• The lull in tensions over Iranian oil driven by Strait of Hormuz negotiations is overshadowed by the resumption of the trade war waged by Washington against Canada and China.
• Economic activity in the US and the Eurozone shows resilience, though tempered by stagnant US consumer spending and a contraction in French services.
• Pressure on the OAT-Bund spread continue to build, fuelled by the budgetary deadlock in France and investor concerns over the economic proposals of the leading presidential candidates.
The actual economic sanctions announced by Scott Bessent against Tehran fell short of the promised shock measures, probably so that Iran's trading partners China and India might apply them. A gradual approach seems to be in favour but the danger is that the situation could get bogged down. Nevertheless, rumours of continued talks via Pakistan or Qatar -and news that Iran and Oman had made progress on plans to manage the Strait of Hormuz- eased pressure on oil prices. These talks involve introducing an Iranian tax on shipping through Hormuz, a measure that goes against Donald Trump’s latest proposal.
The US president has resumed his trade war, this time with Canada which could see $20bn in its exports to the US being taxed at 50% from September 8. Canada riposted with similar measures. Canada’s aluminium and autos will also see an additional 50% tax and Ottawa replied by doubling levies on various US products to 50%. Although Donald Trump is down to meet Xi Jinping at the beginning of September, he is also considering an additional 7.5% levy on Chinese goods which are currently taxed at an estimated 26%.
Elsewhere, Composite PMI in the US came in at 56 in August, or better than the 54 expected. And PCE inflation was stable at 3.7% with 3.3% in underlying inflation so still no signs of energy price tension spreading. But US consumers are being cautious. Real consumption was flat despite a 0.5% increase in disposable income.
Eurozone indicators were also resilient. Composite PMI rose from 52 in July to 52.1 in August when analysts were expecting 51.7. The figures, however, overshadow areas of weakness, particularly in France where soft services led to the indicator falling to 48.8 when expectations were for 49.5.
For political problems essentially, the OAT-Bund spread widened recently to flirt with highs not seen since the French Assembly was dissolved. The 2027 budget is coming up for a vote and there is a risk of deadlock. If by default the 2026 budget is extended, the deficit could worsen by an estimated 0.5%. The 2027 presidential election is already in focus with opinion polls increasingly pointing to a second-round run-off between Marine Le Pen and Jean-Luc Mélenchon. The debate organised by France’s employers’ association failed to dispel the market’s concerns about both candidates. Marine Le Pen’s economic proposals still lacked detail and credibility while her left-wing opponent’s plans to increase taxes, ramp up wages and cancel part of France’s debt were also worrying.
As we believe the looming mid-term elections should favour a diplomatic solution in the Middle East and help ease price pressures, we remain upbeat on fixed income, corporate debt and equities. We had previously hedged equity positions during the summer rally. We continue to be negative on the dollar.
European equities
Equity markets this week were relatively resilient but trading was still very cautious. Intermittent hopes for de-escalation in the Middle East resulted in oil prices falling back but uncertainty still clouded any chance of really reopening the Strait of Hormuz, a possible agreement with Iran and the risk of additional US sanctions.
In company news, the European picture is still varied. Visibility is still good for companies exposed to strategic investment in defence and energy. Exosens, for example, won its first order from the US army as part of an IDIQ contract (Indefinite Delivery/Indefinite Quantity). GTT and Technip Energies announced new contracts in gas and offshore infrastructure. But the energy space still needs to be closely watched. TotalEnergies said that despite sporadic shipping of crude oil through the Strait of Hormuz, the situation for refined products is more complex and the group warned that consumers would be seeing the negative consequences in the future. Europe’s auto industry is still struggling. Pressure on the sector was illustrated by a comment from a Volkswagen executive that the situation was more than critical. And workers are worried about redundancies and possible plant closures. Auto manufactures have to deal with rising Chinese competition, overcapacity and the unpromising global environment. Elsewhere, Pernod Ricard’s results disappointed investors. Trading in the US and China is still very difficult.
US equities
Wall Street mostly gained over the week with the Nasdaq up 1.1%, outperforming the S&P 500 (+0.7%). The Russell 2000 edged 0.1% lower. Markets remained concerned about persistent underlying inflation ahead of the Fed chair’s intervention this Friday at the Jackson Hole symposium.
Tech jumped 3.1% while the SOX semiconductor index advanced by 1.2%. Chip stocks were initially under pressure before Nvidia (+6%) bolstered the outlook for AI investment by reporting quarterly sales of $96.2bn. The group’s finance director also said she expected sales to rise 70% in 2027, or much more than the 45% increase expected by analysts. Salesforce also underpinned the sector. The stock soared 21% on Thursday after the group raised guidance and announced a broader partnership with Anthropic.
Healthcare dipped 1.8% over the period. Eli Lilly fell back from recent highs amid fresh regulatory pressure on drug prices. Boston Scientific was also hit by a cybersecurity incident and by an FDA Class 1 recall for a pacemaker.
Energy (-2.5%) was the week’s big losing sector after Iran and Oman made diplomatic progress on a possible resumption in shipping in the Strait of Hormuz.
Consumer discretionary shed 1.6% on mixed signals on US consumer spending. Abercrombie & Fitch jumped after raising EPS and sales guidance. Dick’s Sporting Goods, in contrast, cut annual sales guidance due to ongoing weakness at Foot Locker.
Emerging markets
The MSCI EM was up 1.68% in USD as of Thursday, led by Korea (+3.35%) and Taiwan (+2.82%) on continued AI optimism after Nvidia’s results. Brazil (+1.28%) and China (+1.04%) also advanced, while India and Mexico ended slightly lower. Overall, AI-driven momentum continued to support North Asia, while investors remained focused on the ongoing earnings season and evolving US–China trade developments ahead of next month’s expected leaders’ meeting.
In China, July industrial profit growth slowed for a third consecutive month to 11.2% YoY, or below expectations. Earnings were mixed: PDD missed second-quarter expectations amid intense domestic competition and tighter overseas tariff policies. WuXi Biologics delivered strong first-half results, with revenue up 18% YoY and net profit up 38% YoY, driven by accelerating order growth. Xiaomi launched its second-generation XRING chip family, further expanding its AI ecosystem. Alibaba raised $10bn in Hong Kong to fund AI investments, while Shein launched its Hong Kong IPO, targeting $1.7bn at a $26bn valuation, or well below the $100bn mooted 4 years ago.
In Taiwan, the TWD reached a two-month high, supported by sustained equity and FX inflows.
In Korea, the Bank of Korea raised rates by 25bp to 3.0% and upgraded its GDP forecasts to 3.3% for 2026 and 2.9% for 2027. SK Telecom agreed to sell a minority stake in its SK Horizon data center business while retaining control, and SK Hynix broke ground on its first US HBM packaging facility.
In India, the RBI’s August bulletin highlighted resilient domestic demand, improving manufacturing and services activity, and stable core inflation. India also lifted its wheat export ban. TCS signed a $1.5bn, five-year AI partnership with Porsche to deploy AI across engineering, manufacturing, operations and customer experience.
Elsewhere, the Bank of Thailand kept rates unchanged at 1.0%, while Brazil’s mid-August CPI eased to 4.24% YoY, or below expectations and within the central bank’s target range.
Corporate debt
Yields on Germany’s 10-year Bund hit a high of 3.28% this week due to rising inflation, persistently high oil prices and the ECB’s more hawkish stance. Investors are waiting to see if Fed chair Kevin Warsh’s Jackson Hole address clarifies the US interest rate trajectory.
Investment Grade and High Yield indices were unchanged over the week as pressure on interest rates was offset by spreads narrowing slightly. The Xover tightened by 7bp over the period.
We expect to see new issuance return in force from next week for corporates, financials and LBO sponsors.
GLOSSARY
• Investment Grade: bonds rated as high quality by rating agencies.
• High Yield: corporate bonds with a higher default risk than investment grade bonds but which pay out higher coupons.
• Senior debt benefits from specific guarantees. Its repayment takes priority over other debts, known as subordinated debt.
• Debt is considered to be subordinated when its redemption depends on the earlier payment of other creditors. To offset the higher risk, subordinated Senior debt has priority over other debt instruments.
• Tier 2 / Tier 3 : subordinated debt segment.
• Duration: the average life of a bond discounted for all interest and capital flows.
• The spread is the difference between the actuarial rate of return on a bond and the rate of return on a risk-free loan with the same maturity.
• The so-called "Value" stocks are considered to be undervalued.
• EBITDA: Earnings before Interest, Taxes, Depreciation, and Amortization.
• CTA: quantitative strategy which uses futures to invest in a wide range of financial assets, including equity indices, short-term and long-term interest rates, currencies, and commodities.
• The PMI, for "Purchasing Manager's Index", is an indicator of the economic state of a sector.
• AT1s belong to a family of bank capital securities known as contingent convertibles or “Cocos”. Convertible because they can be converted from bonds to shares (or depreciated entirely) and contingent because this conversion only occurs if certain conditions are met, such as the issuing bank's capital strength falling below a predetermined trigger level.
• RT1s: perpetual bond issues with early redemption possible after 10 years. Coupon payments are discretionary and non-cumulative.
DISCLAIMER
This is a marketing communication. 28/08/2026.
This document is issued by the Edmond de Rothschild Group. It is not legally binding and is intended solely for information purposes. This document may not be communicated to persons located in jurisdictions in which it would be considered as a recommendation, an offer of products or services or a solicitation, and in which case its communication could be in breach of applicable laws and regulations. This document has not been reviewed or approved by a regulator of any jurisdiction. The figures, comments, opinions and/or analyses contained herein reflect the sentiment of the Edmond de Rothschild Group with respect to market trends based on its expertise, economic analyses and the information in its possession at the date on which this document was drawn up and may change at any time without notice. They may no longer be accurate or relevant at the time of reading, owing notably to the publication date of the document or to changes on the market. This document is intended solely to provide general and introductory information to the readers and notably should not be used as a basis for any decision to buy, sell or hold an investment. Under no circumstances may the Edmond de Rothschild Group be held liable for any decision to invest, divest or hold an investment taken on the basis of these comments and analyses. The Edmond de Rothschild Group therefore recommends that investors obtain the various regulatory descriptions of each financial product before investing, to analyse the risks involved and form their own opinion independently of the Edmond de Rothschild Group. Investors are advised to seek independent advice from specialist advisors before concluding any transactions based on the information contained in this document, notably in order to ensure the suitability of the investment with their financial and tax situation. Past performance and volatility are not a reliable indicator of future performance and volatility and may vary over time, and may be independently affected by exchange rate fluctuations.
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