The Week Ahead: Markets Watch Inflation, Fed Policy and Earnings as Uncertainty Remains

Author: Michael Hewson    Date : 13th July 2026

As Q3 gets under way the recent US payrolls painted a picture of a rDate:bly robust labour market, although the number of jobs added came in at a lower than expected of 57k. While this was disappointing, the 3-month average remained in line with the average monthly change over a 12-month period.

Key Market Highlights

• US labour market shows signs of cooling, reducing pressure for further Fed tightening.
• Inflation data remains critical for future interest rate expectations.
• Fed Chairman Kevin Warsh’s testimony could shape market expectations.
• US retail sales will test the strength of consumer spending.
• UK GDP data may confirm slowing economic momentum.
• Eurozone inflation slowdown raises questions over ECB policy.
• US banking earnings take centre stage with JPMorgan, Citigroup, Wells Fargo and Goldman Sachs reporting.
• Netflix and TSMC results highlight growth and AI valuation concerns.
• Geopolitical tensions remain a risk for energy markets and global growth.

 

Headline unemployment came in at 4.2%, a one year low, however this was mainly down to a sharp fall in the participation rate to 61.5%, the lowest level since March 2021.

With concerns about elevated inflation, still front of mind, this slowdown in hiring along with the sharp drop in participation is helping to keep the pressure off the Federal Reserve when it comes to a possible rate hike, and as such means it is highly unlikely, we will see a US rate hike at all this year, assuming oil prices remain close to their current levels.

It appears that markets are also coming round to that idea after US yields saw a modest softening in the wake of the report last week, although concerns around elevated AI valuations continue to keep volatility in the tech sector high.

There remains a lingering concern that further instability in the Middle East might derail that given the resumption of hostilities this week between the US and Iran, after Iran opened fire on tanker traffic traversing the Omani side of the Straits of Hormuz, prompting a counter response from US forces.

While there are many in the market who seem to think that the recent dialling back of tensions marks an end to the current uncertainty, the fear is that Iran is merely stringing the US along, and from now on the status quo will be periods of calm, punctuated with outbreaks of kinetic action.

Against such a backdrop there will be no “back to normal” as far as the Straits of Hormuz is concerned ever, which means the global economy will have to adapt workarounds to this new normal for years to come.  

This ongoing volatility, as well as concerns over frothy markets, has served to keep both the S&P500 and Nasdaq chopping broadly sideways over the past month or so, and is likely to continue to do so for the foreseeable future.

The slowdown in the jobs market, alongside increasing evidence that price pressures are slowly moderating could see rate hike bets reined back further in the coming days if we see US headline CPI inflation slow from the 3-year highs we saw in May, in the wake of the recent fall in US gasoline prices.

With US Q2 bank earnings also set to come into play in the coming days, the underperformance that we saw in this sector in H1, could help to underpin and help to limit any downside for US markets in a quarter that saw a significant increase in deal making, led by the SpaceX IPO. 

One other thing to keep an eye on in the coming days will be new Fed chairman Kevin Warsh’s testimony to US lawmakers on Capitol Hill where he is set to answer questions from the House Financial Services Committee.

US Inflation: Markets Await Further Evidence of Price Moderation

US inflation remains one of the biggest drivers of market expectations. Inflation increased to a three-year high of 4.2% in May from 3.8% in April, mainly reflecting higher energy costs.

Inflation in the US jumped to a 3-year high in May of 4.2%, from 3.8% in “April”, with rising energy costs being one of the main drivers behind the move. More interestingly, food price inflation also continued to move higher, rising to 3.1% from 2.3%, especially since food inflation in Europe has been slowing. Core prices also rose, albeit more modestly to 2.9%. Ordinarily this would be a significant concern in terms of rate hike expectations, however there has been some evidence that price pressures are slowing in the recent prices paid numbers from the ISM surveys for June. The resilience of the labour market is also helping, being not too hot and not too cold. The World Cup may also be offering an upward bias to some of the numbers given that some US businesses may well be raising their prices to take advantage of some increased demand.      

Fed Chairman Warsh Testimony: Investors Assess Future Monetary Policy Direction

Fed Chairman Kevin Warsh will appear before the House Financial Services Committee on 14 July, providing markets with further insight into how the Federal Reserve may operate under his leadership.

14/07 – how will a Warsh Fed behave when it comes to monetary policy decision making. While his nomination hearing managed to get some Democrats a little hot under the collar with Democrat senator Elizabeth Warren asking him if he was President Trump’s sock puppet, we already have some clues as to how Chairman Warsh is likely to run things. We did get some flavour from the recent Fed press conference when the new chairman shortened the statement, as well as announcing a broad review of the Fed’s key functions establishing 5 task forces to look at its comms, balance sheets management, data sources, as well its productivity and its broader monetary policy frameworks. We already know that he favours a less hands-on approach when it comes to market communication, although quite how he intends to enforce that when in the past Fed officials have proved to be over communicative when it comes to how they view monetary policy. How he navigates the partisan nature of this regular event, along with the land mines of political questions. Powell was quite sure footed when it came to these types of events. Will Warsh be as nimble given he is very much seen as Trump’s man?    

US Retail Sales: Can Consumer Strength Continue?

US retail sales have remained relatively resilient despite rising living costs.

16/07 – despite increasing cost of living pressures US retail sales have remained pretty solid after a weak end to 2025 and a weak start to the year. Since February the US consumer has managed to maintain a degree of resilience, although it should also be noted that the retail sales numbers have been juiced by gasoline sales. During May retail sales improved from 0.4% in April to rise 0.9%, with gasoline sales up 3.4%. Excluding gasoline, we still saw a gain of 0.7%. On a narrower basis, for the purposes of GDP sales were up 0.7%, following a 0.5% gain in April. With the World Cup also underway we could well continue to see a boost here, especially in hospitality and retail.   

 

UK GDP: Economic Momentum Begins to Slow

After strong growth in Q1, the UK economy has shown signs of losing momentum.

16/07 – after a strong start to the year the UK economy has started to show signs of slowing as it enters Q2. Q1 GDP growth of 0.6% was primarily driven by the services sector, helped in no small part by professional activities along with wholesale and retail trade. A lot of this improvement was driven by businesses’ front-running expected tax and price rises which were expected to kick in with the start of the new tax year in April. The monthly GDP number for April saw a sharp slowdown of -0.1%, with the services sector contracting by -0.2%, although there was a pickup in construction of 0.1% and manufacturing of 0.4%. The biggest drag on the economy in April was administrative and support services, along with arts, entertainment and recreation. This tallied up with recent weakness in retail sales numbers for the same month, which showed a decline of -1%. As we look towards the May GDP numbers it’s hard to expect to see a significant improvement, although retail sales did see a decent rebound of 1.2%. On the varying PMI measures it has been notable that economic activity in the services sector slipped sharply into contraction in May, after a reasonably strong April.     

Eurozone Inflation: Has the ECB Acted Too Early?

Recent inflation data has increased concerns that the European Central Bank may have moved too aggressively.

17/07 – it has become increasingly apparent that the recent ECB rate hike may well have been a mistake, after the latest flash CPI numbers for June showed that headline inflation slowed to 2.8%, from 3.2% in May. Core inflation also slowed sharply, dipping back to 2.4% from 2.6%. The sharp decline in crude oil prices has helped in this regard, while we’ve also seen evidence of slowing food inflation. It’s not as if the ECB wasn’t warned that they were being premature, and it's not as if they haven’t been caught out before by moving too early. Sadly, it would appear that the ECB, rather than learning from past mistakes, seems to believe in the idea that this time will be different. Embarrassingly for them the likes of Lagarde and the rest of the council may well be forced to reverse course in the next few months as growth and economic activity continues to struggle.

JPMorgan Chase Q2 2026: Strong Results but Cautious Outlook

JPMorgan delivered another strong quarter, supported by trading revenues, investment banking activity and higher overall revenues.

14/07 – having slipped to 9-month lows back in March, JPMorgan shares have edged higher with their Q1 earnings back in April prompting little if any reaction. Most of the move higher in the share price since then has been merely down to easing inflation concerns as oil prices have retreated, and easing the pressure on the cost of living in the US. On the numbers themselves we saw the bank post a strong quarter. Record Q1 revenues of $50.54bn, an increase of 10%, along with net income of $16.5bn. The numbers were driven by a 21% increase in FICC revenue to $7.08bn, in contrast to Goldman which saw FICC disappoint, while investment banking fees rose 28% to $2.88bn. Net interest income saw a 9% increase to $25.5bn, with the bank setting aside $2.5bn for credit losses, although this was less than expected. There was a sting in the tail in the form of a downgrade to its full year net interest income forecast, but only by a modest $1.5bn to $103bn. CEO Jamie Dimon struck a cautious tone, noting that the US economy was resilient, however he acknowledged a wide range of uncertainties that could act as headwinds over the rest of the year.  

Citigroup Q2 2026: Restructuring Strategy Continues to Deliver

Citigroup continues to benefit from its restructuring programm under CEO Jane Fraser.

14/07 – of all the US banks Citigroup has the most ground to catchup compared to its share price pre-financial crisis, with the shares continuing to go from strength to strength after a similarly strong set of Q1 numbers. CEO Jane Fraser has gone to great lengths to restructure the bank and make it more efficient and the results are bearing fruit. A 14% increase in Q1 revenue of $24.6bn and a 42% increase in net income of $5.8bn, driven by solid performances across the various divisions. FICC and Equities generated a 19% increase in revenue of $7.3bn, with FICC posting $5.2bn and equities $2.1bn. Investment banking saw fees increase by 15% to $1.8bn, while wealth and private banking generated revenues of $3.1bn, a rise of 11%. Net credit losses were also less than expected, coming in at $2.2bn. Guidance was left unchanged with the bank saying it was continuing to rollout AI solutions to improve efficiency, as well as streamline its operations.

Wells Fargo Q2 2026: Investors Look for Improvement

Wells Fargo continues to lag behind some US banking peers after weaker previous results.

14/07 – hasn’t been a particularly great quarter for Wells Fargo share price wise, with the shares suffering a knock back in the wake of their Q1 numbers, the shares sliding to 9-month lows in the weeks after. We’ve seen a modest recovery since then; however, we’ve only been able to return to the levels they were pre the release of the Q1 numbers. Why the underperformance you may ask given that the bank kept its full year guidance unchanged? Quite simply the bank missed expectations across the board. Q1 revenues fell short of forecasts, coming in at $21.45bn, about $400m below consensus. Net interest income also fell short at $12.1bn, as did non-interest income. On the plus side net income did come in higher than expected at $5.3bn, however investors were less than impressed due to narrower than expected margins for Q1, a trend that management warned could continue in Q2. This came across as somewhat of a surprise given that pressure on margins usually comes about as a consequence of falling interest rates, an outcome that is now much less likely due to recent events. Wells Fargo also gave details of its exposure to private credit firms, a total of $36.2bn out of a total of $210.2bn to non-bank financial firms is still a sizeable sum. Loan loss provisions were also slightly higher at $1.14bn, an increase of 22%. On the plus side the company’s growing markets business performed well with a 38% increase in revenue to $1.35bn, while advisory fees and commission rose 10% to $3.49bn.

Goldman Sachs Q2 2026: Trading Strength Meets High Expectations

Goldman Sachs benefited from market volatility and strong deal-making activity.

Despite seeing a modest dip in the wake of their Q1 numbers Goldman Sachs shares have had a strong quarter share price wise with the shares rising to fresh record highs last month. The bank saw a 14% increase in revenues to $17.23bn, with earnings per share of $17.55, or $5.44bn. Despite this strong performance the shares fell back as markets digested the numbers. Global Banking and Markets saw a 19% increase in revenues to $12.94bn, with a strong performance from equity trading of $5.33bn, a 27% improvement, while FICC generated a lower than expected $4.01bn in revenue, a decline of 10%. It is clear that the recent volatility seen across markets this quarter has enabled Goldman to take advantage in many areas, however it would appear that markets were expecting more from FICC, which saw revenues decline. There could be many possible reasons for this including a reluctance on the part of customers to get involved in the recent sharp moves seen in commodity prices which caught many people the wrong way round during the quarter. Dealmaking saw a strong quarter, with a 50% increase in this business area, advising on the recent Unilever/McCormick deal, with the outlook here likely to get better given that the bank was one of the leads on the SpaceX IPO which launched in the summer. Wealth management also did well with revenues of $4.1bn.

Netflix Q2 2026: Advertising Growth and Leadership Changes in Focus

Netflix continues to expand its advertising-supported subscription model while maintaining strong subscriber growth.

16/07 - having seen a decent rally in the share price in the wake of the collapse of the Warner Bros Discovery deal during Q1, Netflix shares have since slipped back wiping out those gains to fall to 18-month lows at the end of June. It’s not immediately clear why investors appear to have fallen out of love with the streaming giant even with Q2 guidance being a little on the light side. The numbers themselves were strong enough, Q1 revenues coming in at $12.25bn, comfortably ahead of forecasts, and 16% above the same quarter a year ago. Profits were also strong, coming in at $5.28bn, well above the $2.89bn a year ago. It does need to be said this was boosted by the $2.8bn the company received as a result of the collapse of the WBD deal. Netflix also maintained its full year revenue guidance of between $50.7bn and $51.7bn. For Q2 Netflix said it expected to see revenue increase by 13%, to $12.57bn which was below expectations of $12.64bn. The guidance was light on projections for Q2 profits which were set at 78c a share, or $3.33bn, below an expected 84c. Operating margins were also forecast to be below forecasts of 34.4%, as well as last year’s 34.1%, at 32.6%, which while disappointing doesn’t completely explain the big sell-off seen in the wake of the announcement. It’s more likely that investors haven’t taken well to the announcement that co-founder Reed Hastings will be leaving the company in June, even though he stepped away from his co-CEO role in 2023. Greg Peters remains in place as co-CEO along with Ted Sarandos. Netflix said they remained on track to deliver $3bn in advertising revenue in 2026, as it continues to add to its ad-subscription model. The company now has 325m global subscribers.

TSMC Q2 2026: AI Growth Versus Valuation Concerns)

TSMC remains one of the biggest beneficiaries of the artificial intelligence investment cycle.

16/07 – over the last 12 months the shares of TSMC have more than doubled as chip makers continue to benefit from the AI trade, although we have seen some sharp intraday sell offs in the past month or so as investors become ever more trigger happy about sky high valuations. Only this month we’ve seen Samsung shares plunge despite reporting a 19-fold increase in revenue, and record profits, while the upcoming SK Hynix US listing is also amplifying concerns over an AI bubble. For now, TSMC shares are once again starting to flirt with a possible break below their 50-day SMA, having already seen a number of tests of this key level in the last few months. When TSMC reported in Q1. Net revenue came in at $35.9bn, a Y/Y increase of 40.6%, on a gross margin of 66.2%, and an operating margin of 58.1%. Profits came in at $3.49 a share. For Q2 the chipmaker proffered guidance of $39-$40.2bn, on an NTD exchange rate of 31.7. AI related revenue is expected to continue to add to its margin and profits growth. Currently it accounts for 18% and is expected to push above 20% in short order given that nearly 60% of the company’s revenue mix is already high-performance computing in the form of enterprise and data centre CPUs

Market Outlook Summary

Markets enter the week facing a balance between improving inflation trends, resilient economic activity and strong corporate earnings.

However, elevated valuations, geopolitical uncertainty and questions around future central bank policy mean volatility is likely to remain elevated.

The key drivers for markets will be inflation data, Fed commentary and corporate earnings performance.

FAQs

What are markets watching this week?

Investors are focused on inflation data, Fed policy signals, economic growth indicators and major earnings reports.

Is the Federal Reserve likely to raise rates this year?

Current market expectations suggest further rate increases are unlikely if inflation continues to moderate.

Why are AI stocks under pressure?

Strong gains in AI-related companies have increased concerns that valuations may have become stretched.

Which companies are reporting earnings?

Key reports include JPMorgan, Citigroup, Wells Fargo, Goldman Sachs, Netflix and TSMC.

How could Middle East tensions affect markets?

Further instability could impact oil prices, inflation expectations and global economic confidence.

This material (whether or not it states any opinions) is for general information purposes only and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research.