Global Economy & Markets, Weekly Roundup 08/06/26
Equity market volatility picks up ahead of heavy IPO activity and significant monetary policy decisions on both sides of the Atlantic
A combination of major IPO pipeline developments (SpaceX, Anthropic, OpenAI), fluid US–Iran negotiations over the Strait of Hormuz, and upcoming Fed and ECB policy decisions has reignited cross-asset volatility following a significant AI-driven equity rally in the US and selective Emerging Market benchmarks.
Following a solid US labor market report and a significant upward repricing of Fed funds rate expectations, positive bond-to-equity prices correlations re-emerged, with US major equity indices declining by c. -2.5% on Friday and 10-Year US Treasury yields increasing by +10 bps to 4.58% (intra three-month high of 4.67%). European equity indices opened lower in the current week.
Total nonfarm payrolls increased by 172k in May (three-month average of 188k), albeit government employment added an abnormal 52k. The unemployment rate was unchanged at 4.3%, broadly in line with its two-year average, suggesting that the US jobs market has stabilized into a sweet spot.
As result, the market implied path for USD policy interest rates points to roughly +25 bps hikes by end-2026 (we assign a zero probability for the June meeting), compared with a reduction of +75 bps three months ago, just before the start of the Middle East war.
US CPI inflation for May will be closely monitored, with headline CPI expected at +4.2% yoy from +3.8% in April and core CPI expected at +2.9% yoy broadly in line with the April figure. The inflation announcement is scheduled one week (June 10th) before the first Fed meeting under Chair Warsh.
Note that US real GDP grew at a quarterly annualized rate of +1.6% in the first quarter of 2026 with business investment, particularly in the Artificial Investment perimeter, leading the increase. Private consumption contribution to overall real GDP growth was circa +100 bps (versus a 3-year average of +190 bps), while high frequency data in the second quarter of 2026 point to a sizable depletion of households’ savings in order to support spending.
On the other side of the Atlantic, we expect the ECB to deliver a 25 basis points hike to 2.25% at its meeting on Thursday as energy prices and futures’ curves have been oscillated between the ECB’s March baseline and adverse economic scenario. Market pricing, according to overnight index swaps, now points to roughly two or three interest rate cumulative hikes for policy interest rates by end-2026.
Euro area headline inflation has evolved broadly as expected, up by +3.1% yoy on average so far in Q2 against March ECB’s baseline forecast of 3.1%, while core rates have surprised slightly to the upside increasing by +2.4% for the same period versus March ECB’s baseline forecast of +2.2%.
For the ECB, a key counterargument against adopting a more hawkish forward guidance on the future policy rate path relates to the softening growth backdrop. While euro area activity expanded slightly below trend growth in Q1:2026, with real GDP (excluding Ireland) increasing by +0.25% qoq, forward-looking indicators suggest a loss of momentum, pointing to near stagnation in Q2.
More importantly, persistent geopolitical uncertainty (Israel-Iran escalation on Monday), alongside a gradual erosion in external competitiveness are factors that tilt the balance of risks to the downside for the euro area growth outlook.
A combination of major IPO pipeline developments (SpaceX, Anthropic, OpenAI), fluid US–Iran negotiations over the Strait of Hormuz, and upcoming Fed and ECB policy decisions has reignited cross-asset volatility following a significant AI-driven equity rally in the US and selective Emerging Market benchmarks.
Following a solid US labor market report and a significant upward repricing of Fed funds rate expectations, positive bond-to-equity prices correlations re-emerged, with US major equity indices declining by c. -2.5% on Friday and 10-Year US Treasury yields increasing by +10 bps to 4.58% (intra three-month high of 4.67%). European equity indices opened lower in the current week.
Total nonfarm payrolls increased by 172k in May (three-month average of 188k), albeit government employment added an abnormal 52k. The unemployment rate was unchanged at 4.3%, broadly in line with its two-year average, suggesting that the US jobs market has stabilized into a sweet spot.
As result, the market implied path for USD policy interest rates points to roughly +25 bps hikes by end-2026 (we assign a zero probability for the June meeting), compared with a reduction of +75 bps three months ago, just before the start of the Middle East war.
US CPI inflation for May will be closely monitored, with headline CPI expected at +4.2% yoy from +3.8% in April and core CPI expected at +2.9% yoy broadly in line with the April figure. The inflation announcement is scheduled one week (June 10th) before the first Fed meeting under Chair Warsh.
Note that US real GDP grew at a quarterly annualized rate of +1.6% in the first quarter of 2026 with business investment, particularly in the Artificial Investment perimeter, leading the increase. Private consumption contribution to overall real GDP growth was circa +100 bps (versus a 3-year average of +190 bps), while high frequency data in the second quarter of 2026 point to a sizable depletion of households’ savings in order to support spending.
On the other side of the Atlantic, we expect the ECB to deliver a 25 basis points hike to 2.25% at its meeting on Thursday as energy prices and futures’ curves have been oscillated between the ECB’s March baseline and adverse economic scenario. Market pricing, according to overnight index swaps, now points to roughly two or three interest rate cumulative hikes for policy interest rates by end-2026.
Euro area headline inflation has evolved broadly as expected, up by +3.1% yoy on average so far in Q2 against March ECB’s baseline forecast of 3.1%, while core rates have surprised slightly to the upside increasing by +2.4% for the same period versus March ECB’s baseline forecast of +2.2%.
For the ECB, a key counterargument against adopting a more hawkish forward guidance on the future policy rate path relates to the softening growth backdrop. While euro area activity expanded slightly below trend growth in Q1:2026, with real GDP (excluding Ireland) increasing by +0.25% qoq, forward-looking indicators suggest a loss of momentum, pointing to near stagnation in Q2.
More importantly, persistent geopolitical uncertainty (Israel-Iran escalation on Monday), alongside a gradual erosion in external competitiveness are factors that tilt the balance of risks to the downside for the euro area growth outlook.