US Data Heads Warsh’s Way

For the week ending 14 August 2026

As of midday Friday, global equities traded near record levels amid strong earnings reports and receding rate-hike pressure on the Fed. The yield on the US 10-year Treasury note was little changed from last Friday at 4.65% but below the week’s highs of 4.73%. The price of a barrel of West Texas Intermediate crude oil rose $4 to $81.40, while volatility, as measured by the Cboe Volatility Index (VIX), fell to 18 from 18.7.

MACRO NEWS

Softer inflation, retail sales buy the Fed time

On Wednesday, it was reported that consumer prices in the US rose 0.1% month over month in July and core CPI rose 0.2%, with both annual measures easing by 0.1%, to 3.4% and 2.5%, respectively, in line with economists’ forecasts. Thursday’s producer price data were softer than the forecast, with headline PPI flat on the month and core PPI up 0.2%. Markets read the reports as keeping the Fed sidelined over the near term, and the odds of a September rate hike fell to roughly 28% from near 50% early in the week. Markets are no longer fully pricing a hike by the end of the year.

While yields eased on the data, the curve has steepened in recent weeks. The combination of hot data earlier this year, ongoing conflict with Iran, uncertainty about a Warsh-led Fed, and unsustainable fiscal deficits has lifted the term premium, and those higher yields in turn add to deficit pressures. Higher real rates also reflect intensifying competition for global savings as investment rises against a backdrop of large structural budget deficits. This week’s 10-year Treasury auction drew a yield of 4.683%, the highest since 2007, while the 30-year bond auction drew 5.216%, the highest since 2001.

Several Fed officials struck a relatively hawkish tone this week. Cleveland Fed President Beth Hammack said the economy probably requires “some number” of rate hikes and that recent inflation reports, while better, do not give her confidence that improvement will continue. Meanwhile, Chicago Fed President Austan Goolsbee called inflation the biggest problem facing the economy, while Richmond Fed President Tom Barkin argued that although excessive forward guidance can constrain the Fed, it helps policy when markets understand the central bank’s thinking.

Friday’s very soft retail sales figures further eased pressures on the Fed to tighten soon. Sales fell 0.6% month over month in July versus expectations of a gain of 0.1%, while core sales fell 0.4% versus the consensus forecast of a 0.3% rise. Economists note that moving Amazon Prime Day to June from July likely pulled some sales forward. They also point out that credit card data indicate that sales began to accelerate in late July and into early August, suggesting the consumer remains on solid footing.

US–Iran tensions remain unresolved

Kinetic action in the Middle East subsided this week after US President Donald Trump signaled on Sunday that he prefers to let economic pressure build rather than order a new military offensive. Furthermore, he was reported to be privately willing to end the conflict even without a nuclear deal, provided the Strait of Hormuz reopens. Iran, however, ratcheted up its demands, insisting the strait will stay shut until the US ends its naval blockade, lifts sanctions, releases frozen assets, pays compensation for war damage, and withdraws its forces from the region. Trump countered with his own demands for compensation.

On Friday, US Treasury Secretary Scott Bessent said the US will announce measures next week to impose unprecedented economic isolation on Iran.

US Secretary of Energy Chris Wright estimated this week that between 14 million and 15 million barrels of oil are transiting the Strait of Hormuz daily, compared with 20 million barrels per day before the conflict began. He added that tankers are exiting the Strait with their transponders turned off.

Earnings continue to impress

Corporate earnings remain a key pillar of support for equities. According to FactSet, the blended growth rate for second-quarter S&P 500 earnings stands at 50.4%, far above the 23.2% expected at the end of the quarter; excluding Alphabet and Amazon, growth would still be a robust 32.0%. Some 86% of companies have beaten consensus EPS expectations, above both the one- and five-year averages, while revenue growth is running near 15% year over year, the strongest pace since the rebound from the pandemic in late 2021.

According to the Financial Times, STOXX Europe 600 companies are on track for 22% profit growth in the second quarter, the strongest since 2022, which helped lift the STOXX 600, Germany’s DAX, the FTSE 100, France’s CAC 40, and Spain’s IBEX to record highs in recent sessions; this growth was led by banks, technology, and energy.

Artificial intelligence has remained central to investor enthusiasm. Nvidia announced partnerships with Wall Street firms on some $500 billion in financing for AI, a deal that could standardize funding for AI chips but leaves Nvidia partly exposed if borrowers default and raises questions about the obsolescence risk of using GPUs as collateral.

QUICK HITS

The recent payrolls data suggest the labor market is stable but no longer unambiguously firm, with economists noting that seasonal-adjustment quirks likely exaggerated both the recent softness and the earlier strength in payrolls. On further review, July payrolls appeared less weak than initially feared.

Amid persistent yen weakness, Japan’s government is reportedly supportive of a near-term rate hike from the Bank of Japan.

Strategists at JPMorgan raised their year-end S&P 500 forecast to 8,000, their second increase in two months, citing strong earnings and signs that AI capital spending is being monetized.

The US Senate passed a short-term funding bill to avoid a government shutdown ahead of the November midterm elections.

The Trump administration reached a deal with Syria to remove nuclear material — a remnant of the deposed Assad regime’s clandestine program — from a covert site, with the IAEA overseeing the transfer.

Data from Bank of America show that spending and wage growth among its customers has converged across all income groups since May. Until recently, US consumer spending had been powered by the wealthiest cohort, but the data show that lower- and middle-income Americans are catching up, putting consumer spending on more resilient footing.

According to the Fed’s Household Debt and Credit Report, the aggregate delinquency rate in Q2 fell to 4.7%, and total household debt fell $13 billion to $18.77 trillion.

US existing home sales fell 1.7% in July, and June’s figure was revised lower, as elevated prices and mortgage rates continued to constrain transaction volumes. The median sales price rose 2% from a year earlier to $434,100.

Energy flows in the Middle East continue to adapt, with the UAE reportedly shuttling roughly two million barrels per day of both domestic and Iraqi oil through Strait of Hormuz.

The Trump administration extended a temporary waiver of the Jones Act for 90 days but narrowed its focus to energy commodities and fertilizer.

Tariff refunds are contributing to a widening of the US budget deficit. The shortfall reached $432 billion last month, the largest ever for the month of July.

US and Canadian officials are reportedly working on a trade deal that could be presented to President Trump next week.

The British economy grew 1.2% year over year in the second quarter, beating forecasts and accelerating from 0.9% in the prior quarter, aided by a June heatwave, easing energy prices, and World Cup-related spending.

South Korea’s KOSPI index had bounced nearly 25% from its late-July bottom.

The Trump administration is reportedly weighing indexing capital gains to inflation and exempting gains on home sales worth less than $2 million ahead of the midterms.

Fitch reported that the US private credit default rate reached record levels of 9.5% in July, up from 6.9% a year ago.

THE WEEK AHEAD

Monday: Japan Q2 GDP; Canada CPI

Tuesday: UK unemployment; US industrial production, pending home sales

Wednesday: Eurozone CPI

Thursday: US Philly Fed index

Friday: Global preliminary PMIs; Japan CPI; UK retail sales; Canada retail sales