Global equities are positioned to record their steepest weekly decline since mid-July on Friday, as persistent pressure in global bond markets remains unresolved, while a diplomatic standoff in the Gulf region has pushed oil prices to a one-month high, refocusing market attention on inflation risks. As of writing, Dow futures are up 0.52%, S&P 500 futures have risen 0.48%, and Nasdaq futures have climbed 0.74%. Despite the uptick, the index remains on track for its first weekly loss this month. Strategy shares are up nearly 10% in US pre-market trading, following Bitcoin's breakout above the $78,000 mark.
Europe's Stoxx 600 index is poised to avoid its worst losing streak in nearly a decade. Stronger-than-expected manufacturing data helped European shares snap a seven-session losing run. However, the pan-European Stoxx 600 still sits less than 2% below its all-time high. A Bloomberg survey indicates that Goldman Sachs Group and JPMorgan remain among the most bullish institutions on European market prospects. Sharon Bell, head of European equity strategy at Goldman Sachs, noted: "Europe has performed far better this year than almost anyone expected at the start of the year. There has been too much focus on a handful of US and Asian companies, and I believe the European market has not received the attention it deserves." Meanwhile, Asian stocks advanced on tech-led gains, trimming their weekly losses. The Nikkei 225 slipped 0.3%, bringing its weekly decline to nearly 4%, on pace for its worst weekly performance since mid-July. Next week presents a critical test for AI trading, as Nvidia is set to report earnings, with the market closely watching its outlook on infrastructure demand and data center revenue.
Treasury Yields Resume Their Climb
After several days of volatile trading that pushed long-term Treasury yields to multi-decade highs, US Treasuries posted modest gains across the board on Friday. The 30-year Treasury yield is currently around 5.25%, while the 10-year yield has ticked up to 4.71%. Yields have resumed their ascent following a brief reprieve from an unexpected US Treasury intervention on Wednesday. Earlier, a bond selloff driven by concerns over high inflation and fiscal pressures was only temporarily halted by the Treasury's action, which provided less than a day of relief. Investors are now assessing the fallout from this week's market turbulence. The sharp rise in Treasury yields, fueled by worries over inflation and substantial government spending, forced the Treasury to step in to curb escalating long-term financing costs. Elevated yields are pushing up debt costs globally, even as tech giants pile on debt for AI capital expenditures. Higher interest rates not only increase financing expenses but also raise the discount rate applied to corporate earnings valuations, pressuring equity valuations.
Market Awaits Bessent's Fiscal Consolidation Plan
For now, the market is awaiting a new fiscal consolidation plan promised by Treasury Secretary Bessent. Bessent indicated on Thursday that the government may further expand its Treasury buyback program and unveiled a fiscal consolidation blueprint, though skepticism remains. Analysts argue that Bessent will find it difficult to identify spending cuts substantial enough to truly control a fiscal deficit exceeding 6% of GDP. Interest payments alone are projected to reach roughly $1.2 trillion this year, while total US debt has just surpassed the $40 trillion mark. Joachim Klement, strategist at Panmure Liberum, commented: "Equities are currently swinging between concerns over the tech sector and rising bond yields, though both factors appear to have eased somewhat today. The reality is that the Treasury can hardly alter the fundamental trend in long-term bond yields." Market participants believe that a 30-year Treasury yield of 5.30% may represent an unacceptable pressure point for the Treasury, similar to how a yen-dollar exchange rate of 160 triggers Japanese policy intervention.
Dollar Nears Three-Month Low
This has brought the dollar back near the three-month low it touched on Thursday. The greenback is down nearly 1% against major currencies this week. Jonas Goltermann, chief market economist at Capital Economics, stated: "The dollar is under pressure again, partly due to renewed focus on the 'devaluation trade' narrative. While we still believe these concerns are somewhat overdone and the economic environment over the coming months could still support a stronger dollar, ongoing policy surprises from the US may matter more in the short term." Christian Hantel, head of global corporate debt at Vontobel, noted: "The initial impact of the Treasury's buyback was very pronounced because it was completely unexpected. But the real question is whether it will be enough to have a lasting effect. The market may continue to test whether they are prepared to further increase the previously announced $4 billion buyback size. So the next few days could be very interesting." The dollar has held relatively steady against the yen, which faces its own set of challenges, trading around the 159 level. Data shows Japan's core consumer inflation accelerated in July, as companies pass on rising import costs to consumers. Meanwhile, a Japanese manufacturing survey indicated that new order growth hit its fastest pace since 2018. Both data points have reinforced expectations for a Bank of Japan rate hike in September. However, the market has largely priced in a 25-basis-point hike to 1.25%, and investors are looking for signs of faster, more aggressive policy tightening.
Bitcoin Soars
Bitcoin surged as much as 9.4%, on track for its best weekly performance since 2023. A key driver of this rally is a short squeeze triggered by Bessent's announcement this week to expand long-term Treasury buybacks. Bank of America data shows that US equity funds attracted approximately $29 billion in inflows for the week ending August 19, the largest weekly inflow in three weeks. Strategist Michael Hartnett said that if US bond market intervention fails to push the 30-year Treasury yield "below 5%," it could further weaken the dollar and prompt investors to adjust asset allocations ahead of the US midterm elections. He anticipates a shift toward shorting risk assets, deleveraging, and reducing cyclical exposure. This implies that if Treasury yields fail to decline sustainably, the market could re-enter a defensive mode. Brent crude is poised for its first decline in six sessions. Bessent has also drawn attention for expanding the commitment to Trump's "economic war" on Iran. He stated that the US will impose "the harshest sanctions in history" on Iran. This threat has further dimmed hopes for a full reopening of the Strait of Hormuz, pushing Brent crude to a one-month high near $95 per barrel before profit-taking pulled it back.
Gold is heading for a third consecutive weekly gain, with a renewed bull market sentiment in full swing! As of writing, spot gold is up 1.70%, trading around $4,597 per ounce, having briefly touched $4,600 during the session, on pace for a third straight weekly advance. For the precious metal's price curve, it is benefiting from a "dual-path advantage" structure created by the government's buyback of Treasuries with maturities of 10 years and beyond—falling risk-free rates reward holding opportunity costs, while runaway yields capture credit premiums. For the new bull market expectations in gold, the real significance lies in shifting market expectations regarding the Fed's and the government's policy reaction functions: once investors believe authorities will deploy larger dollar issuance, lower real rates, or more aggressive debt maturity management to prevent long-end financing costs from spiraling, the distribution of gold prices, driven by a persistently weaker dollar and declining 10-year and longer-term risk-free yields, will exhibit a clear upward skew.
Former Fed "Number Three" Warns: US Stock Bubble Could Burst by Late Next Year. Bill Dudley, former president of the New York Fed, pointed out that US equity valuations are clearly in bubble territory. If the AI investment cycle slows, the earnings, margins, and financing logic currently supporting the stock market rally could reverse simultaneously. He estimates that this bubble could burst by the end of 2027. Dudley noted that multiple indicators reveal the high valuations in US stocks, but he also emphasized that high valuations do not mean the bubble will burst immediately. Bubbles often continue to inflate because rising asset prices feed back into investment and earnings growth, reinforcing optimistic sentiment among market participants. The risk lies in this positive feedback loop eventually reversing. The most critical turning point comes from AI capital spending. Once AI capex growth decelerates, upstream "picks-and-shovels" companies will bear the brunt: demand growth slows, earnings expectations decline, and margins may contract, ultimately creating a "double whammy" on valuations and earnings.
Treasury 'Buyback to Cap Yields' Hurts Dollar? Citi Slashes Three-Month Forecast, Advises Against Long Dollar Before Midterms
As the market gradually digests expectations of a more dovish Fed stance, midterm election factors, and news of a potentially expanded Treasury buyback program, Citi's FX strategy team has turned bearish on the dollar's near-term outlook. Led by Daniel Tobon, Citi strategists lowered their three-month dollar index forecast from 102.12 to 98.34 in a research note on Thursday. Citi has warned that Treasury Secretary Scott Bessent's latest move to curb long-term borrowing costs is likely to come at the expense of a weaker dollar. The strategists stated: "The latest variable is the Treasury's recent announcement to double its buyback size by November. This adds new negative factors for the dollar through two channels: first, by pushing down Treasury yields; second, by raising concerns about financial repression policies."
UBS Raises S&P 500 Earnings Forecast, Sees Bull Market Continuation
UBS has raised its earnings forecasts and target levels for the S&P 500, citing improved corporate earnings prospects and growing confidence in next year's economic growth. The bank now projects S&P 500 earnings per share of $350 for 2026 and $400 for 2027, up from previous estimates of $335 and $375, respectively, corresponding to growth rates of 25% and 14%. Concurrently, UBS raised its S&P 500 target to 8,100 by December 2026 and 8,400 by June 2027. The bank stated that the upward revision is primarily driven by better-than-expected earnings in semiconductors, tech hardware, and energy sectors, though earnings expectations have been raised across nearly all market sectors. UBS noted that the breadth of the market rally continues to expand, with an exceptionally strong second-quarter earnings season and improving economic conditions in cyclical areas such as manufacturing activity and construction employment.
Focus Stocks
BJ's Wholesale Club reported better-than-expected second-quarter results, with shares ticking higher. Excluding certain special items, BJ's posted earnings per share of $1.36 on revenue of $6.09 billion. Analysts surveyed by FactSet had anticipated EPS of $1.17 on revenue of $5.97 billion. The company also raised its full-year EPS guidance to $4.60-$4.80, up from the previous $4.40-$4.60 range. Ross Stores reported second-quarter results that beat analyst expectations, with shares up over 8% in pre-market trading. The company also issued third-quarter earnings guidance above market estimates.
Bitcoin continued its upward trajectory on Friday, lifting the broader crypto sector, with the digital currency on track for a weekly gain exceeding 20%. Robinhood, Coinbase, and MicroStrategy shares were all up at least 4.5% in pre-market trading. The White House meeting with crypto industry leaders and urging Congress to pass the "Clarity Act," which focuses on cryptocurrency infrastructure and clarifies federal agency regulatory responsibilities, provided a boost for Bitcoin. Broadcom is planning to raise over $60 billion in debt to complete a transaction providing funding for Anthropic, with shares up over 1% on the news.
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