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Last week we flagged one question above all others: would July's 20 percent oil surge show up in the inflation data? This week we got the answer, and it was no. Consumer prices rose just 0.1 percent, core inflation eased to a five-month low, and producer prices were flat. The S&P 500 cleared 7,800 for the first time on Thursday. Then the second half of the week complicated things. Retail sales fell 0.6 percent, their worst drop in over a year, consumer sentiment slid again, and oil crept back up as the US threatened an indefinite naval blockade. Markets got the inflation news they wanted and still could not hold the highs. Understanding why is the useful part.
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The inflation data was genuinely good. July CPI rose 0.1 percent on the month, putting the annual rate at 3.4 percent, while core CPI rose 0.2 percent and eased to 2.5 percent, a five-month low. Producer prices were unchanged, with core PPI up 0.2 percent and below expectations. The detail worth knowing is this: over the three months through July, core CPI ran at a 1.6 percent annualized rate, the first three-month reading below the Fed's 2 percent target all year. Energy fell another 1.5 percent on the month even though it remains nearly 15 percent higher than a year ago. September hike odds dropped from around 55 percent to roughly a third. Not everyone is convinced, though. Cleveland Fed President Beth Hammack, one of July's three dissenters, wrote publicly on Tuesday that now is the time to act, arguing that waiting makes the job harder.
Then the consumer data landed and shifted the question entirely. July retail sales fell 0.6 percent against expectations of a small gain, the sharpest drop in more than a year, and even excluding autos they fell 0.3 percent. The University of Michigan sentiment index dropped to 51.0 in August from 55.2. Combine that with the 23,000 job losses reported the previous week and a pattern starts forming. Here is the uncomfortable part: inflation cooling because demand is weakening is a different story from inflation cooling while the economy stays strong. The first removes the case for hiking but raises a question about growth. Meanwhile oil turned back up, with WTI settling at $82.40 after the US said its naval blockade of Iranian ports could continue indefinitely and ceasefire talks stalled. Last week's peace trade partially unwound.
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US30 (Dow Jones) |
53,732 | -0.6% w/w |
The Dow closed at 53,732, down 0.6 percent on the week while the S&P 500 added 0.4 percent for a third straight weekly gain and the Nasdaq managed 0.1 percent. The S&P cleared 7,800 for the first time on Thursday, then failed to close above it on two consecutive attempts, which is the kind of hesitation worth noting at a record. Small caps were the bright spot, with the Russell 2000 notching a fresh record on Friday. Earnings have been carrying a lot of weight here: of the 455 S&P companies that had reported, 87 percent beat profit estimates. One thing to watch is the VIX, which fell below 14.4 to new 2026 lows, a sign of very little hedging heading into Jackson Hole.
Price action suggests: Hesitation at the highs, with two failed closes above 7,800 on the S&P pointing to buyers pausing rather than retreating.
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Gold (XAUUSD) |
Weekly close ~$4,371 | ~+2.5% w/w |
Gold closed near $4,371, up roughly 2.5 percent and extending its run to a second strong week, with a monthly gain now above 8 percent. It touched its highest level since early June on Thursday before slipping 1.3 percent on profit-taking. The driver is straightforward and it is the one we keep returning to: gold pays no interest, so when the market prices out rate hikes, the cost of holding it falls. Odds of a September hold moved to roughly 70 percent, up sharply from a month ago when half the market expected an increase. Softer inflation, weaker retail sales, and falling short-term yields all pushed in the same direction this week.
Price action suggests: Continued acceptance of higher levels, with Thursday's profit-taking looking like a pause rather than a reversal.
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WTI Crude Oil |
$82.40 settle | weekly gain |
WTI settled at $82.40 and Brent at $88.52, both higher on the week and reversing a good part of last week's 9 percent slide. Ceasefire talks stalled, and the US warned that its naval blockade of Iranian ports could continue indefinitely, with the Treasury Secretary promising economic isolation measures unlike anything previously seen. That was enough to rebuild some of the risk premium that had drained away on peace hopes. This is now the fourth consecutive week where oil has swung on diplomatic headlines rather than on inventories or demand. The Hormuz agreement that looked close a week ago is still unsigned, and price keeps reflecting that uncertainty in both directions.
Price action suggests: A risk premium rebuilding as talks stall, with price still driven by headlines rather than physical supply.
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The euro held its ground above 1.15 and firmed into Friday, consolidating the breakout we tracked over the previous two weeks rather than extending it sharply. The support is coming from the US side: softer inflation and weaker consumer data reduce the case for a Fed hike, which narrows the rate advantage that had been propping up the dollar all summer. Working against that is the renewed climb in oil, since Europe imports most of its energy and higher crude eats into the region's terms of trade. Two opposing pulls, and the pair spent the week digesting rather than trending.
Price action suggests: Consolidation above the breakout area, holding the gains without demanding new ones.
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GBP/USD |
firmer, near 1.35 |
Sterling firmed alongside the euro, gaining on Friday and holding around the 1.35 area. As has been true for most of this stretch, the pound is taking its direction from the dollar leg rather than from anything domestic, and the softer US data did most of the work. The UK shares Europe's exposure to energy prices, so the oil rebound was a mild headwind here too. When the euro and pound move together in the same size and direction, it is usually a sign that the story sits on the American side of the pair, and this week fit that pattern cleanly.
Price action suggests: Quiet strength led by the dollar leg, with no independent domestic catalyst driving the move.
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USD/JPY |
yen shorts at 20-month high |
Here is the striking thing. A week of softer US data should have weakened the dollar against the yen, and yet the downside catalysts failed to deliver. Positioning data tells the story: large speculators pushed net-short yen exposure to a 20-month high and asset managers flipped to net-short as well. Two weeks after a joint US and Japan intervention, traders are betting against the yen more heavily than at any point since 2024. That is what a market looks like when it believes the rate gap matters more than official action. It also creates a crowded trade, and crowded trades tend to unwind quickly when they do turn.
Price action suggests: Resilience despite dollar-negative data, with heavily one-sided positioning signalling caution in both directions.
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USD/CAD |
pressing the 1.40 area |
For once both drivers lined up for the loonie. A softer dollar on cooling US data and a rebound in crude toward $82 both support the Canadian currency, and USD/CAD kept pressing against the 1.40 area that has repeatedly held. Contrast this with two weeks ago, when a falling dollar and falling oil cancelled each other out and the pair went nowhere. Same level, entirely different reason for being there. That is why we keep coming back to identifying the dominant driver, since 1.40 has now been approached from three different setups and behaved differently in each.
Price action suggests: Renewed downward pressure with both legs aligned, and the 1.40 area still the level that matters.
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→ Looking Ahead
| Aug 19 |
FOMC minutes from the July 28 to 29 meeting, showing how the committee handled a 9 to 3 vote with three dissents in the same direction. |
| This wk |
Big-box retail earnings from Walmart, Target, Home Depot, and Lowe's, a direct read on the consumer after that retail sales miss. |
| Aug 26 |
July PCE, the Fed's preferred inflation gauge, alongside the second estimate of Q2 GDP. |
| Aug 27 |
Jackson Hole Symposium (Aug 27 to 29), Warsh's first as Chair, with the VIX at 2026 lows going in. |
| Ongoing |
The stalled Iran ceasefire talks and the threatened indefinite blockade, still the main swing factor for oil. |
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Six weeks ago the debate was whether the Fed would hike again. Now the quieter question is whether the consumer is holding up. Notice that markets did not have to fall for the story to change, the S&P is still near a record. Narratives usually shift while prices look calm, which is exactly when it is easiest to stop paying attention. Retail earnings and the July minutes arrive this week, and Jackson Hole follows. Keep your risk modest and stay patient.
Fed'n Markets
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Sources
CNBC, Reuters, Schwab, Edward Jones, Kiplinger, NBC News, TheStreet, Trading Economics, FXEmpire, Forex.com, and official releases from the Bureau of Labor Statistics and the Census Bureau. Market levels reflect closing prices for the week ending August 14, 2026, and are approximate general references, not official benchmark prices.
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