EM Weekly
August 29, 2026

Chair Warsh delivered his first Jackson Hole keynote on Friday morning, breaking with two decades of tradition by declining to signal the policy path. In prepared remarks, he said the economy is at “full employment” while inflation figures “are more concerning,” concluding that “the Fed’s predominant focus right now should be on prices”, a slightly hawkish tilt in emphasis, while leaving investors to determine for themselves when the Committee would act. Markets did interpret Warsh’s comments on the hawkish side, repricing the implied probability of a September rate hike to around 60% while the short end of the U.S. Treasuries curve widened by as much as 10bps. The benchmark 10Y yield was less impacted, still around 3bps lower compared to last week at ~4.70%.  

Coming after a week in which bond and dollar markets were described as “on edge” ahead of the address, and with the dollar near a one-week high into the speech, the remarks reinforce the new regime: a Fed biased toward tightening but withholding forward guidance. For investors, the absence of a rate-path steer keeps an elevated uncertainty premium embedded in U.S. rates and the dollar, with the focus ahead of the September 15–16 decision shifting to next Friday’s August jobs report.

Wednesday’s July PCE report strengthened the case for that hawkish emphasis. Headline PCE held at 3.7% YoY, above the 3.6% consensus, with prices up 0.2% on the month, while core PCE printed 3.3% for a second straight month—leaving the Fed’s preferred core gauge stuck in a 3.3–3.4% band for four consecutive months with essentially no net progress. More troubling for the growth side of the ledger, inflation-adjusted consumer spending was flat in July, a sharp deceleration from June’s 0.4% gain, as households retrenched against still-elevated prices. For investors, the report carried a stagflationary tinge. Sticky inflation alongside stalling real consumption narrows the Fed’s room for error and validates the market’s reluctance to price a quick resolution in either direction.

The AI trade received its most important data point since the spring. Nvidia’s results on Wednesday evening were a comprehensive beat. Revenue of $96.2 billion rose 106% YoY, EPS more than doubled, and guidance of $106–110 billion for the current quarter exceeded estimates. Shares jumped 8.7% on Thursday, driving the Nasdaq up 1.6% and the S&P 500 to its best session of the month after chip weakness had dragged indices lower early in the week. For investors, supplier-level evidence that AI capex is both accelerating and monetizing resets the capex-versus-monetization debate in the bulls’ favor with memory-cost inflation now the emerging watch-item across the complex.

Meanwhile, the Trump administration unveiled “Operation Economic Outcast,” the promised sanctions offensive against Iran. Roughly 60 entities, individuals, and vessels were designated, including some in mainland China and Hong Kong, across newly targeted sectors spanning digital assets, technology, gold, aviation, and shipping, aimed at a shadow-fleet network operating through the UAE, Hong Kong, China, Singapore, Switzerland, and Europe. Critically, the package stopped short of designating major Chinese banks that facilitate Iranian oil purchases, with Treasury Secretary Bessent saying countries would be given “the opportunity to remedy bad behavior” while warning that “no one is above the reach of U.S. sanctions.” Beijing vowed “all necessary measures” to protect its interests, and Tehran promised a “seismic” response while its central bank dismissed the measures’ incremental impact. For investors, the market read the package as a warning shot rather than a decisive blow, but the unresolved question of secondary sanctions on Chinese financial institutions is now the key binary risk for EM trade and financial channels heading into President Xi’s late-September visit to Washington.

Crude fell sharply despite the sanctions escalation and Hormuz throughput near post-war lows. Brent declined roughly 5% on the week to the high-$80s, with WTI near $83, as markets interpreted the pivot from military strikes to economic coercion as less immediately supply-disruptive. That reading was reinforced by a State Department decision to return evacuated diplomats to the region and by reports that Iran and Oman discussed a “temporary joint maritime corridor” through the Strait, with technical talks continuing toward a permanent arrangement. For investors, the geopolitical premium is deflating on diplomatic process rather than restored physical flows, leaving crude asymmetrically exposed to any breakdown in the corridor talks.

The Treasury market found a calmer footing after the prior week’s turmoil. Yields fell early in the week alongside oil and on a report that the Treasury could tap its roughly $850 billion General Account to fund expanded buybacks. The 10-year was little changed after the PCE print, holding below the prior week’s highs, and the 30-year dropped below 5.20% as the curve flattened. Pushback against the intervention strategy grew louder. However, Stanley Druckenmiller warned that liquidity tools cannot fix solvency problems, and JPMorgan analysts cautioned that the Treasury moving away from its “regular and predictable” issuance tenet risks embedding permanently higher risk premia. For investors, the long end has stabilized but not healed. Term premium remains the wildcard discount rate for global assets, and next week’s supply calendar is the next test.

A second trade front opened in North America. U.S.-Canada negotiations collapsed at the final stage over the weekend, prompting Ottawa to impose retaliatory tariffs of up to 50% on roughly $20 billion of U.S. goods after Washington’s move to raise duties on Canadian cars and parts. For investors, an open trade conflict with a top three U.S. trading partner adds a fresh cost-push channel to an inflation picture that July’s PCE showed is already sticky, and further complicates the Fed’s calculus.

In Europe, the data continued to surprise firmer, with German 2Q growth revised higher and the Ifo business climate index reaching a one-year high, keeping the ECB’s September 10 decision live for the hike that markets have priced. In EM, the week’s central bank decisions deepened the differentiation theme. The Bank of Korea hiked 25bps to 3.00% in a 6–1 vote, its second consecutive increase. The central bank also raised its 2026 growth forecast to 3.3% and upgraded its core inflation projections, with the won near its strongest levels in a year, EM Asia’s clearest entrant yet into the global tightening turn. Hungary’s MNB moved the opposite direction, cutting 25bps to 5.50% in a third straight reduction with July inflation at just 1.2%, though Governor Varga stressed vigilance given Middle East risks and warned that the high global yield environment poses capital-outflow risks for emerging markets. For investors, the widening dispersion between EM hikers with hot growth and disinflation outliers still easing, argues for country selection over index beta in local markets.