Author: Fiona Craig

The U.S. market cycle has shifted into a Late Acceleration phase, according to Wolfe Research, after July’s ISM Manufacturing data provided further evidence of strengthening economic momentum. Robust AI infrastructure spending and an emerging inventory restocking cycle are helping drive the expansion, while U.S. equities have responded with strong gains at the start of August.

ISM data triggers market-cycle shift

Wolfe Research uses the six-month moving average of ISM New Orders as the central indicator in its market-cycle framework.

Following the latest manufacturing report, the measure has moved sufficiently to place the U.S. economy in Late Acceleration, the third phase identified by the firm’s model.

The classification points to an economy that remains in expansion but has moved further through the middle portion of the broader business and market cycle.

The next transition is expected once momentum in ISM New Orders reaches a peak.

US stocks rally as expansion gains momentum

Major U.S. equity benchmarks have performed strongly during the opening part of August.

The S&P 500 gained 3.6%, while the NASDAQ-100 advanced 5.1% and the Russell 2000 climbed 3.5%.

The S&P 500 also broke out of a roughly two-month trading range and reached new record highs.

The combination of improving economic indicators and strong equity performance has reinforced Wolfe’s assessment that the market has entered another stage of the expansion.

Hyperscaler AI investment drives industrial demand

One of the forces behind the stronger manufacturing environment is the enormous investment being made in artificial intelligence infrastructure.

Hyperscale technology companies continue to spend heavily on data centres, computing hardware and the wider infrastructure required to develop and operate increasingly sophisticated AI systems.

That spending is generating demand throughout technology and industrial supply chains and has become an increasingly important component of U.S. capital expenditure.

At the same time, wholesale inventories have declined relative to sales, encouraging businesses to rebuild stocks.

This restocking process provides another potential source of manufacturing demand as companies replenish depleted inventories.

Late Acceleration could continue into 2027

Wolfe Research expects the current market phase to remain in place until the six-month moving average of ISM New Orders reaches its eventual peak.

The firm believes that turning point could arrive late this year or during the opening part of 2027, potentially as the headline ISM index approaches 60.

Until then, the continued improvement in manufacturing momentum could provide a supportive backdrop for economically sensitive areas of the equity market.

Once new orders begin to peak, however, Wolfe’s framework would indicate that another market-cycle transition is approaching.

Fed expectations shift after weaker payrolls

Monetary policy remains an important variable for the outlook.

Investors are assessing inflation figures alongside signs of stronger manufacturing activity to determine whether economic acceleration could eventually generate renewed price pressures.

Expectations for the Federal Reserve to raise rates in September have declined following a weaker-than-expected payrolls report.

That change could provide some support for risk assets, although the path of inflation will remain critical to determining the Fed’s next moves.

Five sectors historically benefit from Late Acceleration

Wolfe Research identified Technology, Energy, Financials, Health Care and Industrials as sectors that have historically performed well during Late Acceleration.

Technology remains particularly exposed to the AI investment boom that is helping fuel the current manufacturing expansion.

Industrials could also benefit as capital expenditure and inventory restocking generate additional demand, while Energy has historically performed favourably as economic activity strengthens.

Wolfe nevertheless remains underweight Financials despite the sector’s typical performance during this phase.

The firm pointed to volatile interest-rate policy under the Kevin Warsh regime and the risk that the yield curve could invert during the first half of 2027.

ISM New Orders becomes key signal for next market move

For investors, Wolfe Research’s framework places particular importance on the direction of ISM New Orders over the coming months.

Continued improvement would support the view that the U.S. remains firmly in Late Acceleration, while an eventual peak would signal that the current phase is nearing completion.

With AI investment, inventory rebuilding, inflation and Federal Reserve policy all influencing the outlook, sector leadership could continue evolving as the market progresses through the cycle.

Traffic across the U.S. quick-service restaurant industry weakened modestly in July, according to Jefferies’ analysis of Placer data, with softer demand at chicken and pizza chains offsetting some of the improvement seen during June.

July gives back part of June’s traffic recovery

Jefferies Restaurants analyst Andy Barish reported that industry same-store sales increased 1.7% during July, approximately 10 basis points below the previous month’s performance.

The moderation reflected a roughly 20-basis-point deterioration in customer traffic, while average check strengthened by around 10 basis points.

Traffic declined approximately 2.1% for the entire month, compared with a roughly 1.8% decline through the first half of July, indicating that conditions weakened as the month progressed.

Potential disruption from Canadian wildfire smoke may have affected restaurant visits, according to Jefferies. Concerns surrounding Cyclospora-related foodborne illness could also have influenced customer behaviour towards the end of the month.

Higher checks support QSR sales

Quick-service restaurants continued to generate positive same-store sales despite softer customer visits.

QSR same-store sales remained at 1.8% compared with June, as an approximately 30-basis-point deterioration in traffic was counterbalanced by stronger average check.

Meanwhile, the two-year average trend improved by roughly 40 basis points month over month.

The combination suggests that pricing and customer spending helped protect restaurant sales even as traffic trends became less favourable.

Large restaurant chains see softer visits

Jefferies’ review of Placer data covering approximately 50 larger U.S. restaurant banners showed a clearer sequential slowdown.

Overall QSR traffic deteriorated by around 61 basis points compared with June.

The decline followed an approximately 145-basis-point improvement in the previous month, meaning July surrendered a meaningful portion of June’s recovery.

The figures nevertheless showed considerable differences between individual restaurant categories.

Burgers improve as chicken and pizza retreat

Burger restaurants performed comparatively well, with traffic trends improving by approximately 46 basis points sequentially.

Chicken chains weakened by around 60 basis points, reversing part of their earlier momentum.

Pizza restaurants experienced the largest deterioration among the categories highlighted by Jefferies, with traffic falling approximately 79 basis points compared with June.

These trends suggest that July’s weaker QSR performance was driven disproportionately by chicken and pizza rather than uniform weakness across fast-food restaurants.

Different datasets send contrasting signals

Jefferies also pointed to commentary from Lamb Weston that presented a somewhat different picture of restaurant demand.

In its fourth-quarter results, Lamb Weston described overall U.S. restaurant traffic as roughly flat, with QSR traffic also approximately unchanged.

Its category-level observations showed QSR chicken traffic increasing around 3%, while burger traffic declined approximately 4%.

The contrast with Jefferies’ Placer analysis may reflect differences in datasets, measurement periods or restaurant coverage, underscoring the importance of monitoring multiple indicators when assessing consumer behaviour.

QSR demand remains under scrutiny

July’s figures suggest that momentum across the U.S. fast-food industry moderated after June’s improvement, but the broader picture remains mixed rather than uniformly weak.

Same-store sales stayed positive, supported by higher average checks, while burger traffic showed sequential improvement even as chicken and pizza weakened.

The key question for restaurant companies is whether the July slowdown proves temporary or develops into a more sustained decline in visits. Consumer spending patterns, pricing and traffic trends will therefore remain important indicators for the sector as the second half of the year progresses.

Gold prices declined on Friday as investors continued to take profits following the metal’s recent surge to a 10-week high, while uncertainty surrounding the Strait of Hormuz kept energy-driven inflation risks firmly in focus.

At 02:08 ET (06:08 GMT), XAU/USD was down 0.4% at $4,334.48 an ounce, while Gold Futures dropped 0.7% to $4,390.30. XAG/USD declined 0.4% to $64.23 an ounce, whereas XPT/USD advanced 0.3% to $1,724.43. The US Dollar Index slipped 0.1% to 99.82.

Despite giving back some of its recent gains, bullion remained on course for its second consecutive weekly increase.

Cooling inflation reduces immediate Fed tightening risk

The precious metal fell 1.3% on Thursday as traders reassessed its recent rally following another round of relatively soft U.S. inflation data.

The figures indicated that the inflationary impact of the energy disruption associated with the Iran war was comparatively contained during July, reducing some concerns that the Federal Reserve could need to tighten monetary policy again immediately.

Markets are now assigning roughly a one-in-three probability to a September interest-rate increase. Investors will receive further employment figures before the Fed’s next policy decision, while remarks from Chair Kevin Warsh at the Jackson Hole symposium later this month will be another important focus.

ANZ said the latest producer-price report strengthened the argument for unchanged rates. Headline PPI showed no monthly increase in July, while core PPI rose 0.2%, with both figures coming in below consensus forecasts.

Those numbers followed relatively restrained CPI readings earlier in the week, providing further evidence that inflation pressures have not accelerated as sharply as feared.

A lower probability of an immediate rate increase is generally positive for gold because holding bullion does not provide interest income.

Recent gold rally encourages profit-taking

Although the interest-rate backdrop has become more supportive, the speed of gold’s recent recovery has prompted some investors to secure profits.

ANZ highlighted increased profit-taking after bullion moved through its 100-day moving average, a closely watched technical level.

Gold climbed above the indicator for the first time since April earlier this week, although subsequent selling pushed the metal back below it.

The broader recovery has also taken bullion firmly above the psychologically significant $4,000-an-ounce level in recent weeks.

Renewed investment demand and stronger purchases from central banks, particularly China, have provided additional support to the market.

Strait of Hormuz remains key inflation risk

Geopolitical developments continue to complicate the outlook for both gold and U.S. interest rates.

Washington and Tehran have yet to resolve their dispute over the Strait of Hormuz, leaving investors uncertain about the security of global energy supplies.

Tensions have increased following U.S. threats to maintain an indefinite naval blockade of Iran as ceasefire efforts struggle to make progress. Tehran has accused Washington of escalating the confrontation, while attacks involving vessels in the region have added to concerns about energy shipments.

Any further deterioration could push crude prices higher, increasing inflationary pressure and potentially giving the Federal Reserve more reason to consider tighter monetary policy.

A lasting reopening of the Strait of Hormuz, however, could reduce supply concerns and ease some of the inflation risks created by the U.S.-Iran war since late February.

Gold outlook balances rate support against stretched positioning

Gold’s fundamental backdrop remains supported by the reduced likelihood of an immediate Fed rate increase, continued central-bank purchases and renewed investor demand.

However, ANZ said the recent advance has created conditions for further profit-taking and consolidation.

Middle East energy risks remain capable of changing inflation expectations quickly, while incoming U.S. economic figures could alter market assumptions about the Fed’s next move.

With bullion having recently reached its highest level in ten weeks, traders are now balancing the improving interest-rate environment against the possibility that positioning has become stretched following the sharp recovery.

Oil prices rose again on Friday and were set for their first weekly gain in three weeks, with a new attack on a tanker in the Strait of Hormuz reinforcing concerns about the security of one of the world’s most important energy transit routes.

Brent crude futures climbed 1.0% to $87.90 a barrel, while U.S. West Texas Intermediate futures advanced 1.6% to $82.56 by 04:57 ET. Both benchmarks were up roughly 5% for the week.

The Strait of Hormuz has remained a major source of support for crude prices since the outbreak of the Iran war in late February. Before the conflict, about one-fifth of global oil and liquefied natural gas shipments passed through the waterway.

Tanker strike adds to fears over commercial shipping

The United Kingdom Maritime Trade Operations agency said a tanker trying to exit the Strait of Hormuz was hit by an uncrewed aerial vehicle on Friday.

The vessel sustained minor damage, but all crew members were reported safe and accounted for. No environmental impact was identified.

The UKMTO nevertheless urged ships operating in the area to remain cautious while transiting the strait.

The incident comes against a backdrop of conflicting claims from Washington and Tehran. Iran says it retains full control of the waterway and that commercial traffic remains restricted, while the U.S. says it is continuing to facilitate vessel movements.

U.S. maintains pressure on Tehran

U.S. Defense Secretary Pete Hegseth said Washington could keep a naval blockade of Iranian ports in place indefinitely.

The continued deployment of U.S. naval forces in the Gulf has reportedly already inflicted significant economic damage on Iran.

Treasury Secretary Scott Bessent said the U.S. would apply “measures like have never been seen in the history of economic isolation on a country.”

President Donald Trump has argued that sustained economic pressure will eventually force Iran to meet U.S. demands, including ending its nuclear programme and fully reopening the Strait of Hormuz.

Despite signs that U.S. stockpiles of key weapons have been depleted and no immediate resumption of talks with Tehran is in sight, Trump said a “totally broke” Iran would ultimately give in to the pressure.

Iran considers tougher access rules

Iran’s Parliamentary Committee on Councils has reportedly agreed on a strategic plan for managing the Strait of Hormuz.

Part of the proposal would block vessels and equipment owned by the U.S., Israel and other “hostile countries” from passing through the waterway.

A spokesperson for the committee said those countries had “used the Strait of Hormuz to carry out hostile actions against our country, and have committed unjust and aggressive acts against the Iranian people,” according to Tasnim news agency.

Any move to formalise tighter restrictions would add another layer of uncertainty to the outlook for energy shipments through the Gulf.

Weaker demand outlook caps the rally

Oil’s weekly advance has been limited by softer demand expectations.

Both the Organization of the Petroleum Exporting Countries and the International Energy Agency reduced their forecasts for oil demand this year.

The two organisations warned that weaker economic growth, high energy prices and constrained supplies could dampen consumption in the months ahead.

Those concerns have prevented crude from rising even more sharply, although continued uncertainty around Hormuz means a significant geopolitical risk premium remains embedded in prices.

European natural gas prices were on course for their strongest weekly gains since late July as escalating tensions in the Persian Gulf and the continuing diplomatic deadlock over the Strait of Hormuz renewed concerns about winter energy supplies.

The British front-month gas contract was heading for a weekly increase of almost 10%, trading at around 145 pence per therm. That would represent its strongest five-day performance since July 20.

Dutch front-month futures, the main benchmark for continental European gas, followed a similar pattern. Prices were on track to rise almost 9% over the week and traded near €59.50 per megawatt-hour.

Both contracts reached multi-week highs earlier in the week, climbing to their strongest intraday levels since July 24 before some profit-taking temporarily interrupted the rally.

Hormuz deadlock revives European supply concerns

A period of relative calm in European gas markets during the summer, supported by manageable Norwegian pipeline maintenance, has quickly given way to renewed concerns over the consequences of prolonged disruption to Middle Eastern shipping.

The main catalyst has been the failure of Washington and Tehran to reach an agreement over commercial maritime access through the Strait of Hormuz.

Expectations for an interim transit arrangement faded after U.S. President Donald Trump introduced tougher conditions, including demands for financial compensation from Iran for losses linked to the regional conflict, while raising the possibility of a naval blockade.

Iran responded by maintaining that restrictions on commercial shipping through the strategically important waterway would continue until Washington removes economic sanctions and releases frozen Iranian assets.

Qatar LNG disruption puts pressure on European supplies

The continuing restrictions have reduced deliveries of liquefied natural gas originating from Qatar to European import terminals.

As a result, utilities have been forced to seek replacement LNG cargoes in the spot market at a time when Europe would normally be concentrating on rebuilding inventories ahead of the winter heating season.

The disruption is particularly significant because Qatar is an important supplier to the global LNG market, meaning prolonged constraints around Hormuz could intensify competition between European and Asian buyers for alternative cargoes.

European gas storage remains unusually low

The geopolitical disruption comes at a difficult point for European energy security.

Data from Gas Infrastructure Europe showed European Union underground gas storage facilities at only 59% of working capacity, representing a historically low level for the middle of August.

Inventories are approximately 12 percentage points below their level at the same stage last year and remain significantly beneath the five-year seasonal average.

The shortfall leaves European gas markets more vulnerable to sharp price movements if colder weather arrives earlier than expected during the autumn.

Heatwaves slow summer storage injections

Europe’s efforts to replenish inventories have also been complicated by periods of intense summer heat across Southern and Central Europe.

Higher temperatures increased electricity demand for air conditioning, forcing utilities to use more natural gas for power generation instead of injecting available supplies into underground storage.

That dynamic has contributed to slower inventory rebuilding at a time when disruption to LNG shipping is creating additional uncertainty over future supply availability.

Geopolitical premium likely to persist into heating season

Broader commodity markets lost some momentum towards the end of the week following U.S. inflation figures that came in broadly in line with expectations, but the scope for a significant decline in European gas prices remains limited by supply risks.

Until LNG vessels can again move freely through the Strait of Hormuz and European storage injection rates strengthen, traders are likely to continue attaching a substantial geopolitical risk premium to gas contracts.

With inventories unusually low for this stage of the year, developments in the Persian Gulf and the pace of European storage replenishment are expected to remain key drivers of prices as the winter heating season approaches.

Sage Group PLC (LSE:SGE) shares advanced 3.5% to 1,049.5p during today’s session, benefiting from a wider rally across European software stocks following reports of potential takeover activity involving Workday (NASDAQ:WDAY).

The sector gained momentum after Reuters reported, citing people familiar with the matter, that private equity firm Silver Lake has been holding discussions about a possible acquisition of Workday.

Workday shares surged almost 18% following the report, helping fuel investor interest across other software companies, including Sage.

Potential Workday deal could rank among largest software buyouts

A takeover of Workday could become one of the biggest software buyouts ever completed if discussions ultimately result in a transaction.

Silver Lake and Workday have reportedly held talks over recent months, although discussions remain ongoing and there is currently no certainty that an agreement will be reached.

The report also indicated that Silver Lake could seek participation from additional investors to help finance a potential acquisition, given the scale of the transaction.

The prospect of a major software deal provided a positive read-across for the wider sector, contributing to the rise in Sage shares despite the absence of company-specific takeover news.

Broader markets offer neutral backdrop

Global equity markets provided a relatively subdued backdrop during the session, with major U.S. indices trading within a narrow range.

Against that environment, takeover speculation surrounding Workday emerged as a notable catalyst for technology and software stocks, helping Sage outperform as investors reassessed valuations across the sector.