The week that was …
Economic round-up
World Cup gives kick to UK GDP
UK GDP grew by 0.4% in the second quarter of 2026, with growth of 0.3% in June alone. This was down from 0.6% growth over the January-March period but significantly ahead of consensus expectations. In particular, the World Cup led to a bumper period for pubs. Read more in ‘In focus’ below and from the BBC here
July US inflation in line with expectations
The US Consumer Price index increased 0.1% in July, putting the country’s annual inflation rate at 3.4%. Core inflation, which excludes food and energy, rose 0.2% and 2.5% respectively. The data was in line with analysts’ expectations although traders still reduced the odds of a Federal Reserve rate rise. Read more from CNBC here
US retail sales see first drop in nine months
US retail sales fell 0.6% over July – the first such drop in nine months – as the boost from big tax refunds earlier in the year began to fade. Economists cut their annual growth forecast for the third quarter in the expectation of weaker consumer spending. Read more from Reuters here
Cost-of-living concerns unsettle US consumers
US consumer sentiment deteriorated over August amid worries about the rising cost of living. The University of Michigan’s respected Consumer Sentiment Index dropped to 51.0 this month from 55.2 in July. Economists polled by Reuters had forecast the index would be 54.5. Read more from Reuters here
Slower gains for Chinese CPI inflation
China’s Consumer Price Index (CPI) rose last month at its slowest rate since January, as factory-gate price growth decelerated. The CPI added 0.5% year-on-year in July – below both consensus forecasts of 0.8% and June’s growth of 1%. Read more from the FT here
Markets round-up
High yields in 30-year treasuries auction
The US has paid the highest borrowing costs to sell 30-year bonds for a quarter of a century. A $25bn (£18.43bn) auction of 30-year bonds on Thursday drew yields as high as 5.22%, according to the US Treasury department. It marked the highest yield since the 5.52% paid in August 2001. Read more in ‘In focus’ below and from the FT here
US equities regain popularity …
Investors are piling back into bullish bets on US equities, ‘buying the dip’ in the technology sector. The S&P 500 has gained around 4% so far this month and hit a record high last week, while the tech-heavy Nasdaq 100 has rebounded sharply. Citibank and JP Morgan have both upgraded their 2026 targets for the S&P 500. Read more from the FT here
… but S&P ends week on dip
The S&P 500 closed lower on Friday, however, dipping from that record high. The index’s performance was weighed down by Applied Materials, which fell despite an upbeat forecast, while investors were also digesting weaker-than-expected retail sales data. Read more from Reuters here
Sterling gains versus dollar and euro
Sterling rose against the dollar and the euro on Friday, helped by last week’s better-than-expected GDP data as well as calm across FX markets that is pushing traders to buy currencies where bond yields are relatively high. The UK economy is proving more resilient than expected to the negative energy price shock triggered by the US-Iran conflict. Read more from Reuters here
$2tn price tag expected for Anthropic
Anthropic investors expect the AI start-up to float at a valuation of $2tn or more in October, surpassing the price tag for SpaceX. A listing at that level could unlock billions of dollars in gains for the five-year-old company’s early investors but would also test public markets. Read more from the FT here
“A near 20 basis-point upward move in the US 30-year treasury yield over the past month is the bond market signalling it does not believe inflation is under control.
Selected equity and bond markets: 07/08/26 to 14/08/26
| Market | 07/08/26 (Close) |
14/08/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5877 | 5805 | -1.2% |
| S&P500 | 7758 | 7786 | +0.4% |
| MSCI World | 5008 | 5030 | +0.4% |
| CNBC Magnificent Seven | 445 | 441 | -1% |
| US 10-year treasury (yield) | 4.65% | 4.70% | |
| UK 10-year gilt (yield) | 4.93% | 5.05% |
Investment round-up
T Rowe Price counts cost of passive competition
T Rowe Price CEO Rob Sharps has predicted it will take another “couple of years” to reverse a deluge of outflows, as passive competition continues to pile pressure on active managers’ fees. Last month, T Rowe Price reported net outflows of $6.5bn (£4.8bn) for the three months ending 30 June 2026 – a moderation from the previous two quarters but the group’s 21st consecutive quarter of redemptions.
TIME Investments launches asset manager arm
TIME Investments has launched Time Asset Management, a dedicated brand for the firm’s asset management activities. The group said the aim of the new brand was to provide a distinct public profile for TIME’s active investment funds.
Investment trusts lose out to ETFs, finds report
UK investment trusts are declining in popularity as ETFs gain ground, according to research from financial consumer site Boring Money. Investment trust ownership among UK investors has fallen to its lowest level since the company started tracking adoption in 2021 – dropping from 12% to 9% in the last year.
Charles Schwab launches AI-powered portfolio service
Wealth manager Charles Schwab has launched an AI-powered service providing tailored portfolio insights for UK retail investors. The Portfolio Insights capability will deliver information on portfolio performance and market news, as well as Schwab Center for Financial Research commentary.
Ex-River Global pair move to Jupiter
Liontrust fund managers George Ensor and Mayan Uthayakumar have agreed to join Jupiter Asset Management. The pair resigned from Liontrust in July just three weeks after joining in the wake of the asset manager’s acquisition of River Global Holdings.
Quilter Cirilium funds found wanting by AoV report
The majority of Quilter Investors’ Cirilium Active multi-asset range and several of its sub-advised funds have been red-flagged for weaker performance in its latest Assessment of Value (AoV) report. All share classes within the firm’s actively-managed Cirilium Conservative, Balanced, Moderate and Dynamic portfolios were found to have underperformed their comparator IA sectors over the five-year period to 31 March 2026.
Two RLAM funds flagged ‘red’ for value
Royal London Asset Management (RLAM) red-flagged two of its 59 funds in its latest AoV report while another five gained an amber rating. Both the group’s UK Mid Cap Growth and Smaller Companies funds received a red rating.
ETF flows surpass €47bn in July
The European ETF and ETC markets attracted €47.3bn (£40.48bn) of flows in July – up from €36.8bn in June – although total assets remained largely unchanged in July, as monthly inflows were offset by capital losses. Overall, this brings total inflows for the first seven months of 2026 to almost €266bn.
… and the week that will be
Eyes on UK inflation …
UK inflation is set to rise this week on the back of higher energy costs after the household price-cap increased by 13% in July. Purchasing Managers Indices (PMIs) for August are also due and will be scrutinised for any signs firms are becoming more confident on passing on higher input costs. As yet, there are few signs of any second-round effects from higher energy prices into broader inflation. Read more from Vantage Markets here
… and US consumer strength
Results from major US retailers, including Home Depot, Target and Walmart, should give markets a read on consumer strength this week. Consumer sentiment in the US has declined over the last month, according to the University of Michigan’s Surveys of Consumers, despite inflation dipping for a second month in a row. Hiring has stagnated while wages are not keeping up with the cost of living. Read more from Investopedia here
The week in numbers
UK inflation: Consensus expectations have UK prices rising by 3% year-on-year and 0.3% month-on-month over July, up from 2.6% and 0.1% previously. Core inflation is expected to be 0.3% month-on-month, up from 0.1%.
UK employment: Consensus forecasts have the UK unemployment rate holding at 4.9% in June while average earnings rise 3.9%, including bonuses, over the three months to June.
UK retail sales: Consensus forecasts have UK retail sales falling 0.6% over July.
UK business sentiment: Consensus expectations have the August flash reading of the UK manufacturing PMI rising to 52 from 51.9 in July and the services equivalent falling to 52 from 52.1.
US business sentiment: Consensus expectations have the August flash reading of the US services PMI falling to 53.4 from 54.6 in July and the manufacturing equivalent to 53.5 from 53.9.
Japan GDP growth: The preliminary reading of Japan’s second-quarter GDP is expected to show growth slowing to 0.4% from 0.5% quarter-on-quarter, and to 1.7% from 1.8% year-on-year.
Japan inflation: Consensus expectations are that prices in Japan rose 1.8% year-on-year over July.
In focus: T’s bill
The US government has just had to pay the highest yield to sell its long-dated bonds in a quarter of a century. The 5.22% at which it auctioned off $25bn (£18.43bn) in 30-year bonds last week is a level not seen since 2001 and compares to 5.06% in July and 4.91% before the start of Donald Trump’s second term as president. Factors prompting the bond market to flash this shade of red include the size of the US debt, the persistency of inflationary pressures and the uncertainty over Iran.
The latest inflation reading did little to calm fraying nerves. Although it came in at 3.4% – as expected – it means US inflation has now been ahead of the Federal Reserve’s 2% target since February 2021. There is also the continuing problem of Iran and its impact on energy prices. The latest inflation data was flattered by a 1.5% drop in energy costs but these are likely to rise again next month, reflecting the resumption in hostilities.
The pressure in the US treasury market has been felt most acutely in longer-dated bonds. Over the past month, the yield on the two-year treasury has been marginally lower – falling from 4.215% to 4.182%. While this is much higher than earlier in the year, it does suggest that short-term interest rate expectations are relatively stable. In contrast, there has been a near 20 basis-point upward move in the US 30-year treasury yield over the past month. That is the bond market signalling it does not believe inflation is under control.
There are, as mentioned, a number of reasons for this – the first being simply the persistency of inflationary pressures. For the past five years, there has consistently been an extra percentage point of inflation that appears to be structural rather than cyclical.
The US’s vast debt may be playing a role in this and politicians show no inclination to tackle it. The annual deficit continues to rise, with the ‘One Big Beautiful Bill’ the latest initiative to add to the burden, as Capital Group’s Alvaro Peró Gala has outlined further for Wealthwise here.
Hawkish language is one thing, persistent inflation is another. If price pressures remain elevated, markets may conclude that tighter policy is needed to reassert credibility.”
The mismatch between rhetoric and action on the part of the Federal Reserve is also a problem. Bond markets have been unnerved by chair Kevin Walsh’s approach to communication. This has allowed the impression of partiality – and, with it, concerns he will not do what it takes to suppress price rises.
“Uncertainty regarding Warsh’s reaction function is forcing markets to price in an additional inflationary risk premium,” explains Raphael Olszyna-Marzys, international economist at J. Safra Sarasin Sustainable Asset Management. “The risk is that the Fed loses control of the long-end of the curve, leading to excessive tightening. The Fed may now be compelled to tighten policy more aggressively than intended to restore some loss of credibility and align actions with rhetoric.”
There are also longer-term concerns. Ruffer fund manager Jasmine Yeo, for example, suggests AI could create inflationary pressures, adding: “If AI-led demand keeps the economy running hot, or if geopolitical tensions feed into higher energy prices, investors may be forced to price an even higher path from here. That would put renewed pressure on bond yields and valuations.”
Yeo agrees with Olszyna-Marzys that this could see policymakers with limited room for manoeuvre. “This would be particularly challenging if it backs policymakers into a corner where their inflation-fighting rhetoric has to be proven,” she says.
“Hawkish language is one thing, persistent inflation is another. If price pressures remain elevated, markets may conclude that tighter policy is needed to reassert credibility.” Yeo argues markets have already adjusted to a higher path for rates but the danger is that this still proves insufficient. If so, the recent moves in long-dated bond yields may be the beginning of this in action.
Arguably the biggest risk for bond markets is not the actual oil price so much as the collective worry that conflict will continue and, at some time in the future, energy prices may be materially higher than they are now.”
Still, might this problem just evaporate if there is a solution in the Middle East? President Trump may not be too concerned about the results of the mid-term elections in November, but those who want to stay in politics after his departure need to appeal to voters. Persistently high inflation and a ‘forever’ war in Iran are significant barriers to re-election. Could this see mounting pressure to find a solution to the Iran crisis?
David Roberts, head of fixed income at Nedgroup fears it may not be so simple. “The level of bond market yields often correlates well with the price of a barrel of oil,” he explains. “The crude price spike we saw from February to May pushed bond prices lower and yields higher. Fair enough – short-term price pressures were bound to rise and bond markets responded as we would expect. Having previously priced in a couple of central bank rate cuts, government bond markets flipped to expecting the Fed, Bank of England and ECB to do nothing.
“And as the period of Middle Eastern conflict lengthened, so too markets believed inflation expectations would soon be embedded in the minds and actions of the consumer – so higher inflation for a protracted period of time. So even when Brent and WTI prices fell, bond yields moved higher – by early August suggesting a couple of rate hikes as the most likely scenario into 2027.”
The biggest risk for bond markets right now, argues Roberts, is not the actual oil price so much as the collective worry that conflict will continue and, at some time in the future, energy prices may be materially higher than they are now. “The good news, however, is bonds are already anticipating a lot of that,” he adds – which suggests bond yields could move lower if there is a move lower in energy prices and it appears to be persistent.
Even if energy prices come down a little, however, bond markets are likely to remain wobbly. The US government has played fast and loose with its credibility and these are the first signs that, with no obvious plans to tackle the deficit, a whiff of interference in Federal Reserve decision-making and what can at times feel like seat-of-the-pants military action in the Middle East, bond markets are starting to protest.
Read more on this from the FT here
In focus: Benighted kingdom?
The UK may have revealed some surprisingly upbeat economic data last week but the narrative of it being a sclerotic and slow-growth economy persists. Is there now a danger investors will prove too slow to change their mind about the UK?
While the ONS data did not show India-like levels of economic growth, it did suggest the UK economy grew the fastest among its G7 peers over the first half of the year. Monthly GDP rose by 0.3% for June while quarterly GDP was up 0.4%. This was the seventh consecutive period of three-month growth in the UK. Services continued to carry the bulk of this, with output growing 0.5%.
Naturally, there are some caveats to this apparent strength. UK GDP data has tended to have a seasonal element to it – with the first half of the year traditionally stronger than the second – while the World Cup and hot weather have also played a part. There have been quibbles too about the accuracy of UK GDP data – though it is worth noting that subsequent revisions have tended to be higher rather than lower.
Nevertheless, it really should have been taken as good news. Instead, though, the response was a litany of gloom – UK GDP growth was “an anomaly”, the “last real sweet spot for the UK economy this year”, and “likely too good to be true”.
To be sure, there are risks to UK growth. Inflation may rise as a result of the Iran conflict, higher interest rates could knock growth once again and the incoming government could choke off growth by allowing tax rise speculation to run rampant ahead of the October budget.
Yet much of this is true for most developed economies and analysts may be in danger of letting the perfect be the enemy of the good. This data shows the UK economy has been more resilient than expected in the face of a very real test from the war in Iran. It has already delivered more than 1% growth in 2026, with most predictions now forecasting 1.1% to 1.2% for the full year.
“While the growth is nothing to write home about, it is perhaps reflective of the fact that the economy was in a more robust shape than thought given what the first six months have thrown up so far,” suggests Richard Carter, head of fixed income research at Quilter Cheviot.
Increasingly, the negativity around the UK looks unjustified – even histrionic. There may be weakness in the second half of the year, but the economy has weathered the difficulties thrown at it in the first six months pretty well. It is time it received some credit for that.
Read more on this from the FT here
