Last week : Strong earnings led to new records ; soft US July NFP pushed Yields lower ; Oil much lower ; Gold much higher
WEEKLY TRENDS
Last week, Q2 earnings from Palantir (+93% revenues, +225% net income, stock ending the week at +35%) and the likes (Microsoft, Nvidia), added to a surprising soft US July NFP job report, pushed stock indices to new record highs (US and EU). The July US Non-Farm Payrolls showed an unexpected job destruction (-23k) mostly in Retail, Leisure and in Government sectors, that eased the FED hike expectations for September (from 55% probability down to 40% only).
Consequently, Bond yields came off across the board (-10bps). Oil fell significantly (the WTI ended the week at -7.5%) on an imminent US-Iran accord over the Hormuz Strait, while Gold largely benefitted from lower Bond yields (ended the week at +7%). Bitcoin and Private Equity index rallied on this Risk-On appetite mood.
NB the CB’s 2 day JPY intervention ($85bn) was the second largest in history after 2011 Fukushima’s. Next week, we shall have the US July CPI to be released on Wed, and PPI on Thursday. More earnings releases as well, with CoreWeave, Tencent, Cisco to name just a few.
MARKETS
Equities
Q2 earnings weekly performances :
Palantir (+35%) AMD (+4%) Eli Lilly (+2%) Sandisk (+4%)
Novo Nordisk (+2%) Siemens AG (-1%) WPP (+37%) Lufthansa (-7%)
NB :
Vallourec (-11% on MS review) Western Digital (-20% on outlook)
Authors : Johan Palmberg, Senior Quantitative Analyst
Gold finished July practically where it started, at US$4,027/oz, having tested the US$4,000 level on several occasions during the month. It is down 8% y-t-d. Our monthly Gold Returns Attribution Model (GRAM) attributes the performance in July largely to positive momentum factors.
Sharp falls in gold prices are often reversed in a subsequent period. Countering momentum was a fall in risk factors including breakeven inflation and implied volatility. Rising yields (opportunity cost IR) were somewhat cancelled out by a falling US dollar (opportunity cost FX). Positive ETF flows supported gold in July, with European funds leading the pack. It is unclear whether regional rotation out of equities or simply just an attractive price point were core drivers.
But it is a welcome development, particularly as European gold investors have historically shunned gold in positive real rate environments and inflows in July arrived against a backdrop of real bund yields at 15-year highs.
Making waves
· A second wave of inflation can’t be ruled out. Though, unlike the 1970s, today’s Fed is likely to react much faster
· Therefore, an inflation resurgence does not automatically imply a major gold rally
· Gold’s reaction will depend on how real rates, the US dollar and growth expectations respond – as well as central bank and Asian investor demand which may only be loosely influenced by US developments.
But will we have a second wave like in the late 1970s? We think not.
The current Fed has shown a fervent distaste for inflation and today's consumer is arguably less able to absorb a sustained rise in prices, with the personal savings rate not far from all-time-lows.
As a result, a renewed inflation surge could produce tighter policy and slower growth rather than a classic 1970s-style inflation breakout.
And, of course, US inflation is no longer the only tune to which gold dances. Central banks and Asian investors have become important drivers of demand and may behave independently of US macro factors.
As we have noted before, gold has performed impressively despite historically restrictive US real rates since 2023 – largely thanks to these two sources of demand.
In summary
The bottom line is that inflation is looking increasingly problematic, but a repeat of the late 1970s still seems highly unlikely even if the Fed has another misstep like in 2022. Tighter policy and slower growth appear the more probable path. That may mean higher yields and some near-term pressure on gold while markets test the Fed's resolve.
But if history is any guide, something eventually breaks: inflation, growth, or both. At that point, longer-dated yields are likely to start moving lower. Together with continued central bank buying and Asian consumer demand, that should prove supportive for gold, albeit without necessarily repeating the outsized gains of 2025.
Wisdom Tree, 6 August 2026
Authors : Aneeka Gupta, Associate Director, Research
John Healey’s appointment to the Treasury is of particular significance. It entrusts a well-known advocate of defence with a key role in the department responsible for determining whether proposed expenditure will actually be funded. Until recently, Healey held the post of Defence Secretary, and his frustration with the Treasury’s caution was widely reported in the media. His message was simple: the UK needed to allocate more resources to its national defence and to its obligations to NATO. This is no longer merely an external demand. It is the view of the newly appointed Chancellor himself.
This change is significant for the markets. Defence sector shares do not react solely to rhetoric. They move when budgets are credible, procurement is funded and the order book is converted into turnover. Healey’s appointment by the new Prime Minister, Andy Burnham, has boosted British defence shares. Babcock International, which builds ships for the Royal Navy and is involved in the management of nuclear, aviation and military vehicle assets, rose by 6.8 per cent. BAE Systems shares gained 3.3 per cent, whilst engine manufacturer Rolls-Royce rose by 1.9 per cent. QinetiQ, a defence technology group spun off from the UK Ministry of Defence in 2001, rose by 4.1%.
Healey’s appointment comes at a time when the defence investment sector is already showing strong momentum. NATO members are under pressure to increase their spending, whilst Europe is strengthening its industrial capabilities. At the same time, the defence sector’s order book remains robust. The NATO summit held in Ankara in July confirmed the acceleration of sovereign defence spending in Europe – a trend that shows no sign of abating. More than $50bn worth of new contracts have been signed, a licence to produce the Patriot system has been granted to Ukraine, and mergers and acquisitions (M&A) activity in the European defence sector has gained fresh momentum. As far as the UK’s defence is concerned, the key point is that Healey is not introducing a new initiative. He is accelerating an initiative that is already in place. The key figure is £15bn in additional funding, whilst the deficit in the defence budget stands at £28bn.
According to the Defence Investment Plan presented by the British Government, the share of GDP allocated to defence is expected to reach 2.7 per cent by the end of the decade. Nearly £300bn will be invested over the next four years, with a particular focus on drones, air defence, long-range strike capabilities, munitions, submarines and the reform of procurement processes. Of this new funding, £64bn is earmarked for nuclear deterrence. Of this amount, £47bn will go towards submarines and the modernisation of the naval bases at Faslane, Devonport and Portsmouth. A total of £11bn is set to be allocated to munitions and weapons, of which nearly £6bn is for conventional munitions alone. The plan confirms the commitment to build six new energy facilities by 2030. Drones and autonomous weapons now account for £5bn, a figure that includes funding allocated to an autonomous navy, centred on the Common Combat Vessel programme. The allocation for the Digital Targeting Web has been increased to nearly £2bn, double the initial amount.
Healey’s appointment could bolster the credibility of the UK defence sector at just the right time. When one considers the structural framework of NATO, the solid track record of results, the now more attractive valuations, the case for investing in defence is now even clearer than it was just a few months ago. Although the political climate appears increasingly favourable, defence spending remains subject to national budgetary priorities, the pace of procurement and political decisions. Announced spending plans are likely to change, and companies’ future financial performance will depend both on the effective execution of contracts and on developments in market conditions as a whole.
DNCA Investments, 9 July 2026
Authors : Pierre Pincemaille, Portfolio Manager
The ECB kicked off the recent series of meetings with a unanimous decision to raise the key interest rate. This decision serves as a reminder that, since its inception, the European institution has always shown a greater aversion to exceeding its 2 per cent inflation target than to periods of inflation falling short of that target. The painful memory of the delayed response to the consequences of the Covid-19 pandemic prompted some members to speak out quickly in favour of pre-emptive rate rises at the start of the crisis. It should be borne in mind, however, that the current macroeconomic situation differs in several respects: a less tight labour market, the absence of a catch-up effect and reduced fiscal room for manoeuvre. More importantly, in the view of the Governing Council members, there is no sign of medium- and long-term inflation expectations becoming unanchored, which limits the risk of second-round effects between prices and wages. Under these circumstances, the further rate rise expected by investors this year appears reasonable.
The Bank of Japan is operating within a very different cycle. After 25 years of deflation, the post-Covid surge in prices has forced it to move away from its ultra-accommodative policy. It is against this backdrop that it recently decided to raise its key interest rates to 1 per cent, their highest level since 1995. The Bank’s observation that oil prices are being passed on rapidly to the rest of the economy suggests that the normalisation of monetary policy will continue. Here too, expectations of a further rate rise this year appear justified.
The new Fed Chair’s current policy stance seems to be dictated more by the trajectory of prices than by that of the labour market. This is probably why he has emphasised the need for the US central bank to restore price stability. As Kevin Warsh is just one voting member among many, the shift in the dot plot is particularly revealing. Following the March meeting, twelve members considered that at least one rate cut would be necessary in 2026, whilst seven argued for the status quo. Three months later, there is just one ‘dove’ left in favour of a cut in key interest rates, compared with nine members who believe that at least one rise would be appropriate. Beyond the monetary markets’ adjustment of their expectations regarding key rate rises, this shift in the Fed’s rhetoric and the abandonment of forward guidance — that is, the monetary policy outlook communicated at the post-FOMC press conference — effectively makes the US central bank more agile, but also less predictable. This is likely to result in increased volatility at the short end of the US yield curve, the segment most sensitive to monetary policy decisions.
Investors were quick to factor in this new situation, pushing the US 2-year yield up by around ten basis points, to over 4.10%, since the Fed’s last meeting. In this ‘bear flattening’ scenario (a rise in yields combined with a flattening of the yield curve), the current slope of the US yield curve does not allow investors to be adequately compensated for taking directional risk at the long end.
Conversely, the decline in long-term inflation expectations – as measured by five-year-in-five-year break-even inflation rates – opens up a window of opportunity. This decline, observed since the signing of the memorandum of understanding between the United States and Iran, is taking place in an environment that remains structurally inflationary, beyond one-off fluctuations in oil prices.
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