Morning Market Brief – 2026-08-17

Good morning! We start a new week in the markets, where the main themes driving capital flows are clearly taking shape. On one hand, investors are growing increasingly convinced that the US Federal Reserve (Fed) has concluded its interest rate hike cycle, which is weighing on the dollar. On the other hand, hard data from China is raising concerns about the health of the world's second-largest economy. In addition, commodity markets are sending mixed signals—crude oil is catching its breath after the recent rally, while copper is approaching historic highs on the back of supply issues.

Geopolitical Environment

Tensions in the Middle East, particularly around Iran and the Strait of Hormuz, remain a significant backdrop for commodity markets. While there has been no drastic escalation in recent days, the risk of supply disruptions is real enough that importing nations are taking precautionary measures. For example, India has decided to set a maximum daily LPG production target of approximately 63,810 tonnes for its refineries to shield the domestic market from potential supply shocks in the Persian Gulf. (Sources: Reuters).

Today's Highlights

• The market loses faith in a September Fed hike, and the dollar weakens. Following last week’s relatively mild US consumer price inflation (CPI) data, investors have significantly pared back expectations for another Federal Reserve move. The probability of a rate hike in September has dropped to around one-third. Goldman Sachs analysts even assess that the market is still pricing the Fed too hawkishly (i.e., anticipating policy that is too restrictive), especially in light of softening US macroeconomic data. As a result, the US Dollar Index (DXY), which measures the greenback's strength against a basket of major currencies, fell toward the 100-point mark, while US bond yields declined. (Sources: Reuters; CNBC; Investing.com; Bloomberg).
• China's economy slows noticeably, disappointing markets. Highly anticipated July data from the Middle Kingdom fell well short of market consensus. Industrial production grew by 4.5% year-on-year, while retail sales rose by a mere 0.6% YoY. As a reminder, official figures for the first half of the year showed GDP growth at 4.7%. The current prints point to persistent weakness in domestic demand and investment. Soft data from China poses a potential headwind for global growth and countries exporting to Asia. (Sources: National Bureau of Statistics of China; Reuters; Financial Times).
• The Eurozone grows, cementing expectations for an ECB rate hike. In contrast to a slowing China and a dovish pivot in the US, Europe is holding up well. Eurostat's second estimate confirmed Eurozone GDP growth of 0.4% quarter-on-quarter in Q2 of this year. Stronger economic growth gives the European Central Bank (ECB) room to continue its fight against inflation. According to economist surveys, the market expects one final rate hike from the ECB in September, followed by an extended pause. This outlook is supporting the single currency (EUR) and the British pound (GBP). (Sources: Eurostat; Reuters; Trading Economics).
• Copper near all-time highs due to a tight market. Copper prices on the Comex exchange surpassed the $6.70 per pound mark, nearing record highs. Interestingly, on the London Metal Exchange (LME), cash-to-3M spreads (the difference between the spot price and the 3-month contract price) surged to multi-year highs. This condition (known as backwardation) signals an exceptionally tight market and shortages of immediate physical supply. This stems, among other factors, from supply pressure on refined copper in China and lowered production forecasts by Chilean mining giant Codelco. (Sources: MINING.COM; Bloomberg; Trading Economics).
• Crude oil catches its breath after a geopolitical rally. Last week, European Brent crude tested the $89–91 per barrel range amid Middle East supply fears. However, recent days have seen a pullback—Brent dropped to around $87.9, and US WTI to roughly $82. Although the geopolitical risk premium around Iran remains priced in, investors have begun to weigh softening global demand prospects more heavily, especially in light of disappointing data from China. (Sources: Reuters; Fortune; HDFCSky).

Market Backdrop

• European stock markets open in the green. Despite concerns over China, sentiment in Europe remains positive. The STOXX 600, German DAX, and UK FTSE 100 indices opened today's session higher. Gains were led by the Basic Resources sector, supported by high industrial metal prices. Equity markets are also benefiting from a slight decline in European bond yields from their recent peaks. (Sources: Reuters; Investing.com).
• Asian divergence: AI vs. weak economy. Asian markets are showing a clear divide. On one side, Japan’s Nikkei 225 and South Korea’s Kospi rallied strongly, driven by the semiconductor boom and artificial intelligence (AI) optimism, as well as softer Fed expectations. On the other side, major indices in mainland China and the Hong Kong exchange (Hang Seng) posted declines, reacting directly to weak economic activity data for July. (Sources: CNBC; Reuters; STL.News).
• Japan's GDP shows no fireworks. Preliminary second-quarter GDP data for Japan showed an annualized growth rate of 1.1%, falling short of expectations. The print was weighed down primarily by weak private consumption and lower corporate capital expenditures. Growth was supported mainly by public spending and net exports. This is an important signal for the Bank of Japan, which is closely watching the strength of domestic demand in the context of potential future rate hikes. (Sources: Cabinet Office, Government of Japan; Reuters).

What to Watch

This week, market focus will shift to central bank details and the latest flash Purchasing Managers' Index (PMI) data.

• Aug 17 (Today) 14:30 – Canada: Consumer Price Index (CPI) for July. A key report for the Canadian dollar that will shape expectations for the Bank of Canada's upcoming decisions.
• Aug 19 (Wednesday) 11:00 – Eurozone: Final HICP Inflation Rate. Verification of preliminary prints. Investors will look for confirmation that disinflation is progressing at a pace that would allow the ECB to pause following a potential September hike.
• Aug 19 (Wednesday) 20:00 – US: FOMC Meeting Minutes. The week's premier event. The market will scrutinize every word of the minutes from the Fed's July meeting, searching for confirmation of the currently priced-in end to the rate hike cycle.
• Aug 20 (Thursday) 03:15 – China: PBoC Loan Prime Rate (LPR) Decision. The monthly fixing of benchmark interest rates. Following dismal retail sales and industrial production data, markets will watch for any stimulus efforts by the Chinese central bank.
• Aug 21 (Friday) 01:30 – Japan: Consumer Price Index (CPI). An important release for assessing the Bank of Japan's readiness to tighten policy, especially in light of weak domestic demand highlighted by recent GDP data.
• Aug 21 (Friday) 09:30 – 15:45 – Global PMIs (Germany, Eurozone, UK, US). Flash readings for August will provide a first look at manufacturing and services health across major economies toward the end of summer.