Tame Inflation Data Lifted Equities Even as Consumer Cracks Deepened

Markets navigated a week defined by two competing forces: benign mid-month inflation prints that briefly sent the S&P 500 to a fresh record high, and a deteriorating consumer picture that cast a shadow over the durability of that rally. The S&P 500 closed at 7,785.76, gaining roughly +0.42% on the week and holding comfortably above its 20-day moving average of 7,593 — a technical cushion that has defined the index's uptrend since July. The Nasdaq added approximately +0.47% to close at 26,729.16, though it remains caught between its 20-day and 50-day moving averages near 25,926–26,011, a sign that momentum in growth stocks is less certain. Gold extended its relentless climb, settling at $4,380.40 per ounce and holding well above its 50-day moving average of $4,155, with the 200-day at $4,500 the next logical test for bulls. WTI crude ended at $82.40 per barrel, buffeted throughout the week by Hormuz diplomacy and demand pessimism, while the 10-year Treasury yield settled at +0.33% and the US Dollar Index slipped to 99.67, its RSI at a deeply oversold 39.9 suggesting the greenback's downtrend is extended but not yet exhausted.

The three most consequential events of the week arrived in sequence. First, Tuesday's Bank of Japan Summary of Opinions from its July 30–31 meeting set the tone for global rate markets, revealing that at least three board members argued the BoJ could hike rates faster than the current two-per-year cadence, with one member explicitly warning the pace would be 'faster than market expectations.' Governor Ueda had already flagged September as live, and the summary cemented that view — bolstering the yen and adding to upward pressure on global yields at the week's outset. Second, Wednesday's July CPI report delivered an in-line but nonetheless relieving result: headline inflation rose 0.1% month-over-month and 3.4% year-over-year, down from June's 3.5%, with core at 0.2% MoM and 2.5% YoY. The print was enough to push the S&P 500 to an intraday record and extend the narrative that the three hawkish Fed dissents at the July FOMC — the first same-direction three-way dissent since September 2016 — were premature. The same day's $42 billion 10-year Treasury auction cleared at 4.683%, the highest yield since 2007, with only a 0.1 basis point tail, suggesting demand held but at a price that reflects persistent structural supply-demand imbalances in the long end. Third, Thursday's flat PPI print — headline unchanged MoM versus a forecast of +0.2%, with the annual rate dropping to 4.7% from 5.5% — reinforced the disinflation narrative, providing a second consecutive session of equity gains before Friday reversed the mood entirely.

Friday delivered a jarring reality check. July retail sales fell 0.6% month-over-month, the largest monthly decline since May 2025, versus a consensus of +0.1%. Excluding autos and gasoline, sales still dropped 0.2%, and the nonstore (online) category plunged 2.2% — partly a hangover from June's Prime Day demand pull-forward, but difficult to dismiss entirely. Hours later, the University of Michigan's preliminary August consumer sentiment index collapsed to 51.0, a 7.6% month-over-month drop that ended two straight months of recovery and came in well below the 54.5–55.0 consensus. Year-ahead inflation expectations rose to 4.3% from 4.2%, materially above pre-Iran conflict levels of 3.4%, and only 8% of consumers expect income growth to outpace inflation — down from 18% in December 2024. Gasoline above $4 per gallon nationally, sustained by the Hormuz disruption, is visibly crimping both sentiment and discretionary spending. The stagflationary undertow — decelerating activity meeting sticky expectations — is the defining macro tension entering the back half of summer.

The Strait of Hormuz backdrop remained the dominant structural driver for energy and inflation all week. Transit volumes through the Strait fell further to just 78 ships in the week of August 3–9, down from 95 the prior week and a fraction of normal. The IEA's August Oil Market Report projected a 4.3 million barrel-per-day fall in global supply in 2026, calling the crisis the largest supply disruption in the history of the global oil market, while cutting 2026 demand forecasts by roughly 550 kb/d as high prices weaken consumption. Treasury Secretary Bessent's Thursday comment that a deal to open the Strait was 'near' temporarily pulled Brent from ~$84 toward ~$78, but no agreement materialized, and crucially, many of the underlying sanctions on Iran are congressionally mandated — executive action alone cannot undo them, meaning any durable resolution requires legislative coordination that remains nowhere in sight. Copper approached a record $14,000 per tonne on LME amid DRC export restrictions and pre-Section 232 stockpiling. Switzerland's Q2 GDP surge of 1.5% quarter-over-quarter — the country's highest quarterly growth in five years — stood as a notable outlier, driven by its pharmaceutical and chemical export base and lower fossil fuel dependency, a structural advantage that is widening versus energy-intensive peers.

The week ahead carries three unresolved threads. The FOMC minutes from the July 28–29 meeting, due August 19, will be parsed for how close the full committee was to joining the three hawkish dissenters — the answer has direct implications for September meeting pricing. Second, Hormuz diplomacy remains the single most important macro variable in global markets, and Bessent's 'near deal' language was not backed by public Washington-Tehran convergence; any escalation or breakthrough could move crude by double digits in a session. Third, the stagflationary consumer data — sentiment at 51.0, real spending contracting, gasoline sticky above $4 — raises the stakes for August payrolls and the next CPI print in September. With the 10-year yield at 4.70% against an SMA20 of 5.0% signaling the long end could rerate higher, and the S&P 500's RSI at 65.1 still below overbought territory, the path of least resistance remains upward for equities only so long as the macro does not force the Fed's hand.