Markets
July US retail sales extend the string of weak to tame US eco data since Friday’s payrolls. Headline retail sales unexpectedly fell by 0.6% M/M (vs +0.1% consensus) with sales in the retail control group down 0.4% M/M (vs +0.3% expected). Details offer some silver linings though with sales volumes up in 9 out of 13 categories and auto sales providing the biggest drag (-1.8% M/M) together with gasoline sales (-0.9% M/M; take into account drop in gas prices in July). US Treasuries initially rallied in bull steepening fashion, but part of the initial move was rapidly undone as details emerged. Daily changes on the US yield curve currently range between -1.1 bp (2-yr) and +2.4 bps (30-yr). European and UK yield curves show bear steepening trends with the very long end of the curve adding up to 5 bps. Higher real rates (fiscal worries) keep pushing long term bond yields up. The dollar lost some more ground compared to post-payrolls or post-CPI/PPI reactions but EUR/USD 1.16 technical resistance remains out of reach.
Next week’s trading gets off to a slow start. On Monday and Tuesday, we’ll only get second tier data in the US and EMU. Wednesday and Friday could be the more interesting days. On Wednesday, ECB President Lagarde participates in a panel discussion at the WEF’s International Business Council meeting (global economic outlook). Minutes of the July FOMC meeting could provide more clues on thinking within the Fed and potential triggers for tightening following the 9-3 split vote in favour of keeping rates unchanged. The US Treasury’s $16bn 20-yr Bond sale is a wildcard. On Friday, global PMI surveys for the month of August are released together with ECB inflation expectations (July) and EMU Q2 negotiated wage data. Other things to look out for are the monthly eco update in the UK (labour market report, inflation & retail sales) and the Swedish Riksbank’s policy decision (Thursday).
News & Views
Rating agency Fitch overnight affirmed the USA’s AA+ rating with a stable outlook. The agency cited the country’s large and resilient economy, high income levels, strong business environment, and exceptional financing flexibility stemming from the USD’s dominant role in the global financial system as key strengths. Fitch expects US economic growth to remain solid at around 1.9% annually in 2026-2027, despite headwinds from tariffs, spending cuts, tighter immigration policies, and elevated policy uncertainty. Average inflation is projected at 3.4% in 2026, although it is expected to gradually decline toward 2% by 2028. The main constraints on the rating are the country’s large fiscal deficits, rising government debt, and increasing interest burden. Fitch forecasts general government deficits of 7.4% of GDP in both 2026 and 2027, driven by tax cuts, tariff rebates, defense spending, and higher interest costs. Government debt is projected to rise from 117% of GDP in 2025 to 123% in 2028, eventually reaching 128% by 2030 under current policies. Fitch also highlighted growing long-term fiscal pressures from an aging population. Interest costs are expected to consume a larger share of government revenues over the coming years, reducing fiscal flexibility. On governance, Fitch noted continued pressure on institutional checks and balances under the Trump administration but observed that courts and Congress have continued to provide meaningful constraints on executive actions.
The preliminary sport-event adjusted Swiss Q2 GDP figure showed growth significantly accelerating, from 0.3% Q/Q in Q1 to 1.5%, beating all estimates. Growth was driven by the industrial sector according to the State Secretariat for Economic Affairs which is responsible for the data, in particular by chemicals and pharmaceuticals. Services also expanded overall. A detailed assessment, using complete and updated data, will be published on September 3. The growth surge probably takes some trade frontloading into account. On July 24, the US introduced new additional tariffs following an investigation under Section 301 of the Trade Act of 1974. A variable additional tariff of up to 12.5% is levied on imports from Switzerland, replacing the 10% regime in place since February. Apart from that, the US administration announced a specific tariff regime for pharmaceutical products (under Section 232). The Swiss franc (EUR/CHF 0.94) doesn’t profit from today’s strong growth figure while money markets aren’t inclined to shift to rapid SNB rate hike bets given weak core CPI and a strong CHF.
 with sales in the retail control group down 0.4% M/M (vs +0.3% expected).){kind=link}