Global Markets Weekly Update

August 2026, Markets and Economy

Major U.S. stock indexes finished the week mixed as investors weighed easing concerns about inflation and Federal Reserve policy and some favorable artificial intelligence (AI)-related earnings news against rising oil prices, continued uncertainty surrounding the Strait of Hormuz, and weaker-than-expected consumer data.

Of the major benchmarks, the Russell 2000 and S&P MidCap 400 Indexes performed best, adding over 1% each, while the S&P 500 Index posted more modest gains. The Dow Jones Industrial Average finished the week lower, and the Nasdaq Composite was little changed.

Inflation data were a major focus during the week. On Wednesday, the Bureau of Labor Statistics (BLS) reported that its consumer price index (CPI) rose 0.1% in July and 3.4% over the prior 12 months, in line with consensus estimates. Core CPI—which excludes food and energy costs—increased 0.2% month over month and 2.5% year over year, also in line with estimates. July marked the second consecutive month in which both headline and core CPI inflation eased on a year-over-year basis, with both measures declining 0.1 percentage point from June.

Thursday’s producer price data provided some additional relief. Core producer prices rose 0.2% in July, below consensus estimates for a 0.3% increase and down from June’s revised reading of 0.4%. On a year-over-year basis, headline producer prices rose 4.7%, also below estimates and down from June’s reading of 5.5%. The softer inflation reports helped reduce expectations for near-term monetary policy tightening: By Friday afternoon, futures markets were pricing a roughly 32% chance of a rate hike at the Fed’s September meeting, down from around 52% earlier in the week, according to the CME FedWatch Tool.

Fed officials nevertheless continued to emphasize inflation risks. Cleveland Fed President Beth Hammack reiterated her view that policymakers should raise rates to prevent the economy from overheating, while Richmond Fed President Tom Barkin said it remained an open question whether additional tightening would be necessary to bring inflation back to target.

Data from the Census Bureau showed that U.S. retail sales fell 0.6% month over month in July, missing estimates for a 0.1% increase and down from June’s 0.2% rise. This was the largest monthly drop since May 2025. Control group sales—which exclude several categories and feed into the gross domestic product (GDP) calculation—fell 0.4% from the prior month.

The University of Michigan reported that a preliminary reading of its August Index of Consumer Sentiment came in at 51, dropping 4.2 points from July and snapping a two-month streak of increases. The decline was driven by a sharp drop in short- and long-run expectations for business conditions. Expectations for inflation in the year ahead ticked up to 4.3%, remaining well above the 3.4% figure reported in February prior to the Iran conflict.

U.S. Treasury yields were volatile through most of the week, rising on Monday as higher oil prices fueled 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.

This chart is for illustrative purposes only and does not represent the performance of any specific security. Past performance cannot guarantee future results.

Source of data: Reuters, obtained through Yahoo! Finance and Bloomberg. Closing data as of 4 p.m. ET. The Dow Jones Industrial Average, the Standard & Poor’s 500 Stock Index of blue chip stocks, the Standard & Poor’s MidCap 400 Index, and the Russell 2000 Index are unmanaged indexes representing various segments of the U.S. equity markets by market capitalization. The Nasdaq Composite is an unmanaged index representing the companies traded on the Nasdaq stock exchange and the National Market System. Frank Russell Company (Russell) is the source and owner of the Russell index data contained or reflected in these materials and all trademarks and copyrights related thereto. Russell® is a registered trademark of Russell. Russell is not responsible for the formatting or configuration of these materials or for any inaccuracy in T. Rowe Price’s presentation thereof.

The pan-European STOXX Europe 600 Index ended the week down 0.36% in local currency terms. Investors weighed resilient regional economic data and generally solid corporate earnings against persistent geopolitical uncertainty surrounding the U.S.-Iran conflict and the Strait of Hormuz. Among major stock indexes, Germany’s DAX gained 0.46%, France’s CAC 40 Index fell 0.9%, and Italy’s FTSE MIB declined 0.25%. The UK’s FTSE 100 Index dropped 1.39%.

Sector leadership shifted through the week, although energy and other cyclical shares benefited at times from higher oil prices and improving risk appetite, while defensive sectors generally lagged early in the week. European gas and fuel costs rose higher, causing disruption in industrial logistics. Energy market developments remained an important backdrop throughout the week. Oil prices rebounded sharply early in the period as hopes for an agreement to reopen the Strait of Hormuz faded, although energy shares later gave back some of their gains.

Elsewhere, extreme heat disrupted French nuclear generation, temporarily reducing available capacity and highlighting the risk that weather-related supply constraints could add to regional energy price volatility.

The Sentix Economic Index measure of eurozone investor confidence returned to positive territory in August and posted its fourth consecutive monthly increase, adding to evidence that the regional economy has remained relatively resilient despite elevated energy prices and the conflict in the Middle East.

Country-level indicators were more mixed. The Bank of France estimated that the French economy would grow 0.2% in the third quarter based on its latest survey of businesses. Swiss second-quarter GDP beat forecasts with its highest quarterly growth rate in five years at 1.5%. Meanwhile, low water levels on the Rhine began to disrupt industrial activity in Germany, adding another potential supply-side headwind.

The Bank of England’s Chief Economist Huw Pill said that stronger-than-expected GDP figures reinforced the case for higher borrowing costs to return inflation to target. UK government bond yields had already moved higher early in the week, with the 10-year gilt yield moving above 5%, as investors continued to assess the interaction between inflation risks, fiscal policy, and prospective tax increases.

Japan’s stock markets registered substantial gains over the week, with the Nikkei 225 rising 4.74% and the broader TOPIX Index up 3.00%. 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, which weakened to around JPY 159 against the U.S. dollar from about JPY 157.9 at the end of the previous week, despite authorities’ recent currency interventions. Bank shares benefited from reports signaling that an interest rate hike by the Bank of Japan (BoJ) could be imminent. 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 Bloomberg news agency, citing unnamed sources familiar with the matter, suggested that the Takaichi government is supportive of a near-term BoJ rate hike, as it acknowledges that the weakness of the yen is feeding into inflationary pressure, leaving households to grapple with increasing living costs. Japan’s government stated that it believes specific monetary policy measures, including interest rate hikes, should be left to the BoJ, but the central bank should work closely with the government to achieve its 2% inflation target in a stable manner. The Summary of Opinions at the BoJ’s July monetary policy meeting revealed that policymakers see room to keep raising rates, with several board members noting upside risks to inflation and one board member suggesting that the pace of hikes could accelerate.

Among the week’s economic data releases, Japan’s corporate goods price index rose 7.2% year over year in July, below estimates for 7.4% and June’s revised 7.3%. While July’s reading pointed to a minor cooling in cost pressures, it still showed producer prices rising near the fastest pace in over three years.

Separately, the Reuters Tankan Index for Japanese manufacturers increased to +18 in August from +13 in July, driven higher by improving confidence among manufacturers benefiting from robust semiconductor demand.

China equities were choppy but ultimately ended the week lower, with Hong Kong shares underperforming. In the mainland, the Shanghai Composite Index edged lower by 0.33%, while the CSI 300 Index fell by 0.61% in local currency terms, according to FactSet. 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 U.S. AI firms. Meanwhile, Hong Kong’s Hang Seng Index dropped 2.15%, driven by weakness from internet heavyweights and mixed corporate earnings updates.

China’s consumer and producer inflation softened by more than expected in July as the impact of the oil price shock triggered by the U.S.-Iran war appeared to recede. The CPI rose 0.5% from a year earlier in July, declining from 1% in June and falling to a six-month low. According to the National Bureau of Statistics, the deceleration was primarily driven by slowing gasoline fuel price increases, while food prices also weakened. Core consumer inflation, which strips out both food and energy costs, also edged lower to 0.9%.

Meanwhile, producer price growth eased to 3.5% year over year from 4.1% in the previous month. This was its first moderation since March, when producer inflation turned positive after 41 straight months of deflation.

Authorities in Beijing relaxed homebuying rules for nonresidents, adding to recent efforts from various major cities to reverse a prolonged property market slump. Nonlocal residents will now be eligible to purchase homes within the city’s Fifth Ring Road—a major expressway around the central districts—if they have made social security contributions or income tax payments for one year, down from two years previously. The municipal government also raised the maximum limits for eligible buyers taking housing provident fund loans. Beijing’s measures were similar to easing actions announced by Shanghai in February and supported shares of real estate developers.

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.

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