Trump-Putin talks falter ahead of Zelenskiy's visit to the White House

In focus this week

Today, following the Trump-Putin meeting in Alaska, Ukrainian President Zelenskiy is set to meet US President Trump in the White House alongside a group of European leaders including EU commission president von der Leyen. 

In the euro area, we look for final July inflation data on Wednesday, the PMI report for August on Thursday and the negotiated wages indicator released by the ECB on Friday. We will closely monitor the negotiated wages indicator, as declining domestic inflation is the biggest downside risk to our call of ECB holding rates steady for the rest of the year.

Across the Atlantic, the Fed is set to take headlines throughout the week, as the minutes of the FOMC's July meeting are released Wednesday evening. Then on Thursday and Friday the Fed's Jackson Hole Symposium will take place. This year's theme is "Labor Markets in Transition: Demographics, Productivity, and Macroeconomic Policy". The main focus of markets will be on Fed Chair Powell's speech on Friday afternoon. On the macro data front, August flash PMIs are due for release Thursday. 

Economic and market news

What happened over the weekend

In the US, July retail sales came in strong at +0.5% (cons: +0.5%), while the June numbers were revised up from +0.6% to +0.9%. Control group sales, the 'core' group, came in at +0.5% m/m with solid sales reported among most sectors. While employment growth has slowed over the past months, solid wage growth continues to fuel consumption in the US. Meanwhile, US July industrial production grew -0.1% (cons: 0.0%) in July, while the June growth was revised up to +0.4% from +0.3%. 

University of Michigan consumer 1-year inflation expectations rose to 4.9% (preliminary) in August from 4.5% in July. Inflation expectations declined from May to July, but the new tariffs appear to have caused renewed concerns in early August. Worries about inflation also fed into a weaker consumer sentiment which declined to 58.6 from 61.7 in July.  

In Alaska, US President Trump and Russian President Putin met to discuss the war in Ukraine. The talks ended earlier than expected and were unsuccessful in making any imminent progress towards a ceasefire. Steven Witkoff, Trump's special envoy to the Middle East, said that Putin agreed that the US could provide security guarantees to Ukraine as part of a deal, which would, though, also likely require territorial concessions. Following the meetings, Trump decided to hold back on further sanctions against Russia as well as 'secondary tariffs' on countries buying Russian energy such as India and China. 

Equities: Equities ended last week on a soft note, but the broader picture remains another week of gains. Under the surface, cyclicals underperformed defensives, but the real story was sector rotation - particularly a strong comeback in healthcare. We have highlighted the sector several times recently, and last week investors finally rotated back in: healthcare gained nearly 4% in Europe and more than 5% in the US, outperforming staples by 4% in relative terms. This was not a broad defensive theme, but a clear rotation story, partly reflecting easing tariff fears and the sector's prior underperformance. In the US on Friday, Dow +0.1%, S&P 500 -0.3%, Nasdaq -0.4% and Russell 2000 -0.6%. Asian equities are higher this morning, and futures in both Europe and the US are marginally in the green.

FI and FX: Risk sentiment soured through Friday's session as markets awaited the outcome of the Putin-Trump Alaska summit. Rates moved higher across regions with the solid US retail sales data and rising consumer inflation expectations adding to the move. Long-end bonds suffered the most with 30Y yields in Germany and France reaching their highest levels since 2011. EUR/USD drifted higher towards 1.17 on Friday as the USD broadly weakened, ending the week down around 0.4%. EUR/SEK and EUR/NOK rose as market sentiment worsened. Overnight, Asian stocks are trading modestly higher as focus turns towards the Trump-Zelensky meeting.