Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) rose 0.7% (15.7% YTD).

Major US stock indexes finished the week mixed as investors weighed easing concerns about inflation and Fed policy and some favourable artificial intelligence (AI)-related earnings news against rising oil prices, continued uncertainty surrounding the Strait of Hormuz, and weaker-than-expected consumer data. The S&P 500 Index finished 0.4% higher (14.5% YTD). The technology-heavy Nasdaq Composite rose 0.2% (15.4% YTD).  Small caps tended to outperform with large caps for the week overall. The Russell 1000 Growth Index returned 0.5% (6.2% YTD), the Russell Value Index 0.4% (23.9% YTD), and the Russell 2000 Index 1.1% (24.6% YTD).

In Europe, the MSCI Europe ex-UK Index ended the week flat (13.6% YTD). Investors weighed resilient regional economic data and generally solid corporate earnings against persistent geopolitical uncertainty surrounding the US-Iran conflict and the Strait of Hormuz. Major stock indices were mixed. Germany’s DAX Index climbed 0.5% (8.0% YTD) but France’s CAC 40 Index fell -0.9% (8.9% YTD). Italy’s FTSE MIB Index was also down -0.2% (22.9% YTD). Switzerland’s SMI fell -1.1% (11.6% YTD). The euro was unchanged against the US dollar, closing the week at USD 1.16 for EUR.

The FTSE 100 Index in the UK was down -1.1% (10.9% YTD), while the FTSE 250 Index rose marginally, by 0.2% (13.1% YTD). The British pound was flat for the week against the US dollar, closing at USD 1.35 for GBP.

Japan’s stock markets registered substantial gains over the week. Strong technology earnings, led by memory companies, were a key driver of market momentum. Japan’s export-oriented industries were boosted by the yen’s retreat, despite authorities’ recent currency interventions. Bank shares benefited from reports signalling that an interest rate hike by the BoJ could be imminent. The TOPIX Index rose 3.0% (24.6% YTD), and the TOPIX Small Index added 3.1% (22.1% YTD).

The yen weakened to JPY 159 against the US dollar on Friday, giving back more of the gains that followed the prior week’s currency interventions. The yield on the 10-year Japanese government bond rose to 2.87% from the prior week’s 2.79%, as oil price volatility exacerbated inflation concerns and added to the case for further BoJ policy tightening.

The ASX 200 Index dropped 1.5% this week (6.9% YTD) due to below-expectation bank earnings and the decrease in new housing loan commitments. Australian government bond yields remained largely unchanged. Australian dollar also stayed stable versus the US dollar.

In Canada, the S&P/TSX Composite rose 1.0% (17.4% YTD).

Emerging markets and other markets

The MSCI Emerging Markets Index had a strong week, up by 2.7% (22.9% YTD). The South Korean and Taiwanese markets were strongly positive, while the Brazilian, Indian and Chinese markets contributed negatively.

China equities were choppy but ultimately ended the week lower, with Hong Kong shares underperforming. Markets started the week well, led by strength from the consumer and property segments, but the momentum faded amid losses for precious metals stocks. That said, optical component companies fared well on the back of strong forecasts from US AI firms. The onshore CSI 300 Index, the main onshore benchmark, declined by -0.6% (2.4% YTD), while the Shanghai Composite Index fell -0.3% (0.5% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, fared worst, falling by -3.1% (-8.3% YTD).

Index compiler Hang Seng Indexes Company (Hang Seng Indexes) unveiled plans to expand Hong Kong’s main technology stock gauge, the Hang Seng Tech Index, to include more companies in the AI and robotics sectors. The number of constituents in the revamped benchmark will increase from 30 to 50, with 10 companies selected based on sales growth instead of market capitalization to enable the inclusion of smaller, higher-growth businesses. Hang Seng Indexes hopes to announce the final revisions by the end of September 2026, with the changes to be implemented in the December 2026 index rebalancing. Currently, the index tracks the 30 largest technology companies listed in Hong Kong.

Brazilian markets faced a volatile week as investors balanced encouraging inflation news against rising concerns about the October presidential election and the government’s fiscal outlook. Consumer inflation slowed to 4.44% in July from 4.64% in June, bringing it back within the central bank’s target range after two months above it. However, minutes from the Central Bank of Brazil indicated that policymakers still view underlying inflation as being supported by relatively strong demand and believe interest rates need to remain restrictive as the economy cools. The central bank cut its benchmark Selic rate by 25 basis points (0.25 percentage points) earlier this month to 14% but has left the pace of additional easing open. Official central-bank materials similarly emphasize that bringing inflation sustainably back to target depends in part on slower demand and well-anchored inflation expectations.

Politics and fiscal policy nevertheless became the bigger driver of markets. Polling showing President Luiz Inácio Lula da Silva with a strong lead ahead of October’s election revived questions among investors about whether the next government will make the budget adjustments needed to stabilize Brazil’s rising public debt. Some global investors reduced exposure to Brazilian stocks, bonds, and the real as election risk became more prominent. Congress sought to address some of those concerns by approving new limits on the growth of certain mandatory expenditures. The government estimates the measures could reduce next year’s spending by about BRL 10 billion, while keeping spending growth within Brazil’s existing fiscal framework. The move was viewed as a step toward greater budget discipline, although investors remain focused on whether it will be sufficient to stabilize the country’s debt burden over time.

Argentina’s inflation picture remained a central focus this week. Consumer prices rose 2.1% in July, up from 1.9% in June and slightly above expectations, marking the first monthly acceleration after three straight months of slower readings. Annual inflation also edged up to 33.8% from 33.5%, although that remains far below the levels seen earlier in President Javier Milei’s term. The increase was driven in part by seasonal pressures, including higher recreation and holiday-related costs, while core inflation remained somewhat lower. The data suggested that Argentina’s disinflation trend is continuing, but at a more gradual and uneven pace than in recent months.

At the same time, the government continued to ease financial conditions in an effort to support economic activity. Authorities announced that they are allowing more liquidity to circulate in the economy and have relaxed longstanding restrictions on dollar lending, permitting banks to lend up to 15% of their dollar deposits to companies that earn revenues in pesos. The peso has weakened as policy has become less restrictive, while officials are also seeking to avoid the sharp spikes in local interest rates that previously constrained credit. Against this backdrop, investors remain focused on whether easier financial conditions can help revive growth without undermining further progress on inflation and currency stability.

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) fell slightly, down -0.2% overall (0.4% YTD), the Bloomberg Global High Yield Index (hedged to USD) added 0.1% (3.2% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index advanced 0.1% (1.3% YTD).

US Treasury yields were volatile through most of the week, rising on Monday as higher oil prices fuelled inflation concerns before decreasing following July’s relatively benign inflation data. By Friday, shorter-term yields were generally lower as rate-hike expectations eased, while longer-term yields remained elevated amid heavy supply and persistent fiscal concerns. The Treasury Department’s 10-year note auction cleared at its highest yield since 2007, while Thursday’s 30-year bond auction cleared at its highest yield since 2001. After ending the prior week at 4.65%, the yield on the US 10-year Treasury note rose to 4.69% by Friday.  The yield remains up 52bps YTD. The 2-year Treasury yield decreased by -3bps, ending the week at 4.17% from 4.20% (up 69bps YTD).

Over the week, the 10-year German Bund yield also increased, ending at 3.20% from 3.13% (up 35bps YTD). The 10-year UK gilt yield rose by 12bps, ending the week at 5.04% from 4.92% (up 56bps YTD).