Weekly house view | AI capex mistrust
The week in review
Yemen's Houthi militia widened the Middle East conflict by declaring a maritime blockade on Saudi Arabia and attacking tankers in the Red Sea. The escalation complicates President Donald Trump's effort to reopen the Strait of Hormuz to commercial shipping.
Brent oil prices topped USD 100 per barrel, the US dollar strengthened and bond yields rose. The European Central Bank held rates at 2.25% last week but signalled the possibility of a hike in September. The US Federal Reserve, the Bank of Japan and the Bank of England will meet this week. The BoJ appears more open to a faster tightening path, due to concerns that a weak yen may add to inflation risks. Britain's Prime Minister Andy Burnham named John Healey as chancellor and the government is weighing a rent freeze to ease cost-of-living pressures.
The US fiscal outlook deteriorated as tariff revenues fell, and tariff refunds rose. The Trump administration unveiled 50% tariffs on select Canadian exports, a 25% levy on most Brazilian goods, and 100% duties on pharmaceutical imports. Nevertheless, US domestic data was resilient: jobless claims fell to their lowest level since 1969 and June retail sales fared better, due to World Cup-related spending.
Corporate news was mixed. Alphabet's second-quarter earnings beat expectations, but its shares dropped about 7% as investors focused on rising AI-related capital expenditure (capex) and pressure on free cash flow. Tesla, Nestlé and Swatch all missed earnings estimates. Markets are punishing earnings misses more than rewarding beats.
Quote of the week
"Next week’s Federal Reserve meeting is shaping up as one of the least predictable in years," wrote Nick Timiraos, chief economics correspondent of The Wall Street Journal.
Key data
We are watching June US personal income and consumption data, as well as advance second-quarter GDP figures. Japan's headline inflation rate rose to 1.7% in June from 1.5% in May and core inflation reached 1.6%.
In the euro area, the composite Purchasing Managers' Index reached an eight-month high. Germany's 10-year Bund yield climbed to 3.21%, its highest level since 2011. The latest ZEW survey shows German economic sentiment is improving.
