Stocks climb amid cooling labour data, strong earnings

For the week ending 7 August 2026

As of midday Friday, global equities were headed for strong weekly gains supported by continued robust U.S. corporate earnings. In addition, softer labour market data has strengthened expectations that the Fed will continue holding rates through the remainder of the year. The yield on the U.S. 10-year Treasury note fell to 4.64% from 4.73% a week ago, while the price of a barrel of West Texas Intermediate crude fell US$8 to US$77.22. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 15.1 from 18.6 last Friday.

Macro news

Labour market strength in question as payrolls unexpectedly Decline

July’s labour market data pointed to further softening in hiring conditions, as nonfarm payrolls unexpectedly declined by 23K during the month despite consensus expectations of a roughly 80K gain. Adding to the weaker tone, May and June payrolls were revised lower by a combined 103K. Despite this drop in payrolls, the unemployment rate edged down to 4.1% from 4.2%, though the decline was largely driven by a lower labour force participation rate, which fell to 61.4% — its lowest level in more than five years. Wage growth also continued to cool, with year-over-year average hourly earnings slowing to +3.2% in July from +3.5% in June, suggesting easing wage pressures across the labour market.

Other labour indicators reinforced the softer backdrop. June JOLTS job openings came in slightly below expectations, while May’s figure was revised lower by 57K. The hiring rate rose modestly by +0.1% month over month, while both the quits rate and layoffs rate were largely unchanged. Private-sector hiring remained subdued as well, with July ADP payrolls increasing just +44K month over month — well below consensus expectations and marking the weakest gain since January. Layoff activity, on the other hand, showed some improvement. July’s Challenger Report showed layoffs fell 27%  in July to 33,429, while announced hiring plans increased +47% month over month. However, AI-related restructuring has remained a major theme, accounting for roughly one-third of announced layoffs for the fifth consecutive month. One brighter spot came from productivity data, where Q2 productivity rose +1.4% quarter over quarter, well above consensus expectations of +0.6% and ahead of Q1’s revised +0.8% pace.

Trump pauses strikes as Strait of Hormuz talks advance

U.S. President Donald Trump held off on planned attacks against Iran over the weekend after requests from Tehran and Middle East allies. The U.S. stated that they and Iran have agreed on the parameters of a deal, though the path forward remained unclear throughout the week. Iran has offered conflicting claims, denying that any talks were underway with Washington while confirming it neared an agreement with Oman regarding a new shipping route through the strait.

Tensions rose midweek as Iran executed a drone strike against a U.S. military base in Kuwait; as a result, Trump gave Tehran a “final chance” to reach an agreement before they would face what he called “decapitation.” Optimism rose again on Thursday, with Iran claiming to have reached an agreement with Oman on a Strait of Hormuz shipping route and Trump signalling that a deal was in the making. The markets responded, with WTI crude falling sharply this week on diplomatic hopes. However, skepticism persists as investors voiced doubts about the durability of any interim deal and the prospects for follow-on nuclear negotiations.

U.S. and Japan coordinate yen intervention amid currency volatility

The U.S. and Japan carried out a rare coordinated intervention this week to support the Japanese yen after the currency weakened to roughly 40-year lows against the U.S. dollar late last month. Japan’s Finance Ministry confirmed that Tokyo and the U.S. Treasury jointly purchased yen on Friday, marking the first coordinated yen-buying operation between the two countries since 2011. The move came after the yen briefly traded near ¥164 per dollar, raising concerns about financial stability, imported inflation in Japan, and broader spillover risks to global markets. U.S. Treasury Secretary Scott Bessent said Washington would continue to support efforts to counter “disorderly” currency movements, while Japanese officials signalled readiness for further intervention if needed. The rebounding yen has helped stabilize currency markets and has pressured the popular yen-funded carry trade, while also contributing to lower oil prices and shifts in global bond yields. For equity investors, the intervention reinforced how FX volatility and policy coordination are becoming increasingly important drivers of market sentiment and international capital flows.

China’s open-weight push reignites AI commoditization fears

AI commoditization fears resurfaced this week following a wave of Chinese open-weight AI releases. DeepSeek launched a new model at a significantly lower price point than many U.S. competitors, while Alibaba introduced its largest model yet, claimed its performance is comparable to leading frontier models. These developments reinforced concerns that AI model capabilities are converging as costs continue to fall, increasing competitive pressure and raising doubts about the ability of proprietary model developers to sustain pricing power. The renewed commoditization narrative weighed on AI-related equities, particularly across crowded AI infrastructure and semiconductor names, as investors reassessed where long-term value creation within the AI ecosystem is likely to accrue.

Quick hits

• July PMIs remained largely in expansion territory across major economies, signalling continued resilience in global activity.
• Bank of America’s Bull & Bear Indicator climbed to 9.7, its highest reading since 2021, reflecting increasingly bullish investor sentiment.
• Canada’s unemployment rate fell to 6.4% in July, a two-year low, as the economy added 75K jobs during the month.
• German retail sales in June declined 1.1% month over month in real terms, led by a 1.4% drop in food retail sales.
• Swiss inflation eased slightly below expectations at +0.4% year over year in July. On a monthly basis, CPI fell 0.1%, driven by lower air transport, diesel, and gasoline prices.
• U.S. construction spending slipped 0.1% month over month in June, missing expectations for a modest increase.
• The Fed’s July Senior Loan Officer Opinion Survey showed lending standards for commercial and industrial loans were largely unchanged. Demand improved among large and mid-sized firms while remaining relatively flat for smaller businesses.
• Brazil’s central bank cut its benchmark interest rate by 25 basis points (bps) for a fourth consecutive meeting, bringing the policy rate to 14.0% — down 100 bps cumulatively since March. Policymakers signalled flexibility between another cut or a pause ahead.
• EY warned that the U.K. economy could face recession risks in the event of a prolonged closure of the Strait of Hormuz.
• U.S. durable goods orders rose 0.5% in June, marking the third increase in four months. Separately, factory orders fell 0.3%, the second consecutive monthly decline.
• Australian home prices fell 0.7% in July, the steepest monthly decline since December 2022.
• Canada’s trade surplus widened to US$3.9B in June. Exports increased 0.4% for a fifth straight month, while imports rose 0.2% to a record high of US$76.6B.
• Eurozone producer prices increased 4.6% year over year in June, in line with expectations and below the prior month’s 5.9% pace.
• Mexico’s central bank held its benchmark interest rate steady at 6.5% and signalled there will likely be no change at its next meeting.
• Japan’s wage growth rose 3.4% year over year in June, broadly matching expectations.
• The Reserve Bank of India left its repo rate unchanged at 5.25%, as widely anticipated.
• Citi’s Eurozone Economic Surprise Index reached its highest level in more than two years at the end of July.
• Eurozone retail sales rose 0.7% year over year in June, below both consensus expectations and the prior month’s revised 1.9% increase.
• Germany’s factory orders surged 3.1% in June, significantly outperforming expectations and the prior month’s 0.3% gain.

Earnings news

With about 88% of the constituents of the S&P 500 Index having reported, blended earnings per share (which combines reported data with estimates for those companies that have yet to report) rose 50.3% compared with the same quarter last year, according to data from FactSet. Blended sales rose 15.0% over the same period.