior month's weaker-than-expected payrolls. US equity futures rose overnight on the combination.
- July core PCE, due at month-end, is the next test. A monthly print above the 0.2% threshold that has anchored the Fed's disinflation timeline would raise the risk of an upward revision to rate expectations.
▌Related Charts: CPI items MoM, Cleveland Fed inflation nowcast — PCE
3. Trumpressure: A Fiscal Surge Meets a Higher Cost of Long-Term Capital
- July's deficit reached a record $432bn for the month. Tariff refunds pushed net customs receipts to -$8.6bn and calendar effects pulled some benefit payments forward; stripping out the shift still leaves $333bn, up 18% year-on-year.
- The long end is repricing term premium, not Treasury demand.
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The MacroMicro WEFC is published weekly, delivering rigorous analysis and in-depth insights on the most critical market-moving events. Coverage spans equities, foreign exchange, bonds, commodities, global central banks, geopolitics, and the international political economy.
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Get answers from MM AI.
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How did softer US inflation data impact global equity markets and risk assets?
💡Softer-than-feared US inflation data, combined with a sharp rise in expectations that the Federal Reserve will not hike rates this year, significantly supported risk assets, leading to a broad advance in global equity markets. This positive sentiment occurred despite an ongoing stalemate in the Strait of Hormuz, indicating that domestic economic data played a more dominant role in market direction.
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What factors caused the 10-year Treasury yield to climb near 4.7%?
💡The 10-year Treasury yield climbed and consolidated near a high of 4.7% due to elevated rates at long-end auctions and the New York Fed's pause in reserve management purchases. These factors collectively exerted upward pressure on long-term Treasury yields, reflecting a repricing of term premium rather than a lack of demand.
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How did commodities perform, specifically WTI crude, wheat, and corn prices?
💡Commodities broadly recovered last week, with WTI crude reclaiming the $80/barrel level. Agricultural prices also bounced significantly, led by wheat which rose 5.35% and corn which increased by 4.73%, indicating a general risk-on sentiment in the commodities market, although Henry Hub natural gas fell 4.37%.
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What was the impact of the CPI release on FedWatch odds for a September interest rate hike?
💡The CPI release significantly impacted FedWatch odds for a September interest rate hike, causing them to fall below 50%. This decline extended a trend that began with weaker-than-expected payrolls from the prior month, leading to an overnight rise in US equity futures as market participants anticipated a less hawkish Federal Reserve stance.
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How did the August 13 auction for 30-year Treasury yields perform compared to historical levels?
💡The August 13 auction for 30-year Treasury yields performed at 5.216%, which was the highest 30-year auction yield since 2001. Despite this elevated yield, bid-to-cover ratios and indirect bidder participation remained resilient, indicating that the long end is repricing term premium rather than reflecting a lack of Treasury demand.
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What is the significance of the Fed's Reserve Management Purchases (RMP) pause for Treasury demand?
💡The Fed's Reserve Management Purchases (RMP) pause removes roughly $30 billion of expected T-bill demand from mid-August to mid-September. However, this impact is manageable as Treasury's planned $100 billion Q4 Treasury General Account (TGA) reduction is expected to more than offset it, with money-market fund assets remaining near historical highs.
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What was the average EPS surprise magnitude for S&P 500 companies?
💡The average EPS surprise magnitude for S&P 500 companies was 29.2%, the largest since FactSet began tracking in 2008, with 86% of reporters beating estimates and 88% of the S&P 500 having reported. Revenue and earnings grew by 15.0% and 50.4% year-over-year, respectively, marking the fastest pace since 2021.
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Which S&P 500 sectors showed widened breadth and significant growth?
💡Breadth widened to 10 of 11 S&P 500 sectors, with 8 sectors showing double-digit growth. Excluding Alphabet and Amazon, whose combined $151.4 billion in non-operating investment gains skewed the headline, aggregate growth still ran near 32%, with the ex-M7 493 exhibiting sustained margin recovery.
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