Global Economy & Markets, Weekly Roundup 28/07/26
Persistent uncertainty regarding developments in the Middle East continues to drive elevated volatility in oil markets
The sharp rise in oil prices observed last week in view of continued supply disruptions in the Middle East, was followed by a notable retracement in the current one after the US and Iran signaled a pause in hostilities. In the event, Brent crude oil prices initially climbed to 100/barrel before easing to c. $85/barrel as of July 28th (+17% versus pre-war levels).
Government bond yields moved in tandem with developments in oil prices. US Treasury yields reached late in the past week their highest levels since January 2025 (2-year: 4.37%, 10-year: 4.71%), while the 30-year yield reached 5.19%, its highest since 2007 given also a disconcerting US fiscal trajectory. Germany’s Bund 10-year yield rose to 3.21%, its highest since 2011, albeit a cumulative yield decline of circa -10 bps has followed as of July 28th across the board.
Equity prices of companies deeply entangled in the Artificial Intelligence field experienced renewed volatility following also the Q2:2026 results from Alphabet, with attention now turning to the results from Microsoft (29/7), Meta (29/7), Apple (30/7) and Amazon (30/7). Concerns about the sustainability of returns on AI-related capital expenditure remain front and center for investors.
Attention now turns to the Fed meeting. The most likely scenario remains for unchanged interest rates, albeit markets expectations according to FFR futures pricing, point to a non-negligible ⅓ chance for a +25-bps hike (current upper range of 3.75%) on Wednesday due to elevated inflation risks. Looking forward, markets are pricing a tighter monetary policy stance by the Fed.
Although the Fed has fended off any elements of forward guidance since Mr. Warsh’s term as Chair started in past May, investors will closely monitor the post-meeting communique.
The European Central Bank stood pat, with the Deposit Facility Rate at 2.25%. The decision was expected given the June hike and, more importantly, elevated uncertainty regarding the path of inflation and economic activity due to the situation in the Middle East.
The ECB maintains its data dependent and meeting-by-meeting approach. Although the latest decision was unanimous, it should be noted that some Board members raised the question on whether a rate hike should be discussed. Furthermore, Mrs. Lagarde noted that the ECB views the balance of risks to inflation as tilted to the upside and more so as of recently.
In the event, Mrs. Lagarde cited that the latest developments have moved economic conditions back towards the baseline scenario conducted back in June, which pointed to real GDP growth of +0.2% qoq in Q3:2026 and +0.3% qoq in Q4:2026, as well as CPI inflation of +3.4% yoy on average in Q4:2026 and +1.9% yoy in Q4:2027. In all, according to overnight index swaps pricing, investors appear to assign a c. ⅔ probability of a +25-bps hike at the next ECB meeting on September 10th.
Meanwhile, the US federal government imposed new import tariffs on 60 countries, spanning from 10% to 12.5%. These countries are the source of roughly the totality of imported goods, albeit some product exemptions were included. The new levies were expected and do not represent a major shift in US policy, as they replace the temporary 10% “global tariff” which had been put in place right after the US Supreme Court had annulled in late-February 2026 a big part of previously imposed tariffs. Notably, these new levies also appear set to be judicially challenged.
The sharp rise in oil prices observed last week in view of continued supply disruptions in the Middle East, was followed by a notable retracement in the current one after the US and Iran signaled a pause in hostilities. In the event, Brent crude oil prices initially climbed to 100/barrel before easing to c. $85/barrel as of July 28th (+17% versus pre-war levels).
Government bond yields moved in tandem with developments in oil prices. US Treasury yields reached late in the past week their highest levels since January 2025 (2-year: 4.37%, 10-year: 4.71%), while the 30-year yield reached 5.19%, its highest since 2007 given also a disconcerting US fiscal trajectory. Germany’s Bund 10-year yield rose to 3.21%, its highest since 2011, albeit a cumulative yield decline of circa -10 bps has followed as of July 28th across the board.
Equity prices of companies deeply entangled in the Artificial Intelligence field experienced renewed volatility following also the Q2:2026 results from Alphabet, with attention now turning to the results from Microsoft (29/7), Meta (29/7), Apple (30/7) and Amazon (30/7). Concerns about the sustainability of returns on AI-related capital expenditure remain front and center for investors.
Attention now turns to the Fed meeting. The most likely scenario remains for unchanged interest rates, albeit markets expectations according to FFR futures pricing, point to a non-negligible ⅓ chance for a +25-bps hike (current upper range of 3.75%) on Wednesday due to elevated inflation risks. Looking forward, markets are pricing a tighter monetary policy stance by the Fed.
Although the Fed has fended off any elements of forward guidance since Mr. Warsh’s term as Chair started in past May, investors will closely monitor the post-meeting communique.
The European Central Bank stood pat, with the Deposit Facility Rate at 2.25%. The decision was expected given the June hike and, more importantly, elevated uncertainty regarding the path of inflation and economic activity due to the situation in the Middle East.
The ECB maintains its data dependent and meeting-by-meeting approach. Although the latest decision was unanimous, it should be noted that some Board members raised the question on whether a rate hike should be discussed. Furthermore, Mrs. Lagarde noted that the ECB views the balance of risks to inflation as tilted to the upside and more so as of recently.
In the event, Mrs. Lagarde cited that the latest developments have moved economic conditions back towards the baseline scenario conducted back in June, which pointed to real GDP growth of +0.2% qoq in Q3:2026 and +0.3% qoq in Q4:2026, as well as CPI inflation of +3.4% yoy on average in Q4:2026 and +1.9% yoy in Q4:2027. In all, according to overnight index swaps pricing, investors appear to assign a c. ⅔ probability of a +25-bps hike at the next ECB meeting on September 10th.
Meanwhile, the US federal government imposed new import tariffs on 60 countries, spanning from 10% to 12.5%. These countries are the source of roughly the totality of imported goods, albeit some product exemptions were included. The new levies were expected and do not represent a major shift in US policy, as they replace the temporary 10% “global tariff” which had been put in place right after the US Supreme Court had annulled in late-February 2026 a big part of previously imposed tariffs. Notably, these new levies also appear set to be judicially challenged.