Markets in consolidation mode for now

Bond and equity markets were largely in consolidation mode yesterday having rallied strongly earlier in the week on hopes for a resolution to the situation in the Strait of Hormuz. There has been progress on this front it seems with reports that Iran and Oman have agreed on shipping routes through the Strait, so markets will be awaiting further news/developments, in particular of course the response of the US. In FX, the euro and sterling have been confined to fairly narrow ranges against the dollar over the course of the week. They are trading at around $1.1545 and $1.3460 respectively this morning, little changed from yesterday morning’s levels, leaving EURGBP at around £0.8580.

Government bonds yields were flat to very marginally higher across the main markets, having fallen steadily on Monday-Tuesday. In equity markets, the S&P 500 retreated from Tuesday’s all-time high, ending a touch lower on the day, while European stocks also ended slightly in the red. Meanwhile, Brent crude oil prices are holding steady just below $80 per barrel, some $20 below their most recent peak of $100 p/b just a couple of weeks ago.

Growth in the US services sector remained solid in July judging by the latest ISM survey. The headline index was unchanged from June but was comfortably above the key 50 level (at 54.1), while the Business Activity (output) and New Orders sub-components both registered strong increases on the month. Separately, the ADP report showed private sector employment growth slowed for a second month in a row in July, coming in slightly shy of expectations at +44k (versus the consensus forecast of +65k). Job gains have picked up in 2026 to date relative to 2025,  averaging just over 70k a month in January-July versus +33k a month last year.

Fed Governor Cook says “the risks to the inflation side of the dual mandate (are) higher than the risks to the employment side at this point (and) as such, I am prepared to act by raising rates, if necessary, to bring inflation down.” The market is currently pricing in about a 55% chance of a 25bps rate hike at the Fed’s next meeting in mid-September.

For the day ahead, economic data scheduled for release include retail sales (June) in the Euro area, the construction PMI (July) in the UK, and weekly jobless claims and unit labour costs (Q2) in the US.