Global markets navigated a volatile week, with the Federal Reserve holding rates steady amid internal divisions and escalating Middle East tensions adding to uncertainty. US stocks finished higher, with the Dow gaining 1.04% for the week, the Nasdaq up 1.59%, and the S&P 500 rising 1.05%. European indices also performed well, as the UK's FTSE 100 rose 1.23%, Germany's DAX 30 advanced 2.11%, and France's CAC 40 increased 1.64%.
Several key events are on the horizon next week. The US will release its July employment data, offering critical insight into the potential path of Federal Reserve interest rates in the coming months. The Fed's recent decision to maintain rates without providing clear forward guidance has increased the importance of upcoming economic indicators. In Europe, new eurozone data will test the region's economic resilience amid high energy prices. Meanwhile, markets will continue to monitor the evolving US-Iran conflict and its impact on oil price volatility. The earnings season will also draw attention, particularly results from chip stocks.
US Employment Data and Fed Outlook
The Federal Reserve held rates steady for the fifth consecutive time last week, with investors having already scaled back expectations for a near-term rate hike. Chair Jerome Powell adhered to the central bank's commitment to avoid providing forward guidance, while noting that rising bond yields have tightened financial conditions. The US July non-farm payrolls report, due on August 7, stands as the most critical data point in a busy economic week. Recent US employment data has been unremarkable, but any signs of weakness could prompt a further reduction in market pricing for rate hikes. LSEG data shows that before the Fed's meeting, money markets had fully priced in a September rate hike, but the probability has since dropped to 68%. ING noted in a report that if US economic data falls short of expectations, the market could see a stronger-than-usual repricing, with volatility potentially amplified if oil prices also decline. The report added that markets are broadly concerned the Fed is merely talking about price stability without implementing substantial tightening measures. Before the payrolls data, several leading employment indicators will be released, including JOLTS job openings, the July ADP private payrolls report, and initial jobless claims, all of which will help paint a picture of the labor market's health. Additionally, the July ISM manufacturing and services PMIs will provide insight into business conditions amid the impact of high oil prices, while the June US trade data will also be watched.
The US Treasury is set to release its quarterly refunding plan and funding estimates next week, along with a statement on refunding policy and auction details. HSBC noted that the significant rise in yields across the entire Treasury curve is a key factor limiting the Treasury's ability to expand long-term bond issuance or adjust its forward guidance. "Long-term rates are at multi-decade highs, and policymakers will be cautious to avoid any measures that could increase term premiums and further raise borrowing costs," the bank stated.
As earnings season gains momentum, notable companies reporting next week include SpaceX, AMD, SanDisk, Western Digital, Caterpillar, Disney, and Uber.
Crude Oil and Gold Markets
International oil prices experienced sharp fluctuations due to the Middle East situation. The front-month WTI crude oil contract fell 5.20% for the week to $84.67 per barrel, while the front-month Brent crude contract dropped 6.88% to $90.12 per barrel. Crude oil flows through the Strait of Hormuz have decreased significantly. Shipping data from Kpler shows that the average daily volume of crude oil transported through the strait fell to 2.57 million barrels in the week starting July 20, a decline of about 61% from the 6.6 million barrels per day level two weeks prior. The impact of disrupted oil flows is spreading to the refined products market, with Russia extending its temporary diesel export ban for another month, effective until September 1. US Energy Information Administration (EIA) data showed that US crude oil inventories fell by 7.2 million barrels last week, reaching their lowest level in nearly eight years, further fueling concerns over supply tightness.
Key members of the OPEC+ alliance will hold an online meeting on August 2 to discuss production quotas. Most market participants expect the group to agree to another production increase of 188,000 barrels per day. Analysts at Capital Economics stated, "At this stage, it appears that the Middle East conflict is limiting OPEC+ members' export and production capacity rather than their willingness to increase output, so the group's production decision is likely to have a limited actual impact. Saudi Arabia is a prime example, as it holds the largest spare capacity but is currently facing the dual impact of a shipping blockade by the Houthis and disrupted transport through the Strait of Hormuz."
The precious metals market traded in a narrow range as investors digested the Fed's policy outlook. The COMEX gold futures contract for August delivery fell 0.53% for the week to $4,049.10 per ounce, while COMEX silver futures dropped 1.91% to $57.59 per ounce. A deeper factor capping gold prices is the lingering interest rate risk. The Fed kept its benchmark rate at 3.50%–3.75%, but three committee members voted for a rate hike. With oil prices remaining above $90 and the Middle East conflict fueling inflation expectations, rate hike expectations are enough to limit gold's upside potential. Independent analyst Ross Norman stated that gold is struggling to build sustained upward momentum and remains in an adjustment phase within a long-term structural bull market. A report from the World Gold Council highlighted official sector gold purchases as a bright spot in the second quarter, with global central banks net purchasing 289 tonnes, a 62% increase year-on-year and a record for the second quarter. The National Bank of Poland was the largest buyer of the quarter, adding 51 tonnes to bring its total reserves to 632 tonnes. The World Gold Council concluded that the direction of gold prices in the second half of the year will depend critically on the strength and structure of investment demand, rather than a significant increase in mine supply.
Eurozone Rate Hike Debate Re-ignites
Eurozone inflation rose again in July, breaking above the European Central Bank's 2% target, primarily due to the Middle East conflict pushing up energy prices, with services and core inflation also edging higher. Given that the eurozone economy grew faster than expected in the second quarter, markets are now debating whether the ECB will raise rates again in September. With the Middle East conflict disrupting energy supply and rising energy costs continuing to weigh on the eurozone economy, next week's economic data releases will be closely watched. These include the July manufacturing and services PMIs for Spain, Italy, France, Germany, and the eurozone as a whole, the June eurozone producer price index (PPI), and Germany's June industrial output. Economists at SEB noted in a research report that the duration of the conflict is the decisive variable, with recent developments raising inflation risks.
The Bank of England previously held its key rate at 3.75%, with three of the nine committee members voting for a 25 basis point hike. However, the central bank's statement indicated that high energy prices have not yet triggered second-round effects on inflation. As a result, investors have scaled back their expectations for further rate hikes in 2026. LSEG data shows that the market, which had originally priced in a total of 37 basis points of rate hikes for the year, has now lowered that expectation to 30 basis points. The UK data calendar next week is relatively light, with the July final manufacturing PMI and services PMI due for release. Additionally, the Bank of England will publish its quarterly report on the Asset Purchase Facility, detailing changes in its gilt holdings from April 1 to June 30.
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