Market Watch — August 21, 2026

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U.S. equities spent much of the week on the back foot as firmer oil revived inflation concerns that weighed on richly valued tech and AI names, with a semiconductor-led selloff driving Tuesday’s sharp drop. A brief mid-week rally on the Treasury’s buyback announcement faded as Walmart’s soft results and hawkish Fed minutes lingered, and though Friday’s strong PMIs steadied the tape, equities closed the week in the red.

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Canadian equities also finished lower amid sizable intraday swings. Stocks slid from early-week highs as they tracked U.S. risk-off sentiment, before spiking Wednesday on news of the tariff delay and U.S. Treasury’s buyback plans. The bounce was short-lived, however with markets drifting lower again into Thursday. A sharp Friday rebound, helped by a firm domestic retail sales report, recovered much of the damage, with commodity prices lending support to resource sectors throughout. Still, a hotter-than-expected CPI print that lifted Bank of Canada (BoC) hike expectations and uncertainty around the delayed U.S. tariff deadline, now set for midnight tonight, kept a lid on further gains.

European equities spent most of the week grinding lower, with regional benchmarks falling for seven consecutive sessions in nearly their longest losing streak since 2016 as weak risk sentiment and fiscal concerns weighed. A very modest Friday rebound on stronger-than-expected eurozone manufacturing PMIs did little to offset the week’s declines, while France remained a persistent laggard as an extreme summer heat wave weighed on services activity.

Chinese equities finished lower in a volatile week, advancing through Tuesday before a sharp Wednesday selloff as a crowded technology and semiconductor trade unwound, with only modest recovery into Friday despite fresh signals of fiscal support from Beijing. The broader emerging-market complex fared better, ending higher as a rebound in Korean semiconductors following SK Hynix’s buyback and record-setting EM currencies lifted sentiment, though Japanese exporters lagged on a firmer yen.

Highlights:

• U.S. equities closed -1.40%1 lower as firmer oil, a semiconductor-led decline, Walmart’s earnings miss and hawkish Fed minutes outweighed a mid-week buyback-driven rally and Friday’s resilient flash PMIs.
• Canadian equities finished -0.28%² lower in choppy trading, as a hotter inflation print that lifted Bank of Canada hike bets and tariff-deadline uncertainty offset firm commodity prices, a Wednesday tariff-delay pop and a retail-sales-driven Friday bounce.
• European equities slid -0.46%3 with regional indices sliding for seven straight sessions on soft risk appetite and fiscal concerns before a very modest Friday recovery driven by robust eurozone manufacturing data.
• Emerging market equities ended 0.46%⁴ higher, lifted by a Korean chip recovery and record-setting EM currencies, though Chinese equities bucked the trend and finished lower as an unwind in crowded tech and semiconductor positions drove losses that Beijing’s support pledges only partly cushioned, while a stronger yen pressured Japanese exporters.

Long-dated global sovereign yields spike before US Treasury increased buyback plan somewhat steadies rates

Long end U.S. Treasuries sold off aggressively early in the week, with 10- and 30-year yields reaching their highest levels since 2025 and 2007, respectively, on fiscal sustainability worries, heavy issuance (both government and AI-related corporate) and energy driven inflation concerns. Treasury Secretary Bessent surprised the bond market Wednesday by announcing a plan to double the size of the department’s long-dated buyback operations and sparking a sharp rally in yields. However, oil’s renewed climb largely unwound the rally in yield by Thursday and coupled with a strong US PMI report Friday, yields were largely back to the levels before Bessent spoke. Canadian bonds bear-steepened in sympathy, pressured further by a warm CPI (July) report that lifted the Bank of Canada rate hike expectations. European sovereigns underperformed as fiscal concerns and record yielding German and French issuance drove borrowing costs higher, though UK Gilts outperformed on in-line U.K. inflation. Japanese government bonds whipsawed, while record setting emerging market currencies underpinned demand for carry.

Highlights:

• The 2- and 10-Year U.S. Treasury yields both rose 9 basis points (bps) for the week. In Canada, the 2- and 10-year sovereign yields were 11 bps and 14 bps higher, respectively. Bond yields and prices move inversely to one another.
• Developed-market sovereign yields pushed to multi-decade highs midweek on fiscal and supply pressures before the U.S. buyback expansion and stronger eurozone PMIs helped stabilize the long end into Friday.
• A record-pace corporate supply calendar compounded the long-end selloff, with heavy investment-grade issuance adding to duration pressure amid thin August liquidity conditions.

Weekly dashboard

Canadian inflation edges higher keeping tightening risks alive

Canada’s July inflation report came in slightly firmer than expected, reinforcing the view that inflation progress remains uneven and keeping the possibility of further Bank of Canada tightening on the table. Headline inflation accelerated modestly, while core inflation measures also surprised slightly to the upside, suggesting underlying price pressures have not fully dissipated. Although several categories contributed to the stronger reading, inflation remains relatively contained overall, with key core measures still hovering around the Bank of Canada’s target range. The data prompted markets to modestly increase expectations for future rate hikes and supports the narrative that policymakers will remain cautious as they assess whether recent strength in economic activity and employment could translate into more persistent inflation pressures.

Highlights:

• Canadian CPI rose 3.0% year-over-year in July, up from 2.8% previously and above the 2.9% consensus forecast. Monthly prices increased 0.5%, exceeding expectations for a 0.4% gain.
• Price pressures were broad based, with six of eight major categories accelerating. Transportation costs were a key contributor as gasoline prices rose 25.7% year-over-year and 3.6% month-over-month, while air transportation inflation reached 12%.
• Some areas provided offsetting relief. Shelter inflation slowed to 1.3% from 1.5%, while food inflation eased to 3.0% from 3.5%, reaching its lowest pace since June 2025 and helping temper overall inflation pressures.

U.S. business activity accelerates in August as services offset manufacturing softness

U.S. private-sector growth picked up sharply in August, driven by the strongest services expansion in nearly two years, which more than offset a modest slowdown in manufacturing and pointed to a firming economic backdrop heading into the second half of the year. Flash data released Friday by S&P Global showed the Composite Output Index rising to 56.0, its highest level since April 2022, up from 54.5 in July, with the survey suggesting third-quarter growth is tracking close to 3.0% annualized, roughly double the 1.5% pace seen in the second quarter.

Highlights:

• The services PMI rose to 56.8, the highest since December 2024 and well above both the July reading of 54.6 and the 54.0 consensus, with new business growth the fastest since December 2024 and services hiring expanding the most in 19 months.
• Manufacturing eased to a five-month low of 53.2, down from 53.9 in July and below expectations for an unchanged reading, as reduced safety-stock building and supply disruptions from the U.S.-Iran war weighed on factory output, which grew at its slowest pace in 13 months. Order growth slowed for a fourth consecutive month.
• Price pressures receded somewhat but remained elevated, with input costs and selling prices still growing and the average cost increase so far in Q3 slightly exceeding the second quarter. S&P Global cautioned that price pressures remain prone to renewed upside should energy prices rise again.

Eurozone activity firms in August on the strongest manufacturing growth in years

Eurozone business activity gained momentum in August, with the region’s factory sector posting its strongest growth in more than four years, helping offset softness in its two largest economies and tempering expectations for near-term European Central Bank easing. Flash data from S&P Global showed the composite PMI edging up to 52.1 from 52.0 in July, ahead of the 51.7 consensus, as manufacturing strength and improving new orders pointed to broadening resilience across the bloc despite headwinds from elevated energy prices and the U.S.-Iran conflict.

Highlights:

• The manufacturing PMI rose to 52.8 from 51.9, the highest reading since May 2022 and a seventh consecutive month of expansion, while services held steady at 51.7, above the 51.5 consensus. New orders climbed to 52.2 from 50.7, their highest level since March 2022.
• Germany’s composite PMI dipped to 51.0 from 51.3, missing consensus, but manufacturing surged to 54.1 from 52.2 — its best reading since May 2022 — with new orders jumping to 55.1. Services remained the weak spot, falling to 48.5 and marking a fifth straight month of contraction.
• France remained the region’s laggard, with its composite PMI unexpectedly slipping to 48.8 from 49.4 as an extreme summer heat wave weighed on services, which fell to 48.4 — an eighth consecutive month of contraction. Manufacturing offered a bright spot, improving to 51.5.

1  S&P 500 Index USD

2 S&P/TSX Composite Index USD

3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD

4 Bloomberg EM Large & Mid Cap Price Return Index USD

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