8 min read US stocks & cooling inflation
US stocks reached new highs last week as cooler-than-expected inflation eased concerns about a September Fed rate hike. July CPI increased 0.1% month-over-month and 3.4% year-over-year, with core at 2.5%, all matching forecasts. Producer prices were unexpectedly flat. The probability of a September rate hike dropped to about one-in-three from 55% the previous week.
The S&P 500 surpassed 7,800 for the first time on Thursday, marking its 27th record this year, led by technology. The Russell 2000 also closed at an all-time high after four consecutive gains. However, sentiment weakened on Friday as retail sales unexpectedly declined 0.6% in July and the University of Michigan sentiment index fell to 51.0, highlighting ongoing consumer uncertainty despite easing inflation.
Major indexes still finished the week higher, with the Nasdaq near record levels and up approximately 15% year-to-date. However, with Treasury yields remaining elevated near 4.7% and oil prices rising, the Nasdaq’s outlook depends on whether the soft-landing narrative can withstand weakening growth data.
Middle East & the Strait of Hormuz
Hopes for de-escalation that had lowered oil prices reversed last week after talks to reopen the Strait of Hormuz collapsed. Iran and Oman failed to reach an agreement, Tehran’s new naval chief declared the strait “under Iran’s control,” and Washington increased pressure. Treasury Secretary Bessent warned of the “economic isolation” of Iran and stated the US naval blockade could continue “indefinitely.”
Brent rose more than 5% on the week to settle around $88.50, with WTI near $82.40, as the IEA warned of the widest global supply deficit in five years and Houthi militants struck Saudi Arabia’s Jazan refinery. With Hormuz flows still severely constrained — the EIA estimates traffic at a fraction of pre-war levels — the risk premium that had drained out of crude has been rebuilt.
The ongoing stand-off makes Brent a key variable for global inflation and central bank policy. Reopening the strait could bring Brent back toward the $70 range, while continued deadlock or new attacks could push prices above the July highs of $100.
FOMC minutes (Wednesday)
The Federal Reserve will release the minutes from its 28-29 July meeting on Wednesday at 2 p.m. ET. The Fed maintained rates at 3.50%–3.75%, with three officials dissenting in favor of a hike. The minutes are expected to show the extent of division within the committee.
The minutes are released as markets have shifted from expecting a September hike to viewing it as a near coin flip. Following weak jobs and retail data, some participants are even considering rate cuts. The FOMC remains divided between members concerned about inflation from higher oil prices and those focused on a cooling labor market. This release is a key event ahead of Chair Warsh’s Jackson Hole keynote next week. Gold has risen to around $4,400, a two-month high and its second consecutive weekly gain, supported by a softer dollar and lower rate hike expectations.
If the minutes are more hawkish than markets expect, the dollar may strengthen, and Gold could decline. Conversely, confirmation of a divided, data-dependent Fed may support Gold prices.
UK CPI (Wednesday)
UK July inflation data will be released on Wednesday. Consumer prices are expected to remain in the mid-2% range, above the Bank of England’s 2% target, with services inflation near 3.7%. Recent increases in oil and gas prices present additional upside risk.
The Bank of England kept its rate at 3.75% in a hawkish 6-3 vote last month, warning that higher energy costs could raise inflation later this year. This data will directly influence the debate over whether the Bank can ease policy or must remain restrictive. Sterling has reached a one-year high near 1.35 against a weaker dollar, but this strength is driven more by US weakness than domestic factors, leaving GBP/USD vulnerable to a downside inflation surprise.
A higher-than-expected inflation reading that supports the BoE’s hawkish minority could boost GBP/USD, while a softer result that increases expectations for easing could push GBP/USD lower.
Canada CPI (Tuesday)
Canada’s July inflation report will be released Tuesday, following May’s 3.2% reading, the first above 3% since late 2023. Markets are watching to see if price pressures are easing toward the Bank of Canada’s target or remaining elevated.
The Bank of Canada has maintained its policy rate at 2.25% since spring, and the upcoming inflation data will be key to whether it remains on hold into autumn. Elevated oil prices support the currency but also pose growth and inflation risks for the energy-focused economy. Ongoing uncertainty from the unresolved USMCA review continues to weigh on the loonie. USD/CAD is trading around 1.39.
A higher inflation reading that strengthens expectations for the BoC to hold rates could weigh on USD/CAD, while a softer result that increases easing expectations could lift USD/CAD.
Flash PMIs (Friday)
Preliminary August PMIs for the US, the euro area, the UK, Japan, and Australia will be released on Friday, providing the first insight into activity this quarter. The euro-area surveys will be closely monitored following the ECB’s recent rate increases.
The data will indicate whether the bloc’s tentative recovery is continuing amid the energy shock. Price components will be examined for inflation pressures that could prompt further ECB action. The ECB, currently the only major central bank tightening policy, has raised its deposit rate to 2.25%. EUR/USD has strengthened to around 1.15 as the transatlantic rate gap narrows and the dollar weakens.
Strong euro-area PMIs with firm price data could support EUR/USD, while weaker surveys that undermine the case for further ECB tightening could push EUR/USD lower.
Bottom line
With Jackson Hole approaching and no Fed decision until 16 September, this week highlights competing forces: cooling US inflation and uncertain consumer sentiment versus renewed tensions in the Middle East and elevated oil prices. The FOMC minutes will reveal the extent of division within the Fed. UK and Canadian inflation data, along with Friday’s global flash PMIs, complete a data-heavy week with limited central bank action. Monitor Gold around the minutes, GBP/USD and USD/CAD on inflation releases, EUR/USD during the PMIs, and Brent for developments related to the Hormuz stand-off.
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