2026-08-18 Tuesday

The investment landscape is increasingly defined by a single risk: the AI-driven stock market boom, which the ECB warns is vulnerable to a correction, with euro area households holding around €440 billion in US tech equities via funds. This warning comes as Federal Reserve Governor Lisa Cook flags US inflation nearly double the target, with PCE prices up 3.7% year-over-year in June, and she is prepared to raise rates if necessary. The ECB's concern about AI valuations is echoed by the Monetary Authority of Singapore, which tightened policy twice in 2026 as AI-driven electronics exports account for over 70% of Asia's export growth year-to-date, up from 46% in 2024. Meanwhile, the Bank of Greece's Stournaras notes that the US-Iran deal initially cut euro area inflation to 2.8% in June 2026, but renewed hostilities have created new pressures. The defence spending surge in the euro area, equivalent to 1.4% of GDP by 2028, is projected to boost growth by up to 0.2 percentage points and raise long-run real interest rates by about 0.2 percentage points, according to the ECB's Philip Lane. This fiscal expansion is already visible in bond markets, with the German 10-year OIS rate jumping 36 basis points on 5 March 2025. The SARB's Kganyago reports six consecutive quarters of expansion, the longest since 2018, with an oil shock pushing inflation to 5% in June and prompting a rate hike to 7% in May. Portugal's public capital stock remains about 9% below its 2013 peak, potentially reducing 2026 GDP per capita by 1.4% relative to a counterfactual. The Danish FSA warns of elevated macro-financial risks from geopolitical tensions, with about one-fifth of world oil supply transiting the Persian Gulf. China's mixed data show industrial output up 5.3% but real estate investment down 19.2%, while Taiwan's Q2 GDP grew 12.93% year-on-year.