The Research Brief
A Weekly Survey of Markets, Policy, & Power
Issue No. 21 · Monday, the 10th of August, MMXXVI · London
- The DAX gained 2.69% and closed at a record 26,319, its best week since June, while the FTSE 100 managed 0.30%. That gap comes down to what sits inside each index.
- The Bank of England held at 3.75% on a 6–3 vote, with three members wanting 4.0%. Its own projection has CPI peaking near 3.2% in the fourth quarter, which means the live argument on Threadneedle Street is about hikes.
- The US economy shed 23,000 jobs in July and prior months were revised down by 103,000 — and the S&P 500 closed at a record anyway, on the theory that a broken labour market restrains a hawkish Fed.
- Rheinmetall's order backlog swelled to roughly €80bn, and the shares fell about 15%. Berlin cancelled a frigate programme, and the market re-learned that a defence pledge is not a signed contract.
The Editor's View
A note from the desk
Friday's Rally Was Bought on a Misreading
The Research Brief takes the view that Friday's equity rally was bought on a misreading. The market treated a 23,000-job contraction as insurance against a September hike, when the more informative number in the release was average hourly earnings at 3.2% year-on-year — the softest since May 2021 — alongside participation falling to 61.4%. Wage growth that weak, with people leaving the workforce rather than being absorbed by it, is a demand signal, and demand signals do not stay confined to the labour data. Headline inflation at 3.5% means the Fed cannot respond quickly even if it wanted to. Equities are therefore priced for a central bank that is both dovish and unconstrained, and it is neither. The strongest counterargument is the earnings line: FactSet has S&P 500 second-quarter profit growth at 47.4%, and companies growing like that can absorb a soft quarter of consumption.
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