The Democrats' win put the AI "let it rip" regime in question. He reads the Democratic takeover of Congress, plus gubernatorial gains, as raising the prospect of "sand in the wheels" or tighter regulation for AI investment. The reported reaction: the Nasdaq's largest single-day loss since March 2020, with circuit breakers triggered in Taiwan and South Korea and declines in Japanese equities.
The tech rout stayed contained, and US data vindicated that. Few analysts cut US growth forecasts, and EM bonds and US investment-grade credit had a decent week. Friday's payrolls beat every published consensus, with upward revisions, lower unemployment, higher participation and above-forecast hourly earnings; JOLTS openings rose and claims stayed below 200,000. Q3 productivity ran at 3.6% annualised against 2.9% consensus, which he reads as raising the non-inflationary speed limit.
The Bank of England's hike came with a hawkish surprise. The expected 25bp hike passed 8–1, the dissenter wanting 50bp, against a consensus 6–3 split with three votes for no change; the Bank now projects CPI peaking at 4.9% in Q2 next year. Brazil's central bank held the Selic after five straight cuts, cautious on fiscal dynamics and inflation expectations.
Oil's slide drove a sovereign bond rally. Brent fell below $100, including a 9% drop Wednesday, which he attributes to unwinding geopolitical risk premiums amid shifting diplomacy and JD Vance's remarks on voter concern over the Middle East war. The 10-year Treasury ended at 4.86%, gold at $4,079, Bitcoin below $80,000, DXY at 102.23.
Next week's focus is US inflation, against unresolved structural uncertainties. Consensus looks for October CPI (Tuesday) at 0.3% MoM headline, down from 0.6%, and 0.2% core, down from 0.3%; Friday's PPI is expected at 0.3% headline and 0.4% core. He also flags Treasury auctions, and UK and Eurozone Q3 GDP, China, Japan, India, Brazil minutes and Mexico data. Unresolved, in his view: AI's productivity payoff, sticky inflation, heavy bond issuance, shifting regulation.
Tech earnings exposed cracks in the market's protective shield. Tech earnings, not economic or policy news, were what moved markets most, he says, producing wild NASDAQ volatility against limited moves in rates and FX. Disappointments were punished harshly, including Intel's 29% fall on Friday, while tech bond spreads and CDS kept widening, though unevenly across companies. The $6.3 billion hack of Binance further hurt risk appetite.
Supposed safe havens failed to act as safe havens. The 10-year US Treasury yield fell only to 4.93%, though October's 36 bp drop was the largest monthly fall since 2023; he says the week's data confirmed that Japan and Korea have become less reliable Treasury buyers, mainly for domestic reasons. Gold fell to $3,885 an ounce, a one-year low, and Bitcoin below $78,000, while crude hit a six-month high on fears of renewed US-Israel attacks on Iran after the midterms.
Strong US data kept economists optimistic while most central banks paused. Q3 GDP growth accelerated to 3.4%, a one-year high, and Conference Board consumer confidence jumped from a revised 84.2 to 91.7, above consensus, but PCE inflation rose to 3.6%; French consumer confidence hit its lowest since 2013. The Bank of Canada hiked 25 bp and signalled more, while the BOJ, ECB and Fed held, with markets expecting all three to resume hiking in December. Fed Chair Warsh said one of the eight annual FOMC meetings would become strategic, ECB President Lagarde said she would step down early, and UK Chancellor Healey's first budget, keeping medium-term consolidation, left markets broadly unchanged.
Brazil's selloff reflected traders' misplaced confidence more than fundamentals. That is his reading of the market reaction to President Lula's surprise win over Bolsonaro. In Israel, Netanyahu lost his majority amid gains for the two Israeli Arab parties, leaving deadlock with three outcomes he sees as open: a unity government of the Eisenkot and Netanyahu blocs, an Eisenkot coalition with the Arab parties, or a Netanyahu caretaker government and a spring election.
The week ahead turns on the midterms, tech earnings and payrolls. Tuesday's US midterms matter for economic, regulatory and Middle East policy; earnings include Apple and Palantir. Consensus looks for October payrolls of 65,000 (from 29,000), unemployment unchanged at 4.2%, participation 61.8%, and average hourly earnings up 0.3% MoM (2.9% YoY); ISM services is expected near 54.8 with prices paid at 74.0. Markets put the odds of a December Fed hike near 75%.
Markets doubted tech's payoff, but not the wider growth outlook. The week's reassessment of return on investment against tech's huge funding needs pressured the NASDAQ and widened credit spreads. He argues productivity and earnings gains will likely disappoint without deeper adoption (citing Google ATLAS data showing broad but shallow uptake) and much stronger risk mitigation.
A flight to quality drove an outsized bond rally. Thursday's one-day US government bond rally was the largest since the collapse of Silicon Valley Bank, with yields falling sharply even as Brent hit its highest since April, ending at $116 a barrel amid US/Israel-Iran threats. He attributes such volatility to hedge funds' growing influence as traditional Treasury buyers become less dominant.
Lower US yields exposed fragilities among indebted sovereigns. France trades at roughly 170 basis points over Germany on its own fiscal problem, and the wider French spread has already pulled Italian spreads wider. He names France, Japan and the UK as the G7 economies structurally vulnerable to higher global yields; the ECB is expected to hold rates this week while watching spreads.
Growth data stayed strong while inflation kept running hot. US initial jobless claims fell to 194,000, beating consensus; the PMI rose to 56.0 from 55.9, with job growth fastest since March 2012; Michigan one-year inflation expectations rose to 4.7%. China's GDP grew 4.5% versus 4.4% consensus, UK September inflation rose to 3.5% from 3.1%, and the Eurozone PMI fell to 51.9.
Rate hikes are the wrong tool for supply-driven inflation. Markets expect the Fed to hold on Wednesday, then hike in December and next year; he calls that pricing a fair forecast but bad policy, since energy, infrastructure bottlenecks and the AI boom won't respond, while housing and car loans would suffer. He favours fiscal containment. Consensus for PCE, due the day after the decision: 0.5% headline and 0.3% core MoM, 3.6% and 3.1% YoY.
Yields fell this week despite hotter-than-expected inflation data. CPI, PPI and import prices all came in above expectations, yet government bond yields dropped and the market's implied probability of an October Fed hike fell below 20%, while Fed Chair Warsh repeated that he gives no forward guidance. December-hike odds ended the week near 90%, with two further hikes priced for 2028.
Equities were volatile and dispersed as tech sold off. The NASDAQ fell 4.5% on the week, its worst since June, and the S&P 500 fell 2%, while the Dow finished positive, which he presents as the "rotation trade" at work. CoreWeave's credit spread spiked to 1,200bp, opening a debate over tech-bubble canary versus classic overshoot. Elsewhere the VIX spiked to 20, gold fell to $4,187 an ounce, the DXY fell to 101.8, and Bitcoin ended at $81,532.
He doubts the rotation out of tech is straightforward. His "(1-x) qualification": because tech (x) contributes to economic growth and draws domestic and international capital into US stocks generally, he argues the non-tech remainder (1-x) could well turn out positively correlated with tech's health, both economically and technically.
The rotation is happening against a pressured geo-economic backdrop. He cites Brent touching $110 and WTI topping $100, worsening US-Europe tensions over Ukraine, a protracted US-Iran stalemate, and IMF/World Bank meetings in Bangkok showing the limits of policy coordination. Pre-midterm affordability worries led the US to waive more recently approved Russia sanctions; French spreads held at 130–140bp over Germany pending the budget, which he reads as structural vulnerability beneath global resilience.
The week ahead tests the resilience theme against data. Scheduled, with no consensus figures given: US Michigan sentiment, home sales and PMIs, with the Fed in blackout before the following week's FOMC; Eurozone and UK flash PMIs, UK CPI, PPI, labour and retail data, and ECB inflation expectations; China GDP and activity data; Japan CPI, trade and PMIs feeding the BOJ tightening debate; Brazil's October 25 runoff; and 128 earnings releases Thursday, where he will watch demand outlooks and pricing.
Record stocks and multidecade-high bond yields coexisted, with fiscal slippage underneath. US equity indices hit new records on narrow tech momentum while several advanced economies saw multidecade-high government bond yields. Brent stayed above $100 a barrel on the US-Iran stalemate, and the US deficit for the fiscal year just ended came in around 6% of GDP despite growth of 3–4% (Atlanta Fed GDPNow) and a strong labour market.
France, not the periphery, became the euro area's bond stress point. France traded at wider spreads than Italy, a historic inversion, with contagion unusually running from the core to the periphery. He suggests this may trigger a delayed political awakening, tested this week in parliamentary budget discussions and positioning ahead of next year's presidential election.
US midterm politics is now steering foreign policy. He reads an unorthodox US-Russia diesel supply deal as driven by a domestic need to keep prices manageable amid declining energy inventories ahead of next month's midterms. Many countries, especially in Europe, were left puzzled at best.
The Fed signalled more hikes, but not in October. The minutes and several officials acknowledged a pickup in already robust activity and pointed to likely additional rate hikes, while signalling consensus that a move is off the table for October. He attributes bond-yield pressure to volatile short-term Fed expectations and the shape of the US yield curve.
A hot CPI print would upend the expected October pause. Consensus for September US CPI is core at 0.2% MoM (from 0.3%) and headline at 0.6% (from 0.4%), or 2.5% and 3.6% YoY. He warns a hotter print would fuel fixed-income volatility, with rate risk already leaking into credit risk. Also ahead: US PPI, Eurozone PMIs, UK data before the October 28 budget, Japanese cross-border securities flows, and the IMF's World Economic Outlook at the Annual Meetings in Thailand.
Rate-risk spillover into credit markets is now real, not just feared. He argues sovereign yields hit multi-decade highs across advanced economies last week, driven primarily by the US and by structural forces — higher bond-financing demand from governments and tech corporates against a shrinking base of traditional long-term buyers — rather than by Fed expectations or oil and growth data alone. He reads last week's widening high-yield credit spreads as the first undeniable evidence of the spillover from rates into credit risk that he had previously warned about.
Eurozone bond markets are fracturing along national lines. The France-Germany government bond spread widened to about 150 basis points last week, which he reads as structural fiscal weakness being exposed now that cheap global liquidity is receding — compounded, he notes, by France's contested election season.
Equities shrugged off bond turmoil on a dovish Fed repricing. The NASDAQ hit a record high after a cooler-than-expected PCE reading and a softer September jobs report — payrolls well below expectations, a higher unemployment rate, but also a rise in labor-force participation — plus a weaker ISM manufacturing PMI. Markets cut the implied odds of an October Fed hike from 70% to 23% over the week, and December hike odds from 95% to 86%, even though he judges the initial 70% pricing to have been too aggressive.
The G7 moved to flood the market with oil and diesel. With Strait of Hormuz crude flows reported above 90% of pre-war levels but diesel flows still around 50%, and diesel prices carrying the most political sensitivity, the US pushed G7 partners to coordinate a release of up to 100 million barrels of crude and diesel. He reads the move, largely shrugged off by markets, as a politically driven bet that supply will improve heading into winter demand season.
The week ahead centers on the Fed minutes and services data. The FOMC releases minutes from its September meeting — where it voted 12-0 for a 25-basis-point hike — on Wednesday, October 7, which investors will parse for clues on whether the committee pauses or keeps tightening. A strong US ISM Non-Manufacturing print, due first, could test markets' aggressive pricing-out of an October hike even before CPI data the following week. The IMF/World Bank Annual Meetings in Thailand open with the IMF's October World Economic Outlook chapters due October 5-6, and Brazil's tight first-round presidential election result is also awaited.
Equities shrugged off a historic bond selloff. US Treasury yields from the 5-year out closed the week above 5% (2-year at 4.85%), yet US stocks still finished higher on robust earnings; he also notes record foreign buying of US equities contrasted with fading overseas appetite for US sovereign bonds.
Geopolitical de-escalation hopes reversed. Trump said he had rejected Iran's proposals and reportedly told aides to prepare major military action after the November midterms, Houthi rebels struck Riyadh, and an Iranian official ruled out revising its terms; the US-China summit likewise produced pleasantries but no structural breakthrough, pushed to year-end Trump-Xi meetings.
He flags a widening gap between hard and soft US data heading into a data-heavy week. Consensus for the jobs report is 90,000 payrolls, 0.3% monthly (3.2% annual) earnings growth, 4.1% unemployment and 61.7% participation, alongside Fedspeak and his watch on interest-rate risk morphing into credit risk.
Why the Treasury Yield Surge Shouldn’t Be as Big a Surprise as It Is
He argues the yield surge shouldn't have surprised markets. Well-telegraphed borrowing plans from the government and large corporates, particularly tech, and Federal Reserve signals of strong economic activity, were all evident well before the surge, he writes.
Fewer traditional buyers have also been pressuring yields. He cites the declining willingness and capacity of traditional holders of US bonds, alongside the unresolved question of how the US/Israel-Iran conflict ends, as additional, already well-covered drivers.
He blames psychological anchoring for investors' surprise, not fundamentals. He argues the collective mindset shaped by more than a decade of artificially low, repressed yields since the 2008 Global Financial Crisis is playing a far larger role than it should.
A first hike since 2023 sparked only a brief relief rally. The Fed raised rates 12-0 under Chair Kevin Warsh, whose press conference was praised for clarity and briefly calmed volatility — but Saudi Aramco's halt of crude deliveries to Europe and a record $6.45/gallon US retail diesel price reversed the gains within days.
Major central banks moved together, but disagreed on how far to go. The ECB and Bank of Japan both hiked, though the BOJ's vague guidance weakened the yen; the Bank of England held policy on a 6-3 hawkish split pointing to a near-term hike, and Brazil cut for a fifth straight meeting as Turkiye moved to contain levered equity fragility.
The week ahead centers on the Trump-Xi summit and a heavy data calendar. Presidents Trump and Xi are set to meet on the sidelines of UNGA week to cover trade, tariffs, secondary tariffs, and technology, while markets await Fed officials' first comments since the blackout period, incoming PMIs and consumer sentiment, and watch whether shrinking oil inventories and heavy government bond issuance test the market's capacity to absorb supply without pushing yields higher.
Middle East escalation broke markets' assumption that conflict could be compartmentalized. Strikes by the US against Iran and by Houthi forces and proxies in Iraq spread to land infrastructure, forcing the shutdown of a major east-west Saudi pipeline and disrupting transit through the Bab el-Mandeb and the Strait of Hormuz. Oil prices spiked, US diesel crossed $6 a gallon to set fresh records, the US 10-year yield approached 5.0% and the 30-year exceeded 5.30%, and German and UK sovereign yields hit multi-decade highs.
In-line US inflation still pushed Fed hike odds sharply higher. CPI prints matched consensus across the board, yet market-implied odds of a Fed rate hike at next week's FOMC meeting rose above 80% — a setup he calls a possible lose-lose for the central bank. The same week the ECB raised rates 25 basis points, called a "no-brainer" by President Christine Lagarde, while UK monthly GDP beat the 0.0% consensus with 0.4% growth ahead of the October 28 budget.
Three central bank decisions this week carry lose-lose risk for policymakers. The Fed meets Wednesday with markets pricing an above-80% hike probability: validating it risks overtightening rate-sensitive sectors like housing, while holding risks unanchoring inflation expectations and steepening long-end yields. The Bank of England must weigh weak UK growth against energy-driven inflation risk, the Bank of Japan continues its cautious exit from yield-curve control, and he flags widening credit spreads as the technical risk to watch if elevated yields and input costs persist.
Blowout August payrolls pushed markets to price in a Fed hike, even as the White House pressed for cuts. Nonfarm payrolls rose 162,000, triple consensus, with unemployment steady at 4.1%, hourly earnings up 0.3% in July, and participation rebounding to 61.6%; by Friday markets put September hike odds near 60%, arriving the same week the President and Vice President publicly called on the Fed to cut.
A global sovereign bond selloff pushed US yields to multi-year highs and renewed doubts about who still wants to hold Treasuries. The 10-year topped 4.80% and the 30-year approached 5.30% before closing the week at 4.78% and 5.24%, hitting the UK hard, while reports that Norway's sovereign wealth fund is weighing a reduction in its holdings added to a growing list of reluctant buyers alongside China, Japan and the GCC.
The week ahead centers on US CPI/PPI as the last major input before the September 15-16 FOMC meeting, kicking off a dense central bank cycle. Consensus looks for August core CPI at 0.2% MoM (2.4% YoY, down from 2.5%) and headline at 0.4% MoM (3.4% YoY), with PPI expected to rebound above 5.3%; the Fed meeting is followed by ECB, Bank of England (Sept 17) and Bank of Japan (Sept 18) decisions.
Fed Chair Warsh's debut Jackson Hole address read as hawkish, driving up rate-hike odds. Markets pushed the implied probability of a September Fed hike from roughly 40% to 60% after Warsh's comprehensive remarks on both structural dynamics and near-term policy, even as domestic data stayed mixed — solid labor and in-line core PCE against softening regional manufacturing and consumer confidence.
Japan's record foreign-exchange intervention did little to hold the yen, which drifted back toward the authorities' intervention zone. Japan's Ministry of Finance disclosed a record $96 billion in FX intervention for the month through August 24, likely funded partly by US securities sales, while the yen weakened back to 160 per dollar; separately, the US Treasury said its own bond-market actions aim to fix illiquidity rather than manipulate yields.
The week ahead turns on Friday's US jobs report, seen as a swing factor for Fed pricing. Consensus expects August nonfarm payrolls to rebound to +53,000 after July's 23,000 contraction, with unemployment steady at 4.1% and wages up 0.3%; a downside miss would revive growth fears while a hot print would trigger a hawkish repricing at the short end.
US national debt crossing $40 trillion, doubling in just a decade, is forcing the Treasury toward an uneasy set of choices. The debt-servicing burden rose 15% this year alone with interest already consuming 20% of tax revenue; a doubled long-bond buyback briefly lowered yields before markets dismissed it as a "band-aid," and Bessent signaled further intervention tools plus unspecified fiscal consolidation ahead.
The Canada-US trade breakdown and Middle East tensions pushed investors toward gold and Bitcoin as alternative stores of value. Washington's 50% tariffs on Canada prompted retaliation threats, while stalled US-Iran talks and Israeli strikes on Lebanon kept Brent at $94 and WTI at $86; gold surged above $4,600/oz and Bitcoin jumped 22% to $77,200.
The week ahead hinges on Fed Chair Warsh's Jackson Hole address and Nvidia's earnings as tests of Fed reaction-function clarity and AI-boom durability. Warsh is expected to address his "reaction function" and potential reforms to Fed operations including the dot plot and meeting cadence, while investors look to Nvidia to validate enthusiasm for AI following a week of mixed retail earnings from Lowe's, Target and Walmart.
Equities hit record highs even as bond yields stayed stubbornly elevated, deepening a divergence between "soft landing" optimism and funding-market strain. A 30-year US Treasury auction priced at 5.216%, the highest yield at issuance since 2001, reflecting a collision between massive government deficit financing and corporate capex needs, even as strong earnings pushed some equity indices to new records.
Softer US data cut September rate-hike odds to about 30%, even as the yen slid back toward intervention territory and oil rose on Middle East risk. Weaker-than-expected CPI, PPI, retail sales and University of Michigan sentiment drove the repricing, while fading Japan-US intervention effects let the yen depreciate again and reports of an Iranian attack on a UAE tanker plus a deadly Israeli strike on Lebanon lifted oil's geopolitical premium.
The week ahead is a placeholder before Jackson Hole, with July 28-29 FOMC minutes and retail earnings from Home Depot, Target and Walmart as the main data points. He flagged levels to watch — 160 yen per dollar, $90 Brent, 4.70% on the US 10-year, $4,500 gold and 100 on the DXY — while awaiting Chair Warsh's anticipated remarks at the Kansas City Fed's Jackson Hole symposium the following week.
A surprise 23,000 drop in July payrolls cut September hike odds from roughly 60% to 40%, even as equities and tech rallied. Muted wage growth and strong productivity reinforced the softer read, while earnings commentary from McDonald's pointed to spending fatigue among lower-income households who have exhausted pandemic-era savings buffers.
Alphabet's four-times-oversubscribed $25 billion bond sale underscored how central debt markets have become to funding the AI build-out, alongside a shifting Fed communication regime. The 10-tranche offering came as strong tech earnings suggested the worst of a prior technical deleveraging episode had passed, while Treasury Secretary Bessent said the recent joint US-Japan yen intervention was aimed at broader Asian currency stability and signaling strategic partnership, not just supporting the yen.
The week ahead turns on US CPI and PPI as the next test of whether the Fed can stay on hold in September. Consensus looks for headline CPI to ease to 3.4% YoY (0.1% MoM) and core to 2.5% YoY (0.2% MoM), with PPI cooling to 4.9% headline and 4.1% core; a soft print would validate a hold while an upside surprise would revive rate-hike bets just as heavy Treasury issuance looms.
A historic multi-country FX intervention pulled the yen back from a multi-decade low of 164 to 157 per dollar, but bond yields kept climbing for structural reasons. Japan spent over $50 billion, joined by more than $10 billion in US intervention and unspecified Korean action, even as the 10-year Treasury closed at 4.73% and the 30-year at 5.27% — a rise he attributes to real rates and heavy capex/deficit financing demand rather than new Fed Chair Warsh's communication style.
Tech-sector deleveraging and hawkish FOMC dissents highlighted growing strain beneath resilient headline data. South Korea's Kospi fell 17% over three days before surging 18%, the leveraged fund Situational Awareness reported a 46% July loss, and markets focused on the three FOMC dissenters favoring an immediate hike, including Cleveland Fed's Hammack, who argued inflation is now demand- rather than supply-driven.
The week ahead centers on Friday's US jobs report just after reports of planned US-Israel strikes on Iran were called off. Consensus expects July payrolls of 85,000, unemployment at 4.2%, wage growth of 3.5% YoY and participation at 61.6%, while President Trump's weekend statement halting the strikes averted a feared new spike in oil prices.
Red Sea and Strait of Hormuz disruptions pushed Brent above $100 a barrel, complicating central banks' "last mile" inflation fight just as new US tariffs added trade friction. Brent eased to close the week at $97, but rising energy, insurance and freight costs threaten fresh inflationary pressure, while new 10-12.5% US tariffs — with extra levies on Brazil and Canada — replace those phased out after a Supreme Court ruling, raising USMCA and retaliation questions.
Heavy tech capex-driven debt issuance pushed borrowing costs to multi-decade extremes across currencies and bonds. The US 10-year closed at 4.68%, Germany's at 3.15% and the UK's at 5.03% (each briefly higher intraweek), the yen touched a 40-year low of 164 per dollar, and Japanese government bond yields hit 31-year highs, with the pressure on equities hitting the Nasdaq hardest.
The week ahead centers on the Fed's July 28-29 meeting, where markets price roughly a 40% hike probability, alongside BOJ and BOE decisions and mega-cap tech earnings. He expects the Fed to hold while closely monitoring inflation; consensus looks for PCE headline inflation to ease to 3.7% YoY and core to 3.1%, while Amazon, Apple, Meta and Microsoft face scrutiny over returns on their AI capital spending.
Escalating US-Iran tensions pushed Brent toward $90 a barrel just as new Fed Chair Warsh's first Congressional testimony coincided with softer June CPI and PPI data. He read the testimony as well received and substantive, but a further weekend escalation threatens the market assumption that such skirmishes stay contained, with a fresh energy-price surge unwelcome for central banks nearing what they hope is inflation's "last mile."
Tech-sector deleveraging that began in South Korea spread across markets, flipping the dynamic so that price action now drives the narrative rather than the reverse. Highly leveraged pooled vehicles acted as a catalyst for the wobble, and SpaceX's stock extended its post-IPO decline to end the week below its issuance price, feeding a shift from investor exuberance toward "show-me-the-money" skepticism over AI capex.
Global growth divergence widened, with the US economy staying resilient while Europe and China softened. Eurozone industrial production for May came in worse than expected, and China's annual growth slowed to 4.2% in the second quarter from 5.0% in the first, with consumption and non-state investment both flashing weak.
The Fed's minutes, Congressional report and new task-force announcement all pointed to an institution being reinvigorated under Chair Warsh. The task forces' broad, respected membership should ease both internal and external buy-in for reforms, even as Amazon's new debt issue saw a lackluster opening — a signal, alongside a wild week for Korean tech names, that funding conditions for the sector may be tightening.
China's inflation data showed a widening gap between consumer and producer prices even as Korean chipmaker Hynix's US listing surged. Annual CPI came in at 1.0% while PPI rose over 4% (though PPI fell 0.3% on the month), underscoring deflationary domestic pressure, while Hynix jumped 13% on its US trading debut after raising $26 billion, fueling speculation more Korean firms will follow.
The week ahead tests whether the disinflation trend holds via US CPI, PPI and retail sales without signaling a deeper slowdown. Consensus looks for headline CPI at 3.8% (down from 4.2%) and core at 2.9% (unchanged), softer PPI across most measures, and retail sales moderating to 0.3% from May's 0.9%, alongside a heavy bank earnings slate led by JPMorgan, Bank of America and Citigroup.
June payrolls rose just 57,000, about half consensus, with unemployment falling to 4.2% only because labor force participation slipped to 61.5%. Combined with downward revisions to the prior two months and solid earnings growth, he reads this as a supply-side-driven labor market, a mix that helped cool rate-hike fears for the year.
Fed Chair Warsh's move away from forward guidance appears to be catalyzing a similar shift at other central banks, even as the Supreme Court left the Fed's independence questions unresolved. ECB President Lagarde described her own institution's pivot from "forward guidance" to "framework guidance," while the Supreme Court's narrow "procedural judgment" preserved Lisa Cook's Fed seat without resolving the underlying issues.
The week ahead brings the first partial look inside the FOMC under Chair Warsh via the June 16-17 meeting minutes. Warsh's opt-out from the dot plot underscores his communication reforms, and the minutes should reveal the balance between members worried about sticky inflation and those focused on labor-market vulnerability, while the UK's OBR fiscal report lands ahead of the new prime minister's appointment this month.
Oil's sharp reversal from the Iran War shock lowered borrowing costs and gave a boost to lower-income households, even as tech stocks fell on technical rather than fundamental pressures. He attributes the tech pullback to crowded positioning, quarter-end rebalancing and tax-loss harvesting rather than weaker earnings power or AI productivity tailwinds, which he says remain robust.
May's PCE inflation data, in line with or softer than consensus, split Fed-outlook views sharply — he sees peak inflation for the cycle while Bank of America predicts three hikes this year. The disagreement comes as new Fed Chair Warsh launches task forces to investigate five areas of institutional slippage, with officials themselves yet to converge on a unified view.
A weekend escalation — the US bombing Iran after Tehran struck a ship in the Strait of Hormuz, followed by a second attack Saturday — tests whether markets can keep sidelining the Iran War's economic effects. Attention otherwise shifts to Thursday's US jobs report, where consensus looks for 115,000 new jobs, 0.3% monthly wage growth and unemployment unchanged at 4.3%.
A US-Iran memorandum of understanding briefly pushed oil down and stocks to record highs, before Iran's Saturday threat to close the Strait of Hormuz over Israeli strikes on Lebanon reopened the risk. Gasoline fell below $4 a gallon nationally for the first time in over three months, even as tentative talks continue in Switzerland with Vice President Vance leading the US team and tankers still exiting the Strait.
The Fed's unanimous 12-0 hold masked a deeper split: new Chair Warsh's reform-minded debut against a committee dot plot that turned more hawkish. Warsh declined to submit "dots" and unveiled five reform task forces, but the rest of the committee raised its median inflation forecast and showed nine of eighteen officials projecting at least one hike this year, triggering a hawkish market reaction he believes misreads the new Fed through an outdated Powell-era lens.
The UK's fiscal position deteriorated sharply just as a change in Labour leadership looms. May's monthly deficit hit £23.3 billion, well above both consensus (£18.9bn) and OBR forecasts (£17.7bn), driven by record £11.7 billion in debt-servicing costs, arriving as Andy Burnham appears set to replace Keir Starmer as prime minister.
SpaceX's record $75 billion IPO at a $1.8 trillion valuation overshadowed the week's macro news, instantly making it the seventh most valuable US company. The offering, nearly three times the previous largest IPO, made Elon Musk a trillionaire and minted roughly 4,400 millionaires among current and former employees, despite the company generating no profits and carrying significant key-person risk.
Hot headline inflation prints contrasted with cooler core readings, yet the ECB hiked rates anyway — its first increase since 2023. US headline PPI came in hot at 6.5% for May while core cooled to 4.9%, and CPI posted its first 4% handle (4.2%) in three years even as core eased to 2.8%; he notes the pass-through to core has consistently undershot forecasts.
The week ahead brings a wave of central bank decisions, led by an unusual Fed meeting where new Chair Warsh runs his first session with predecessor Powell still on the committee. Markets have abandoned hopes for 2026 rate cuts and are now pricing a possible hike by year-end, with the Bank of England, Swiss National Bank, Bank of Japan and Reserve Bank of Australia also deciding this week.
A blowout May jobs report — 172,000 versus a consensus 80,000 — triggered a rate repricing that drove the Nasdaq's steepest single-day drop, 4%, in over a year. Unemployment held at 4.3% and wage growth cooled to 3.4% annually, but the beat pushed yields above 4.50% on the 10-year and led markets to fully price in a Fed rate hike this year, unwinding stretched AI-driven tech valuations.
He frames the moment as a "universal inflation hit but not universal growth hit," with US resilience increasingly strained by eroding buffers. The US labor market and AI-related investment keep it the clear outperformer among advanced economies, but he sees the gap between households', governments', corporations' and investors' willingness and ability to keep spending narrowing as financial and energy cushions decline.
The week ahead centers on US CPI and PPI data landing just before the June 16-17 FOMC meeting. Consensus expects headline CPI at 4.2% annually (0.5% monthly) and core at 2.9% (0.3% monthly), with PPI seen at 6.4% headline and 5.4% core — figures he says are unlikely to reassure Fed officials.
Risk assets hit new records on hopes for a US-Iran deal even as fighting continued and Israel intensified attacks on Lebanon. The Nasdaq reached a 16.1% YTD return, the S&P 500 10.7%, and Japan's Nikkei surged 31.8% YTD in a single month, while the DXY stayed range-bound — a rally he calls equity-specific rather than dollar-driven.
A widening growth divergence saw the US economy revised down while Canada and France slipped into contraction. Q1 US GDP growth was revised to 1.6% (domestic demand held at 2.4%), Canada entered a technical recession on a 0.1% annualized Q1 contraction, and France also contracted, even as booming US equities masked a widening Main Street-Wall Street gap of declining labor income shares and softening consumer sentiment.
US PCE inflation marked 62 consecutive months above the Fed's target just as leadership transitions from Powell to incoming Chair Warsh, who inherits a divided FOMC. Headline PCE climbed to 3.8% and core to 3.3%, with sticky New York Fed inflation expectations compounding a policy challenge further constrained by US government debt near 100% of GDP.
Markets absorbed a sharp hawkish repricing — from two expected 2026 Fed cuts to a year-end hike — without the usual tantrum, buoyed by AI optimism and strong earnings. Fed minutes showed more inflation concern than April's press conference suggested, yet equities, credit spreads and yields all improved, reflecting a "higher-for-longer" recalibration of inflation, rates and deficits that investors largely shrugged off.
The Main Street-Wall Street divide widened as record-low consumer confidence contrasted with solid hard data and a blowout Nvidia quarter. Nvidia reported $81.6 billion in fiscal Q1 revenue, up 85% year-over-year, alongside a 25-fold dividend increase and an $80 billion buyback, even as household inflation expectations rose and "soft" sentiment data diverged further from resilient production and jobless-claims figures.
The week ahead centers on newly sworn-in Fed Chair Warsh's reform-oriented debut and the fragile Strait of Hormuz negotiations, with US PCE data as the key release. Consensus looks for headline PCE at 3.8% annually (0.5% monthly) and core at 3.3% (0.3% monthly), while Warsh secured supportive words from President Trump on Fed independence at his swearing-in.
A synchronized global bond selloff pushed UK 30-year gilt yields above 5.80% — their highest since 1998 — and Japan's 30-year past 4% for the first time since 1999. He attributes this to a surge in oil (Brent $109, WTI $105), hotter-than-expected CPI/PPI in several countries, and stalled progress reopening the Strait of Hormuz, with currencies in both countries weakening despite the higher yields and Japan's intervention threat.
US inflation accelerated sharply — CPI to 3.8% annually, outpacing wages, and PPI three times hotter than consensus — just as the Senate confirmed Kevin Warsh as the 17th Fed chair. Warsh succeeds Powell, who unusually remains on the Board, inheriting a central bank that has run above its 2% inflation target for over five years alongside mounting political pressure and reform needs.
He flags the UK and Japan as the biggest sovereign-contamination risks to equities, given the size and high-beta nature of their bond selloffs and eroded policy buffers. The week ahead centers on whether structurally higher rates finally weigh on equity valuations and credit spreads, with Nvidia's earnings serving as a key test of whether AI tailwinds can keep offsetting the macro headwinds.
Equities hit fresh records — the S&P's sixth straight weekly gain to 7,398.93, the Nasdaq to 26,247.08 — even as the Strait of Hormuz blockade entered a critical four-to-eight-week window risking spreading shortages across Africa and Asia. US gasoline topped $4.50 a gallon and diesel neared record highs even as consumer sentiment hit another record low, widening the gap between capital markets and households.
Central banks turned firmly hawkish, with the Reserve Bank of Australia and Norway both hiking on sticky inflation while markets pushed Fed rate-cut expectations far into next year. This came alongside growing reassessment of outgoing Chair Powell's legacy, weighing his defense of institutional independence against missed opportunities on inflation, communication and policy-framework reform.
The week ahead pairs a high-stakes US CPI/PPI release with the US-China Summit and a Congressional vote on Kevin Warsh's Fed nomination. Consensus expects headline CPI at 3.7% and core at 2.7%, with PPI at 4.8% and 4.3%, while material breakthroughs from the Summit look limited and UK political turmoil deepens after Labour's poor local-election showing.
PCE inflation jumped 0.7% in a single month, the largest gain since the June 2022 peak, as markets shifted from pricing three Fed cuts at the start of the year to none for all of 2026. The same week, Chair Powell announced at what is likely his last FOMC press conference that he intends to stay on the Fed's Board once his term as Chair ends and Kevin Warsh takes over.
Extraordinary oil volatility — a 48-hour swing between $110 and $126 a barrel — coincided with the UAE's surprise announcement that it will leave OPEC and OPEC's own decision to hike production. Equities largely sidelined the turmoil, with the S&P and Nasdaq posting April's biggest monthly gains since 2020, up 10% and 15% respectively, on strong earnings and AI's productivity promise.
The week ahead centers on Friday's US jobs report, expected to show a sharp slowdown after March's blockbuster print. Consensus looks for just 62,000 new jobs versus March's 178,000, with unemployment steady at 4.3% and annual wage growth rising to 3.8%, while the Strait of Hormuz and a possible Red Sea disruption from the Houthis remain key geopolitical risks.
Equity markets surged — the Nasdaq's 13-day winning streak was its longest since 2013 — on hopes Middle East ceasefires would hold, before Iran restored a full Strait of Hormuz blockade and Israel resumed bombing Lebanon over the weekend. The rally, fueled by confidence-building US-Iran measures and President Trump's "verbal interventions," now confronts renewed war uncertainty just as it entered the new week.
The IMF, in a rare move, dropped its "baseline scenario" for a less certain "reference scenario," warning that the war is deepening stagnant growth, ballooning debt and widening inequality. That somber Spring Meetings mood (with the US a notable outlier) contrasted with market euphoria, and came the same week the UK placed its largest-ever gilt issuance, £15 billion, at a 20-year high yield of 4.92%.
The week ahead brings the start of Senate Banking Committee review of Kevin Warsh's Fed chair nomination, complicated by a disclosure of $100 million in unspecified holdings tied to NDA restrictions. The path to a floor vote is further clouded by Senator Tillis's hold, linked to the DOJ's investigation of Chair Powell and the Supreme Court's consideration of Trump's attempt to fire Fed Governor Cook.
A historic threat from Trump to Iran gave way to US-Iran ceasefire-extension talks in Pakistan, even as March US CPI tripled to 0.9% monthly (3.3% annual) on war-driven energy costs. Core inflation stayed contained at 0.3% monthly and 2.6% annual, suggesting no broader spillover yet, while Saudi Arabia reported losing 600,000 barrels a day of production capacity and a further 700,000 bpd foregone to pipeline damage.
US consumer confidence hit a record low even as the country's stagflation risk remains milder than elsewhere. The University of Michigan's current-conditions gauge fell to a record 50.1 and expectations to their lowest since 1980, with one-year inflation expectations surging to 4.8%, while he notes several European countries saw energy-price protests and some developing nations face outright shortages.
The week ahead centers on follow-up US-Iran talks in Pakistan, which face seven unresolved issues beyond the Strait of Hormuz and Israel's attacks on Lebanon. Early Sunday signals pointed to no agreement, as the IMF's Spring Meetings prepare to present three scenarios that Managing Director Georgieva said would all show lower growth and higher inflation.
President Trump's ultimatum giving Iran two days to reopen the Strait of Hormuz "or all hell will reign down," followed by a warning that power plants and bridges are likely targets, threatens to widen the war entering its sixth week. Israel's expanding attacks on Lebanon add further complexity, even as an orderly end to the conflict looks increasingly hard to engineer under current conditions.
Some G7 members are fracturing from within, with France and Canada calling for a "middle powers bloc" and the UK being pushed toward it. He distinguishes this from past BRICS-led challenges to Western economic power, framing it as a shift occurring inside the G7 itself in response to the US-Israeli conduct of the war.
The US labor market showed a split personality — a blockbuster 178,000 March payrolls report and unemployment falling to 4.3%, alongside weakening labor supply. Participation dipped to 61.9% (missing the 62.1% forecast) and JOLTS hiring cooled to a six-year low, even as consensus expects Wednesday's CPI to jump to a 0.9% monthly pace, pushing the annual rate above 3% on war-driven costs.
US stocks logged a fifth straight week of losses, the longest streak since 2022, pushing major indices into correction territory as three challenged Treasury auctions compounded one of the 60/40 portfolio's worst monthly declines since 2022. The trigger was a fresh tipping point in the US-Israeli war on Iran; unlike an earlier calming post from Trump, his Thursday statement extending a strike postponement failed to reassure markets.
Markets began pricing rate hikes for the ECB and Bank of England — briefly even the Fed on Friday morning — as the OECD issued the first multilateral quantitative assessment of the war's stagflationary toll. The OECD raised its 2026 G20 headline inflation forecast by 1.2 percentage points and lifted its US projection to 4.2%, the highest among G7 economies, even while still calling growth "resilient."
Houthi involvement over the weekend threatened Red Sea shipping just as supply chains had rerouted around the Strait of Hormuz, risking a new tipping point. He flags rising fears of physical energy shortages, particularly in Asia, as a shift that could broaden the war's economic damage well beyond energy prices into activity, inflation and financial stability.
Qatar sidelined 17% of its LNG capacity for three to five years after an Israeli attack on Iran's South Pars field, prompting the IEA's chief to call the conflict the "greatest threat to global energy in history." This came even as Trump said he had secured a promise from Prime Minister Netanyahu not to repeat strikes on Iran's energy fields, a promise hostilities on both sides did not bear out.
Fed Chair Powell's press conference overshadowed a "meh" policy statement, with Powell saying he won't leave the Board until the DOJ investigation concludes and may stay on even after his term as Chair ends. Treasury Secretary Bessent called the move "outside of historic norms," while the Reserve Bank of Australia broke ranks with a 25-basis-point hike he reads as a leading indicator for the ECB and Bank of England.
A "dash to cash" hit every asset class: US equities logged a fourth straight losing week, with the Nasdaq down 6.9% year-to-date, gold fell below $4,500, and Brent closed at $112. The 20-day correlation between oil prices and equity losses surged to 0.89, and yield curves bear-flattened as traders pushed Fed rate-cut expectations into 2027 while pricing 2026 hikes for the BOE and ECB.
The US attacked and "totally obliterated" military installations on Kharg Island, Iran's primary oil export hub, prompting an Iranian warning that regional oil and energy facilities would be "reduced to ashes." This shift toward targeting energy infrastructure risks broadening the war's economic damage beyond higher energy prices into wider inflation, lower growth, higher unemployment and systemic financial instability.
China's exports surged 21.8% in January-February, triple consensus, producing a record $214 billion trade surplus even as US growth data disappointed. US Q4 GDP growth was revised down sharply to 0.7% from 1.4% and core PCE stayed stuck at 3.1% for a sixth straight year above target, while he warns China's export surge risks "market indigestion" in Europe.
The week ahead brings a G7 emergency meeting of finance ministers and central bank governors, called by France, alongside policy decisions from eight G10 economies plus Australia and China. He expects the war's trajectory, not the packed central bank calendar, to remain the dominant driver for markets, with most banks expected to hold while the Reserve Bank of Australia may again be the exception.
A war-driven stagflationary shock spread to twelve countries as Kuwait, and similar signals from Qatar and the UAE, cut oil and refinery output over Strait of Hormuz disruptions. Brent posted its second-largest weekly increase on record and WTI its largest, even as US stocks sold off despite two "buy the dip" attempts and Asian markets, especially South Korea, saw the most extreme volatility.
A surprise 92,000 US jobs loss in February pushed unemployment to 4.4%, even as wages beat consensus, while China faces losing its second major discounted oil source just as Beijing cut its 2026 growth target to a range of 4.5-5.0%. That target, the lowest since 1991, reflects mounting internal and external headwinds he says may still prove overly ambitious without a major policy push.
His tentative projection is that the energy shock could pull UK annual GDP growth below 1% while pushing inflation from a path toward 2% up to 3% for the year. This comes ahead of a heavy US data week — CPI, PPI and PCE — landing just before the Fed's blackout period protecting its March 17-18 policy meeting.
Joint US-Israel strikes on Iran after Friday's close triggered retaliatory strikes across five of six Gulf states plus Jordan and Iraq, disrupting the Strait of Hormuz and regional air traffic. The US 10-year Treasury yield closed below 4.0% heading into the weekend, reflecting both the geopolitical shock and separate anxieties over the labor market and private credit.
January's producer prices came in hot — core PPI jumped 0.8% monthly, pushing the annual rate to 3.6%, well above the 3.0% consensus — reinforcing that the inflation fight's "last mile" remains tricky. Consumer confidence nonetheless beat expectations at 91.2 versus a forecast 86.6, entirely on stronger "expectations" sentiment, even as inflation expectations stayed sticky at 4.4%.
He frames the strikes' economic fallout around three risks: a supply-chain "double hit," muted relief from OPEC+, and a fresh stagflationary shock. Spiking insurance premiums and rerouted shipping and air traffic compound the disruption, while OPEC+'s preliminary 206,000-barrel-a-day April production increase does little to offset transit-capacity constraints.
The Supreme Court's 6-3 ruling that the Trump administration exceeded its authority on IEEPA tariffs invalidated an estimated $130-160 billion in revenue, but the administration immediately pivoted to alternative authorities. It imposed a 10% global tariff that was hiked to 15% within days, with Treasury Secretary Bessent saying he expects to fully recoup the lost revenue within the calendar year.
Disappointing Q4 GDP of 1.4% (missing a 2.8% consensus) and hotter-than-expected core PCE at 3.0% overshadowed earlier data beats. Fed minutes showed an unusually wide range of FOMC views and a "two-sided" tilt that keeps rate hikes on the table, tensions the administration further amplified through public friction with Fed officials over building-renovation costs.
Private credit strains resurfaced as Blue Owl restricted withdrawals and conducted sizeable secondary sales, triggering minor sector contagion. He sees this as reflecting excessive private credit levels in advanced economies likely to bring "market for lemons" repercussions, but not a systemic risk on the scale of the 2007-08 crisis.
Markets defied the usual "Goldilocks" playbook — stronger jobs and softer CPI still triggered a stock selloff and falling yields. He attributes this to sentiment shifting from AI's "limitless potential" narrative toward "Anti-AI" worries over which sectors will be disrupted before they can adapt, a bottom-up reassessment now outweighing top-down macro comfort.
Both flagship US data points carried caveats that undercut their headline strength. BLS downward revisions to 2025 jobs data clouded the sustainability of January's 130,000 beat, while sticky goods inflation beneath the CPI headline suggests a trickier disinflation path, and the implied odds of a June Fed cut swung from 70% to below 50% and back to roughly 55% within the week.
The week ahead brings a concentrated UK data slate — wages, jobs, inflation and retail sales — following hotter-than-consensus recent prints. November unemployment came in at 5.1% and December inflation at 3.4% (up from 3.2%), both above forecast, while markets separately await a Supreme Court tariff ruling and a possible update on Fed Governor Lisa Cook.
A technical deleveraging in speculative assets — silver down 50% from its January high, Bitcoin off 25% in a week — was mostly reversed by a Friday "buy the dip" surge. The rebound pushed the Dow above 50,000 for the first time, averting what he calls a more disorderly unwind.
Central banks began breaking from lockstep policy: the Reserve Bank of Australia hiked 25 basis points while the ECB held and the Bank of England held on a narrow 5-4 vote signaling a possible April cut. This came as delayed US labor data — Challenger layoffs, jobless claims and JOLTS — pointed to genuine softening in the "low hire, low fire" market and pushed implied June rate-cut odds to 60%.
Alphabet and Amazon alone plan roughly $400 billion in combined capex this year, a scale he says raises real questions about payoff and funding. He flags whether the spending will prove profitable and whether bond markets have the appetite to keep financing it amid widening spreads and strain in the leveraged loan market.
The Weekly Look Ahead at the Global Economy and Markets
Trump nominated Kevin Warsh as the next Fed chair on Friday, right after a January FOMC hold that saw two dissents — Governors Waller and Miran — favor a 25-basis-point cut. Warsh's confirmation timeline remains uncertain, clouded by Senate resistance tied to the unresolved DOJ investigation into current Chair Powell.
Global trade realignment advanced on two fronts, with the EU striking what it called "the mother of all trade deals" with India while the UK pursued closer China ties Trump called "a very bad idea." This came as Brent oil topped $70 a barrel midweek on rising US-Iran tensions and the dollar swung on yen-intervention rumors before rebounding on the Warsh news.
The week ahead centers on Friday's January jobs report, with consensus at just 40,000 new jobs and unemployment at 4.5%, amid signs of central bank policy divergence. The Reserve Bank of Australia is expected to buck holds from the ECB and Bank of England with a hike, underscoring what he calls an emerging theme after years of synchronized global policy moves.
President Trump escalated geo-economic tensions by threatening Canada with 100% tariffs should Ottawa finalize a trade deal with China, a sharp break in a historically close relationship. The threat landed the same week Canadian Prime Minister Carney argued at Davos that global paradigms are shifting in a durable way, not simply reversible tremors.
Fed chair succession odds shifted sharply as BlackRock's Rick Rieder surged to a 50% implied probability on Polymarket, no longer a simple race between "the two Kevins" — Warsh and Hassett. This came amid strong US data (Q3 growth revised to 4.4%, PCE in line at 2.8%) and a historic precious-metals surge — silver topped $100 an ounce, gold reached $4,900 — that left markets pricing out any Fed cut until the change in chair.
The week ahead centers on the FOMC meeting and Powell's first press conference since his defiant video statement accusing the administration of using a DOJ probe to pressure Fed policy. A rate hold is universally expected, so he says the real focus is on the statement language and how Powell addresses the independence dispute in the Q&A.
The DOJ's grand jury subpoena of Chair Powell over Fed building-renovation costs triggered a defiant video response calling it political interference, yet markets barely reacted. US stocks hit new record highs and investment-grade credit spreads compressed to their lowest since 2007, with realized volatility in Treasuries and the dollar staying notably low despite the institutional confrontation.
China posted a $1.2 trillion trade surplus for the year, successfully offsetting a 20% drop in shipments to the US by redirecting exports elsewhere. Commodities otherwise dominated price action, with gold, silver and copper all hitting new record highs while Bitcoin traded near $95,000.
The week ahead brings a new 10% "Greenland" tariff on eight European nations — Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands and Finland — meant to incentivize a deal for the purchase of Greenland. This lands alongside a possible Fed chair nomination announcement and a heavy Davos speaking schedule themed "The Spirit of Dialogue."
US corporations raised more than $95 billion from 55 investment-grade bond deals in the first full week of January, the highest weekly volume since May 2020 and the busiest start to a year on record. The surge came as the S&P 500 hit a fresh record high, gold hovered near its own peak, and the dollar touched one-month highs, with capital markets largely shrugging off the geo-economic backdrop.
Newly resumed labor data pointed to a widening decoupling between employment and growth. Job creation missed consensus even as the unemployment rate fell more than expected and hourly earnings stayed in line, while the Atlanta Fed's GDPNow model pointed to growth running above a 5.4% pace.
Rising Iranian political protests, layered on continued disruptions to Russian and Venezuelan supply, threaten a major oil source for China. The week ahead will test this alongside key US CPI/PPI data expected to show whether inflation remains consistent with Powell's "well-positioned," patient stance — November's readings stood at 2.7% headline and 2.6% core annually.