Market Summary: August 2026

September economic forecasts were widely negatively revised, though global growth proved more resilient than expected. S&P’s global PMI (Purchasing Manager’s Index) was positive, with the global GDP forecast increasing to 2.4%, which is still below the pre-war estimate of 2.9%. Both the UN and the World Bank expect growth to close the year at 2.5%. 

United States

US GDP came in at 1.5%, below Q1’s 2.1%. Analysts now anticipate full-year growth at 2.0%. ISM’s PMI was reported at 54.6, coming off July’s 4-year high of 55.6, and remaining strongly bullish. Inflation was flagged as the biggest concern, as well as tariff and trade policy uncertainty. 

In the labor market, the BLS (Bureau of Labor Statistics) reported a loss of 23K jobs, as well as a -103K downward revision to the previous two months’ numbers. Consumer confidence also came in lower, at 51.7, reflecting a MoM decline of 6.3%. 

Following Kevin Warsh’s comments, the CME’s FedWatch now puts the probability of a rate hike at greater than 60%, a significant sentiment change from the less than 40% probability of a hike just before the FOMC meeting. 

Equity markets touched new highs early in August, then subsequently corrected, finally closing the month up as proxied by the Vanguard Morningstar’s Total Stock Market ETF rising 2.66% MoM. Earnings were widely positive, with 86% of companies beating estimates. 

Europe

Europe’s flash Composite PMI finished at 52.1, the highest reading since November. Manufacturing PMI was 52.7, a 54-month high, while hiring showed signs of a rebound. Unemployment closed the month at 6.2%, 10-bps below June’s 6.3%. 

European inflation was up 3.3% YoY, a 40-bps increase over July and the highest since September 2023. 

The Bank of England kept rates constant at its July 30 meeting. However, UK CPI rose 2.9%, an increase over June’s 2.6%. UK unemployment was 4.9% in May, while GDP grew 0.8% in April. 

Asia Pacific

China

China’s PMI remains in contraction at 49.8, a 60-bps increase over July’s 49.2. Non-manufacturing PMI was 49, indicating a weakening in wholesale, retail, and capital markets. Exports were up 24% YoY, with AI semiconductors and EV driving expansion. Q2 GDP was below expectations at 4.3%. 

Japan

The Tankan survey of business sentiment was the highest it’s been since 1991 at 18, as exports benefited from the weak yen. Inflation was down, with June CPI at 1.7%. Analysts anticipate two more rate hikes by year end, settling at 1.5%. 

India

India is the best performing economy in Asia. Q1 GDP growth was 7.8% YoY, outpacing analysts’ estimates of 7.1%. 2027 inflation was revised down to 5.0%, and growth was raised to 6.7%. Energy costs continue to be a drag on the economy; headline inflation was up 4.45% in July. 

Emerging Markets

Like all other markets, the US/Iran war is the principal risk for EMs. Emerging Asia and the Middle East are the two EM’s most at risk from the protracted and uncertain dynamic developing in the Strait of Hormuz, while commodity exporters have generally been benefiting at the expense of oil importers. Inflation is increasing and is weighing on otherwise broadly solid growth. 

Fixed Income

Treasuries performed poorly in August, with yields climbing across the curve, particularly at the long end. The 10-year hit 4.73% on August 28, the 2-year climbed to 4.34%, and the 30-year hit 5.26%. Oil prices, Kevin Warsh, large amounts of corporate debt issuance, and rising US debt all contributed to higher rates. 

Similar to the US, global sovereigns experienced higher yields. JGB’s hit record highs, with the 20 and 30-year bonds yielding over 4.0%, while Gilts in the UK approached 5.85% (highest since 1998), and the German Bund at 3.85%. 

Corporate credit spreads were historically tight, as the high-yield OAS shifted between 275 to 281 bps, below its long run median of 450 bps. Investment grade spreads were 81 bps, with BBBs at 100 bps. 

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