Daily market review
Oil risk persisted as US and Chinese demand weakened
Markets begin the new week under two opposing forces. Oil flows through the Strait of Hormuz remain severely restricted, so energy could push inflation higher again. Data released on Friday showed that US retail sales fell 0.6% in July. China reported on Monday that July retail sales grew only 0.6% from a year earlier, industrial output rose 4.5%, and fixed-asset investment fell 6.7% over January to July. Weaker demand in the world’s two largest economies strengthens the case for lower interest rates, yet energy and producer prices still prevent central banks from relaxing.
The week’s central question
Will weaker US and Chinese demand allow rates to fall if the oil-supply risk persists?
What changed since this morning? China’s July data showed that weaker demand is not only a US consumer story. Chinese retail-sales growth slowed to 0.6%, while fixed-asset investment fell 6.7% over January to July. This strengthens the case for slower global growth and less price pressure. However, restricted oil flows through the Strait of Hormuz, 4.7% annual US producer-price inflation and a 5.25% yield on 30-year US Treasuries show that inflation risk has not disappeared.
Challenges the thesis: oil flows through Hormuz remain restricted and the 30-year US Treasury yield stands at 5.25%.
Will decide it: US import prices, industrial production, weekly oil inventories and the Federal Reserve meeting minutes.
Market pulse
Stocks ended the week quietly, while China’s investment slump pointed to weaker global demand
The figures show the week ended on Friday or the latest official release. Market prices can change during the day.
The broad US equity index made a modest gain and closed the week at 7,785.76.
This was the annual return the market demanded on Friday for lending to the US government for a very long period.
Sales fell in July, although they were still 5.0% higher than a year earlier.
The January-to-July decline deepened, while real-estate development investment fell 19.2%.
The economy grew, but household spending was nearly flat and business investment declined.
1 Geopolitics, oil and inflation
Oil flows through Hormuz remain low, leaving the energy-price shock at risk of returning
Facts
Last week, the US Energy Information Administration estimated that 4.9 million barrels per day moved through Hormuz. That was 77% below the late-2025 average. About 5.5 million barrels per day of production was shut in during July.
Why it matters
Lower flows mean greater competition for oil, which can raise the cost of fuel, transport and manufacturing. US inventories increased by 17.4 million barrels, but domestic stocks do not remove the risk surrounding a global supply route.
Portfolio impact
Higher oil prices support energy producers but squeeze airlines, logistics, chemicals and longer-maturity bonds. Europe faces greater risk because it imports more energy. For a euro-based investor, the euro-dollar exchange rate can amplify or soften the effect.
Opportunity and risk
The opportunity is a September recovery in flows and less price pressure. The risk is a longer restriction or another production shutdown. Wednesday’s US inventory report and official shipping updates will provide the next checks.
2 The US consumer and the direction of interest rates
US retail sales fell 0.6%, but inflation expectations prevented markets from relaxing
Facts
US retail sales were $763.6 billion in July. They fell 0.6% from June but rose 5.0% from a year earlier. Consumer sentiment declined from 55.2 to 51.0, while one-year inflation expectations increased to 4.3%.
Why it matters
Weaker sales and confidence show more cautious households, reducing the need for higher interest rates. Yet annual sales growth and a stable labour market point to a slowdown rather than a clear recession.
Portfolio impact
A cautious consumer creates risk for retailers, car dealers and travel companies but can help shorter-maturity bonds. The 5.25% yield on 30-year Treasuries still reflects concern about long-term inflation and heavy government borrowing.
Opportunity and risk
The opportunity is an orderly spending slowdown, lower inflation and stable employment. The risk is weaker demand combined with renewed energy-driven inflation. US import prices, industrial production and the Federal Reserve minutes will refine the outlook.
3 China, global demand and commodities
Chinese investment fell 6.7%, increasing the global growth risk as domestic demand weakened
Facts
Chinese industrial output grew 4.5% from a year earlier in July, down from 5.3% in June. Retail-sales growth slowed from 1.0% to 0.6%. Fixed-asset investment fell 6.7% over January to July, private investment declined 9.4%, and real-estate development investment dropped 19.2%.
Why it matters
Consumption, industry and investment slowing together point to broad weakness in Chinese domestic demand. This can reduce demand for imported commodities and European manufactured goods. At the same time, a weaker Chinese economy could lower global goods prices and ease part of the inflation pressure.
Portfolio impact
Weaker Chinese demand pressures metals, commodity exporters, European carmakers, luxury groups and industrial companies. Less inflation pressure can help government bonds. Within Chinese equities, investors need to distinguish companies exposed to domestic spending from the faster-growing high-technology manufacturing segment.
Opportunity and risk
The opportunity is the 16.9% growth in high-technology manufacturing and stronger goods trade, which can offset part of the domestic weakness. The risk is a deeper decline in property and private investment. Credit, housing sales and the month-end business-activity surveys are the next signals.
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4 Japan, the yen and the central bank
Japan’s economy grew 0.3%, but domestic consumption and business investment remained weak
Facts
Japan’s economy grew 0.3% in the second quarter, or 1.1% at an annualised pace. Private consumption was nearly flat, business investment fell 1.2%, exports rose 0.5% and imports fell 1.5%. Net trade added 0.5 percentage points.
Why it matters
The composition points to weak private demand, while lower imports raise gross domestic product arithmetically. Producer prices were 7.2% higher than a year earlier, so the Bank of Japan faces weak demand and substantial price pressure together.
Portfolio impact
A weaker yen and exports help Japanese exporters, while costly energy squeezes importers. Higher rates can support banks and hurt longer-maturity Japanese bonds. For a euro-based investor, yen weakness can reduce the return on an unhedged investment.
Opportunity and risk
The opportunity is export growth eventually supporting wages and spending. The risk is higher import costs without stronger income. Japanese consumer prices, the yen and Bank of Japan communication will provide the next signals.
5 Europe, growth and industry
The euro-area economy grew 0.4%, but industry did not yet show a broad recovery
Facts
The euro-area economy grew 0.4% in the second quarter and 1.0% from a year earlier. First-quarter growth was revised to 0.0%, while employment rose only 0.1%. June industrial production was flat; capital goods fell 1.4% and energy rose 1.5%.
Why it matters
The euro area avoided a downturn, but flat industry and slow employment do not show a broad expansion. Services still offset manufacturing. Slow growth supports lower rates, while energy risk could raise prices again.
Portfolio impact
Moderate growth supports banks, services and high-quality corporate bonds. Weak capital-goods output pressures machinery and chemicals. A stronger euro can reduce euro returns from dollar assets that are not protected against exchange-rate changes.
Opportunity and risk
The opportunity is resilient services and employment without another inflation surge. The risk is dearer energy while industry remains weak. UK and euro-area inflation and new business-activity data will refine the direction.
Today’s portfolio compass
US and Chinese demand are weakening, but oil prevents a one-way view
Two opposing forces shape the portfolio outlook at the start of the week. Weaker US retail sales and consumer sentiment point to slower demand, while China’s 6.7% investment decline and just 0.6% retail-sales growth show that the weakness is broader. This can reduce inflation and support bonds, but it also threatens commodities, European industry and company revenue. Low oil flows through the Strait of Hormuz, 4.7% annual US producer-price inflation and a 5.25% yield on 30-year Treasuries show that inflation risk remains alive. Japan’s growth relied heavily on trade and government demand, while the euro area’s 0.4% expansion has not yet produced a broad industrial recovery. Growth in Chinese high-technology manufacturing, larger US oil inventories and still-positive annual US retail-sales growth provide a counterweight. The slowdown is not yet a collapse.
Important information. This review provides general market information and is not a personal recommendation to buy or sell any security. Investment values can rise or fall, and changes in currencies, interest rates, energy prices and geopolitics can materially alter outcomes.
