Daily Market Outlook, August 18, 2026

Patrick Munnelly, Partner: Market Strategy, Tickmill Group

Munnelly’s Macro Missive - Long Yields Bite As Oil Fuels Inflation Fears

Global markets are being dragged back into a less comfortable macro mix, as long-end bond yields rise, oil climbs back above $90/bbl and China’s activity data weaken sharply. The result is a more defensive tone across equities and futures, with investors again questioning whether disinflation can remain intact when fiscal supply, geopolitical risk and energy prices are all pushing in the wrong direction.

Treasuries extended their selloff, pulling Asian bonds lower and reinforcing concerns that heavy US issuance and fiscal deficits are forcing investors to demand more compensation at the long end. The 30-year Treasury yield rose 2bps to 5.32%, its highest level since June 2007, while the 10-year yield edged up 1bp to 4.73% after rising 3bps on Monday. This is not simply a Fed story. The front end has been more anchored by softer US data and reduced expectations for a September hike, but the long end is being driven by a tougher combination of fiscal supply, term premium, inflation risk and oil. That is a more uncomfortable dynamic for risk assets because it tightens financial conditions even without the Fed actively raising rates.

The pressure is no longer confined to Treasuries. Australian and New Zealand bonds fell in sympathy, while Japan’s 10-year yield rose to levels not seen in decades. In Europe, French borrowing costs have climbed to their highest levels since 2008, German yields are trading around levels last seen in 2011, and UK gilt yields are nearing 6%. Similar-maturity Japanese yields are also approaching record highs. The common thread is that investors are becoming less willing to absorb long-term sovereign debt without higher yields. Inflation has eased from its peaks, but the long end is increasingly focused on whether governments can fund large deficits cheaply in a world where central banks are no longer aggressive buyers and energy-price shocks remain a recurring risk.

Oil is again becoming the macro complication. Brent crude rose 0.6% to $91.45/bbl as hopes for a US-Iran arrangement faded and fresh skirmishes in Lebanon added to regional tension. Former President Trump’s indication that he was not inclined to extend the expiring agreement with Iran has added to concern that diplomatic off-ramps are narrowing. The Strait of Hormuz remains the key risk channel. As long as markets see a credible threat to supply flows, crude can retain a geopolitical premium even if global demand is uneven.

The inflation implications are straightforward. Higher oil prices feed into headline CPI through gasoline and energy costs, but the bigger issue is second-round risk. If firms are already facing rising input costs, depleted inventories and resilient demand, a renewed energy shock makes it easier for price pressures to broaden. That is why the current market reaction is more cautious than the softer US inflation data alone might suggest. Recent CPI prints have helped the Fed delay action, but oil above $90/bbl challenges the idea that the disinflation process is safely on autopilot.

The UK labour-market report was slightly softer than expected on employment, but not weak enough to materially change the policy debate. Employment rose 84k on a 3m/3m basis, below the 130k consensus estimate, while the more timely payrolled employee measure fell 13k in July. June was revised lower from a 4k decline to a 13k fall. The ILO unemployment rate held at 4.9%, while jobless claims fell 11k m/m, bringing the claimant-count rate down one tenth to 4.3%. Wage growth continued to moderate, with average weekly earnings slowing from 4.4% to 4.1% on a 3m y/y basis. That was a touch above expectations, but after a slight upward revision to the prior month, the pace of improvement was broadly in line.

For the Bank of England, this is a mixed but manageable backdrop. Employment still has a soft hue, but labour-market deterioration is much milder than it was earlier in the year. At the same time, wage growth is decelerating, suggesting some gradual easing in domestic inflation pressure. The broader activity backdrop also matters. Demand has remained reasonably resilient, with manufacturing and services still expanding. Friday’s preliminary August PMIs should help confirm whether that stabilisation trend is continuing. For now, the labour data point to modest slack, not a sharp downturn. That gives the BoE some comfort that energy-driven inflation risks can be absorbed without needing to overreact, assuming core inflation continues to behave.

China’s July activity data were universally weak, pointing to a poor start to Q3 and raising fresh doubts about whether the economy can stay within this year’s official growth target range. Retail sales slowed sharply to just 0.6% y/y from 1.0%, while the year-to-date rate of 1.2% y/y was little better. The weakness confirms that household confidence remains deeply impaired. Consumers are still trapped between a deteriorating property market and a soft labour market. New home prices fell 0.18% m/m, marking the 38th consecutive monthly decline, while unemployment rose 0.2 percentage points to 5.2%.

There is a seasonal defence for the unemployment rise, as the move mirrors similar July increases in 2024 and 2025. But that does not soften the message from consumption. Spending remains weak, and last week’s credit data showed continued household deleveraging. That is not the backdrop of a consumer sector ready to drive a sustained recovery. The production side also deteriorated. Industrial production growth slowed to 4.5% y/y from 5.3%. The year-to-date rate eased only slightly to 5.3%, but the direction is clearly softer. Fixed-asset investment weakened further, falling 6.7% ytd y/y from 5.7% previously. Property investment fell 19.2% ytd y/y, a new low for the series.

This is especially notable because weakness is persisting despite accelerating spending on the AI buildout. That suggests the anti-involution campaign — aimed at addressing chronic overinvestment and excess capacity across industrial sectors — is continuing to restrain parts of the investment complex. The policy may be necessary over the long term, but in the short run it adds another drag to activity. China’s official 2026 growth target of 4.5–5.0% now looks more challenging if current momentum persists. Q1 growth was already a soft 4.7% y/y, and July’s data suggest further slowing. The implication is clear: China remains heavily reliant on strong net exports to hit its growth goal, precisely at a time when global demand and trade politics remain uncertain.

Macro to Micro: softer US data reduced near-term Fed hike risk, but the relief is being offset by rising long-end yields, renewed oil pressure and weak Chinese activity. The bond selloff is particularly important because it tightens conditions without central banks needing to move. Oil above $90/bbl keeps inflation risks alive. China’s data weaken the global growth backdrop. And the UK labour report supports BoE patience, but not aggressive easing. The Fed may still have room to wait, but markets are losing the luxury of ignoring duration risk and energy-driven inflation pressure.

Overnight Headlines

Ship Attacked In The Strait As Ceasefire Expiry Risks Prolonged Conflict
Trump: US Won't Seek To Extend Iran Deal, Threatens To Bomb Oman
Trump Says N Korea’s Kim Jong Un Replied To Call For Talks
Trump’s Cuts To S Korean Drills Stir Doubts About US Resolve In Asia
S Korea Denies Report On Discussing Chips As First US Investment
Xi’s No. 2 Urges More Support For Economy After Big Growth Slump
Japan 5-Year Bond Sale Draws Strongest Demand Since June 2025
Foreign Holdings Of Treasuries Fell In June, Led By Japan Drop
US Bond Selloff Drives 30-Year Yields To Highest Since 2007
Citadel Securities Says Spiking Yields Reflect Fed Policy Risk
BHP Profit Jumps 30% On Copper Price And Record Iron Ore Output
Anthropic Revenue Run Rate Surpasses $65B Ahead Of IPO
Google Plans To Stop Manufacturing Pixel Products In China In 2027

FX Options Expiries For 10am New York Cut

(1BLN+ represents larger expiries and is more magnetic when trading within the daily ATR.)

- EUR/USD: 1.1575 (EU1.28b), 1.1600 (EU637.1m), 1.1450 (EU524.7m)
- USD/JPY: 157.20 ($759.5m), 158.00 ($728.3m), 155.50 ($608m)
- USD/CAD: 1.3875 ($748.8m), 1.3825 ($405m)
- AUD/USD: 0.7275 (AUD811m), 0.6950 (AUD617m), 0.6700 (AUD451.8m)
- USD/BRL: 5.0000 ($1.18b), 5.0275 ($325.7m)
- USD/KRW: 1500.00 ($454.5m)

CFTC Positions as of 14/7/26

Bitcoin: net long position of 3,865 contracts
Swiss franc: net short position of -32,462 contracts
British pound: net short position of -56,221 contracts
Euro: net short position of -60,010 contracts
Japanese yen: net short position of -42,085 contracts
CBOT US 5-year Treasury futures: net short position reduced by 84,963 contracts to 1,240,756
CBOT US 10-year Treasury futures: net short position reduced by 64,190 contracts to 915,053
CBOT US 2-year Treasury futures: net short position increased by 16,815 contracts to 1,021,043
CBOT US UltraBond Treasury futures: net short position increased by 11,798 contracts to 326,783
CBOT US Treasury bonds futures: net short position increased by 3,335 contracts to 179,607
S&P 500 CME: equity fund speculators reduced net short position by 58,046 contracts to 261,531; fund managers raised net long position by 4,954 contracts to 942,062.

Technical & Trade Views

SP500 - 7620 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 7620 Target 7870
Below 7600 Target 7485

DXY - 100 weekly bull/bear level

Daily VWAP Bearish
Weekly VWAP Bearish
Above 99 Target 100
Below 98.90 Target 97.30

EURUSD - 1.15 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 1.1550 Target 1.17
Below 1.1480 Target 1.1420

GBPUSD - 1.35 weekly bull/bear level

Daily VWAP Bullish
Weekly VWAP Bullish
Above 1.35 Target 1.3690
Below 1.34 Target 1.33

USDJPY - 160 weekly bull bear level

Daily VWAP Bullish>Bearish
Weekly VWAP Bearish
Above 155 Target 160
Below 155 Target 152

XAUUSD - 4200 weekly bull bear level

Daily VWAP Bearish>Bullish
Weekly VWAP Bullish
Above 4200 Target 4400
Below 4100 Target 3570

BTCUSD - 64k weekly bull bear level

Daily VWAP Bullish
Weekly VWAP Bearish
Above 64k Target 71k
Below 61k Target 52.2k