The week that was …
Economic round-up
Optimism picks up in UK construction sector
The downturn in Britain’s construction industry appeared to ease in July as a survey by S&P Global showed building companies turning more optimistic than at any time since the Iran war started. The S&P Global UK Construction Purchasing Managers’ Index (PMI) stood at 44.7 in July, jumping from 38.4 in June to well above the 40.0 median forecast in a Reuters poll of economists. Read more from Reuters here
Unexpected drop in US non-farm payrolls
US non-farm payrolls fell by a seasonally adjusted 23,000 over July, compared with a downwardly revised 20,000 for June. Consensus forecasts had been for jobs growth of more than 80,000. The US unemployment rate meanwhile edged lower to 4.1% as the labour force participation rate fell to its lowest in more than five years. Read more from CNBC here
US manufacturing sentiment at four-year high …
US manufacturing activity increased to its highest level in more than four years in July amid strong order growth, boosting factory employment. The conflict in the Middle East is, however, straining supply chains and keeping input costs elevated. The Institute for Supply Management (ISM) said its manufacturing PMI increased to 55.6 last month – up from 53.3 in June and the highest reading since May 2022. Read more from Reuters here
… while services sector maintains strong growth
The US services sector maintained a strong pace of growth over July, although strong demand is colliding with supply constraints – driving up input costs for businesses and potentially keeping inflation elevated. Still, the data suggests the US economy started the third quarter on a solid note as the service sector PMI ticked up to 54.1 in July from 54.0 the previous month. Read more from Reuters here
China’s manufacturing sector continues to improve
The China RatingDog manufacturing PMI indicated an improvement in manufacturing business conditions in China in July, with output, new orders and employment all rising. Cost pressures eased further, enabling firms to hold their output prices. The overall PMI did ease to 50.9 in July, down from 51.7 in June. Read more from S&P Global here
Markets round-up
US sold euros to fund yen purchases
The European Central Bank was blindsided by the US decision to sell euros when it acted to support the yen markets earlier this month, with the US only informing its counterparts in Frankfurt after the historic currency intervention. Read more from the FT here
S&P 500 up on US jobs data …
The S&P 500 rose on Friday as traders took weaker jobs data to mean the Federal Reserve will not need to raise interest rates any time soon. The broad US market index advanced 0.62% on the day for a record close of 7,757.64, while the Nasdaq Composite did even better, climbing 1.3% to end the week at 26,690.62. The S&P 500 advanced 3.6% over the week. Read more from CNBC here
… while treasury yields fall …
Treasury yields fell Friday after data showed the US economy unexpectedly lost 23,000 jobs in July, weakening the likelihood of a rate hike in the short term. The yield on the 10-year treasury note – the main benchmark for mortgages, auto loans and credit card debt – was down by more than three basis points at 4.639%. Read more from CNBC here
… and gold surges
Gold rose to its highest level in seven weeks, after an unexpected drop in US jobs growth weakened the prospect of an interest rate rise. Spot gold jumped 2.3% to $4,336.02 (£3,211.04) per ounce. Bullion was meanwhile set to post its largest weekly rise since mid-January, with prices gaining more than 7%. Read more from Reuters here
Oil posts weekly loss of more than 8%
Brent crude was set for a loss of 8% over the week despite a small rise on Friday due to ongoing uncertainty about the negotiations over the Strait of Hormuz. Brent crude futures finished the week at $83.55 a barrel, gaining $1.06, or 1.3%. West Texas Intermediate futures finished at $78.18 a barrel, up 89 cents, or 1.15%. Read more from Reuters here
Investors snap up US swap futures
Investors piled into US swap futures at the start of last week after a sharp back-up in treasury yields, as they looked to hedge against further increases in borrowing costs. The hedging activity appeared tied to mortgage investors seeking protection against the risk of higher rates. Read more from Reuters here
“The market appears increasingly concerned about the durability and concentration of those tech earnings and how narrowly they are sourced.
Selected equity and bond markets: 31/07/26 to 07/08/26
| Market | 31/07/26 (Close) |
07/08/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5839 | 5877 | +0.7% |
| S&P500 | 7490 | 7758 | +3.6% |
| MSCI World | 4848 | 5008 | +3.3% |
| CNBC Magnificent Seven | 425 | 445 | +4.7% |
| US 10-year treasury (yield) | 4.74% | 4.65% | |
| UK 10-year gilt (yield) | 5.06% | 4.93% |
Investment round-up
Lower-risk assets prioritised in June – IA
June 2026 saw inflows of £3.8bn from retail investors, according to the Investment Association, bringing overall inflows to £12.3bn for the first half of the year. June’s total was the highest monthly figure since August 2021 and the eighth consecutive month of inflows. Investors prioritised lower-risk investments, including fixed income at £4.5bn and money market funds at £3.8bn.
Atlantic House rebrands
Atlantic House will officially rebrand as WisdomTree from 1 September 2026. The derivative and defined outcome specialist manager was acquired by WisdomTree in May. Tom May, formerly CEO at Atlantic House, has taken on the role of global CIO of outcome and derivative strategies at the combined group.
Quilter sees £6bn in inflows
Quilter reported record net inflows and double-digit profit growth for the first half of 2026. The UK wealth manager’s saw £6bn in core net inflows – up 32% year-over-year – alongside a 12% increase in adjusted profit before tax to £112m.
Stewart Investors shutters
Stewart Investors has closed its doors after 38 years. The sustainable development-focused asset manager wound-up operations in July, after parent company First Sentier Group transferred its investment management responsibilities to affiliate investment team FSSA Investment Managers last November. UK largecap equity
ETFs enjoy strong inflows …
UK largecap equity ETFs have attracted more than $3bn (£2.22bn) in inflows so far in 2026, according to data from Morningstar – more than the past three years combined and the strongest run of demand since 2020. The FTSE 100 has outperformed the S&P 500 so far this year as investors look to diversify beyond US stocks.
… but Calastone data shows equity outflows
Equity fund outflows surged in July, hitting the highest level since the 2025 budget. According to Calastone data, £1.61bn was withdrawn from equity funds – the fifth largest in any month on record. UK equity funds shed £948m but most fund sectors saw outflows.
PAM acquires AVI
Pacific Asset Management has agreed to acquire the entire share capital of Asset Value Investors. Pacific will provide infrastructure, technology, operations and investor support. The transaction is not expected to change the management of AVI’s investment trusts or funds.
Tritax Big Box REIT completes equity raise
Tritax Big Box REIT has completed a £350m equity raise, issuing 213.4 million new ordinary shares at 164p each. This represents around 8% of the company’s issued share capital before the transaction. The capital raised will be invested in an expanded data-centre development programme.
Ebtehadj returns to Columbia Threadneedle
Natasha Ebtehadj has rejoined Columbia Threadneedle as a global equities portfolio manager. She leaves the global equities team at Artemis, where she had managed the Global Select open-ended fund, alongside Alex Stanić and Simon Edelsten.
Borho to step down from Worldwide Healthcare
Worldwide Healthcare Trust lead portfolio manager Sven Borho has left his role at the company and will be replaced by co-portfolio manager Trevor Polischuk. Borho will also step down as a director of the investment trust.
Amundi to delist 26 ETF share classes
Amundi will delist 26 ETF share classes from the London Stock Exchange. The affected London-listed share classes will cease trading following a review of their listings. The last day of trading will be 6 November 2026.
Interest in catastrophe bonds up – Morningstar
Assets invested in catastrophe bond and insurance-linked securities funds have grown as investors seek diversification from traditional fixed income markets, according to a Morningstar report. The sector attracted $10.2bn in net inflows over the three years to June 2026. Catastrophe bonds shift the risk of natural disasters, such as hurricanes, earthquakes and wildfires, from insurers to investors.
LSE updates AIM rules
The London Stock Exchange has updated its AIM rules to make it easier for companies to join the market and reduce the costs of admission. The rules will also fast-track the process for international public companies joining AIM from other markets, making it easier to undertake large M&A transactions. The changes were introduced after a consultation.
… and the week that will be
Eyes on inflation data …
Last week’s pullback in oil prices alleviated some of the worries about inflation, but the closely watched US Consumer Price Index report is due on Wednesday and will provide some insight into the direction of prices. July’s weak US jobs report meanwhile lessened concerns the Fed would need to raise rates in the near future. Read more from Investopedia here
… and tech sector bounce
After its battering at the end of July, the technology sector revived last week – although this upturn may soon be put to the test by inflation data. There are more earnings reports due this week, including from semiconductor business Applied Materials, networking equipment maker Cisco and cloud infrastructure technology company CoreWeave. Read more from Reuters here
The week in numbers
UK GDP growth: Consensus expectations have the preliminary second-quarter reading of UK GDP growth slowing to 0.2% quarter-on-quarter from 0.6% in Q1. The year-on-year rate is meanwhile forecast to increase to 1.6%, up from 0.9% over the previous period.
US inflation: Consensus expectations have headline price growth in the US Consumer Price Index slowing to 3.4% year-on-year in July, down from 3.5%, but rising to 0% from -0.4% month-on-month. Core inflation is meanwhile expected to slow to 2.5% year-on-year from 2.6%, while the month-on-month rate rises to 0.2% from 0%.
US consumer sentiment: Consensus forecasts have the University of Michigan’s Consumer Sentiment Index dropping to 54.6 in August, down from 55.2 in July.
US retail sales: Consensus expectations are that US retail sales will be up 0.5% in July from 0.2% in June.
In focus: Earnings learnings
The second-quarter earnings season is drawing to a close, having offered some valuable insights into the growth prospects of AI-related businesses. At the same time, it has highlighted a range of other potential bright spots across the global economy where expectations are a great deal lower and valuations a great deal more compelling.
All in all, it has proved a bumper earnings season. As of 8 August, with 88% of companies reported, overall earnings growth for the S&P 500 was 50.4%, up from 38.0% last quarter, according to FactSet data. The good news was broad-based too, with eight out of 10 sectors reporting double-digit growth – led by energy, communication services, consumer discretionary, information technology and materials. Indeed, healthcare was the only sector to report a year-on-year decline in earnings.
Nor was it just the US that shone – European stocks delivered a ‘stand-out season’, according to Morgan Stanley, while FactSet data shows they are on track for 22% year-on-year earnings growth in the second quarter, their best growth since 2022. Banks have led the way here, with substantial earnings improvements for, among others, BNP Paribas and UBS.
Even UK companies – so often of late the bridesmaid not the bride – have enjoyed some strong growth. WPP jumped 29% on its results, while Admiral and Persimmon also delivered growth above expectations. Glencore, Standard Chartered and Next were other success stories.
* Artificial intelligence: Overall earnings in the US were flattered by the strong performance of a handful of technology companies, with especially strong quarters for Alphabet and Amazon.com inflating the aggregate earnings picture. If these two are excluded, the blended earnings growth rate for the S&P 500 for the second quarter of 2026 falls from 50.4% to 32%.
Markets did not take this as a strong signal on AI growth, however. Alphabet’s share price, for example, saw significant weakness as investors fretted about the damage AI spending was doing to the group’s free cashflow, which turned negative for the first time since its listing.
There was a similar picture in the semiconductor and memory sectors. It was undoubtedly a bumper earnings season with US semiconductors and semiconductor equipment businesses reporting average growth of 77% while Asian heavyweights such as TSMC and SK Hynix reported strong earnings too. Yet investors are starting to worry about how long this can last and whether such companies might soon face competition from Chinese rivals.
Signals have been mixed on how AI investments are performing, how much more investment is to come, who will have the cheapest funding and, therefore, who might come out on top.”
“Signals have been mixed on how AI investments are performing, how much more investment is to come, who will have the cheapest funding and, therefore, who might come out on top,” says Lothar Mentel, chief investment officer at Tatton Asset Management. “This is why we are seeing significant dispersion in share price performance for what was previously deemed to be quite a homogenous group.
“Technology companies are still powering earnings growth globally as AI investment continues to accelerate. For the first time, capital spending is expected to exceed US hyperscalers’ operating cashflow, or the cash generated by core business operations.”
Despite this nervousness, however, Lombard Odier notes that cloud revenue growth is still accelerating, with margins reaching new highs, while longer order backlogs give visibility on future earnings. “Importantly, enterprise adoption of AI is gaining momentum,” it continues.
“Evidence includes a sharp increase in paid Microsoft Copilot subscriptions and reports from ServiceNow, a US software firm, that the number of customers deploying agentic AI solutions has increased ninefold over the past nine months.”
For its part, Lombard Odier appears untroubled by the dent to cashflow, explaining: “Operating cashflow growth remains in the mid-30% range, their leverage levels are still generally low and AI monetisation continues to progress.”
* Elsewhere in technology: A more nuanced picture has meanwhile emerged for some of the ‘AI losers’ that sold off so savagely at the start of the year. FTSE 100 group RELX, for example, showed no obvious signs of weakness in its latest set of results, leading Evenlode Global Equity Income fund manager Ben Peters to observe: “It showed the consistent high single-digit revenue growth to which we have become accustomed. In fact, growth for two of the ‘AI underdog’ divisions, Legal and STM, accelerated.”
RELX may thus become part of the next generation of AI winners – those companies that can use AI effectively to power their business. As its management team say in its earnings report: “The ongoing evolution of artificial intelligence is enabling us to add more value to our customers, to develop and launch higher value-add products at a faster pace and continue to manage cost growth below revenue growth.”
The financials sector is benefitting from higher interest rate expectations, higher trading volumes and increased investment banking activity.”
* Beyond technology: Other sectors also saw significant strength. Unsurprisingly, the energy sector in Europe was buoyant, with energy companies now expected to more than double their profits. With little sign of a permanent resolution to the problems in Iran, energy prices have remained high.
The financials sector has also seen a strong set of results across the UK, US and Europe. In the US, Travelers Companies, Goldman Sachs, Robinhood Markets and JPMorgan Chase reported earnings significantly ahead of expectations. The sector is benefitting from higher interest rate expectations, higher trading volumes and increased investment banking activity. ‘Mega IPOs’ are also driving up fees – SpaceX alone brought a $500m (£370m) fee boost to the sector.
Perhaps more surprising has been the strength of consumer discretionary stocks, given the pressures on households from higher energy costs. In the US, the sector reported the largest positive difference between actual earnings and estimated earnings. While Amazon accounted for a chunk of this, FactSet also highlighted the showing of Nike, which reported a significant positive earnings-per-share surprise.
For the time being, this buoyant earnings growth has not translated into higher share prices – particularly for more inflated parts of the technology sector. As Oxford Economics’ analysts put it: “Our earlier thesis – that a stronger-than-expected earnings season would drive another rally in US equities – has not played out so far, particularly across tech.
“The market appears increasingly concerned about the durability and concentration of those tech earnings and how narrowly they are sourced. Much of the strength traces back to a handful of hyperscalers whose capex could slow.”
It may be that markets take a little time to digest this earnings season and separate wheat from chaff. Nevertheless, robust earnings growth has left financial markets looking better supported than even a few months ago – and particularly where strong earnings growth is not matched with lofty expectations.
Read more on this from FactSet here and from Lombard Odier here
In focus: Divvy up
July was a buoyant month for UK stockmarkets, as they outpaced their international peers. The latest Computershare Dividend Monitor also revealed a generally healthy picture for UK dividend payouts, offering investors another reason to reconsider their UK equity weighting amid a broader climate of volatility.
UK dividends reached an all-time quarterly record in the second quarter of 2026, with companies paying £35.3bn. While special dividends fell, regular dividends showed robust growth, reaching £34.8bn – up 7.4% year-on-year.
At a sector level, banks were by far the biggest success story, distributing record dividends of £11.1bn – a rise of 20.6%. This represented four-fifths of the overall dividend growth in the second quarter. The mining sector was also a significant contributor, with dividends up 27.5%. In contrast, food, drink and tobacco saw a slump of 15.9% in payouts – largely attributable to a significant cut from Diageo. Packaging group Mondi and recruiter Robert Walters were other weak spots.
Overall, 11 out of 20 sectors saw underlying growth in Q2, which proved a particularly strong period for larger companies. FTSE 100 companies saw dividends grow 7.7% on an underlying basis, while the midcaps only managed 4.6%.
The FTSE 250 currently yields more than the FTSE 100, which has lately been taken as a key sign of the undervaluation of the midcap space. If FTSE 100 dividends are growing faster, however, there is an argument this may not be such an anomaly after all.
The perennial complaint about the UK market – that dividends are highly concentrated in a handful of stocks – has not gone away. The top five companies – HSBC, Rio Tinto, NatWest, Unilever and Shell – account for 41.4% of overall dividends. The next 10 pay 26.6%.
Dividends remain heavily concentrated in banks, insurance companies, commodities and consumer goods. That said, the historic problem of UK equity funds being so large that they had to focus on these behemoths has faded away, while higher yields in the small and midcap sectors leave active managers with plenty of choice.
The Dividend Monitor is a reminder that there is plenty of value in the UK market. Unlike the volatile AI trade, the UK has no expectations built in. That should provide some stability for investors in the otherwise rollercoaster trajectory of global financial markets.
As Clive Beagles, senior fund manager of the JOHCM UK Equity Income fund, wrote last week for Wealthwise: “The defining feature of the UK market today is not weakness, but neglect. Negative narratives have obscured resilience, while structural challenges coexist with meaningful strengths.
“The paradox is compelling – the more overlooked the market becomes, the greater the opportunity. For those willing to look beyond the noise, the UK offers something rare: a developed market where pessimism is priced in, but recovery is not.”
