Q2 GDP: US Growth Holds Its Own

The Bureau of Economic Analysis (BEA) released its advance estimate of Q2 2026 GDP this morning. The +2.4% annualised figure surpassed all consensus forecasts and marks a sharp rebound from the +1.6% recorded in Q1 — itself weighed down by inventory adjustments and tariff-related disruptions in early 2026.

The composition is telling: household consumption contributed +1.9 percentage points, equipment investment (notably AI-related capital expenditure) added +0.7 points, while federal spending subtracted -0.2 points in the wake of Big Beautiful Bill fiscal adjustments. Net exports were mildly positive as import volumes contracted, reflecting inventory normalisation after a front-loading phase.

This is not a signal of overheating. Fed economists note that organic growth — stripped of favourable base effects — remains close to its estimated long-run potential of +1.8%. The labour market, meanwhile, is sending mixed signals: weekly jobless claims have edged up through July, while the unemployment rate holds at 4.2%, a sign of controlled, gradual easing.

June PCE: Disinflation on Track

Released simultaneously by the BEA, the PCE deflator — the Fed’s preferred inflation gauge — shows a June 2026 headline reading of +2.8% year-on-year and a core (ex-food & energy) reading of +2.5%. The latter is the lowest level since February 2024, down 10 basis points from May’s 2.6%.

The trajectory is encouraging but should not be over-interpreted. On a monthly basis, core PCE rose +0.17%, translating to a three-month annualised rate of approximately +2.3% — approaching, but not yet at, the 2% target. The shelter component remains the primary source of stickiness at +4.1% year-on-year, though it has been decelerating since spring.

Crucially, « supercore » services (services ex-housing) — the metric most closely tracked by Jerome Powell as a proxy for wage-driven inflation — eased to +3.1% from +3.4% in April. This gradual decline is the most policy-relevant signal in today’s release: it tells the Fed that underlying price pressures are losing momentum without a sharp economic slowdown.

The Fed on Hold: September Still in Play

The FOMC held rates unchanged at its July 29-30 meeting — a unanimous decision, fully anticipated after the guidance provided by Committee members throughout June and July. The real policy story now centres on the pace of upcoming cuts. Prior to this morning’s data, futures markets assigned a 58% probability to a first 25bp cut in September. That figure rose to 72% within an hour of the publications.

Three conditions remain necessary before September: (1) an August non-farm payrolls report that does not re-open wage overheat concerns; (2) a July CPI reading that stays in line with the disinflation trend; and (3) the absence of an exogenous shock (oil, geopolitics) that would rekindle inflation expectations. The window is open, not guaranteed.

Hawkish Fed members — Schmid, Bowman — maintain that two consecutive quarters at 2.5% core PCE do not certify a durable return to target. Their influence on the September vote will depend on August data. The Committee majority, however, appears prepared to act if progress continues in an orderly fashion.

Market Reaction: Bonds, Dollar, Gold

This morning’s dual publication triggered coordinated moves across major asset classes. US long-term rates fell: the 10-year Treasury yield declined from 4.35% to 4.18% within hours — a 17 basis point move, one of the largest single-session declines since early 2026. The 2-year fell to 3.95%, partially restoring a normal curve slope (2s10s spread at +23bps, vs 0bps in May).

US equities accelerated intraday: the S&P 500 gained +0.9%, the Nasdaq +1.2%. The read-through is dual: above-consensus growth reassures on future earnings, while cooling PCE signals that the Fed can ease — supporting valuations. This rare « growth plus lower rates » combination is supportive but will only persist if disinflation continues.

Gold reacted more modestly. At $3,285/oz, it is virtually flat (-0.3%) as dollar weakness (-0.5% on the DXY) is offset by the decline in real yields — both typically bullish for the metal. Gold does not need to rally here: it is fulfilling its store-of-value function without requiring additional catalysts.

Portfolio Allocation Implications

Today’s data modestly adjusts our allocation framework without justifying a major strategic repositioning. The base scenario — moderate growth, gradual disinflation, first Fed cut in September — gains in probability, and investors can now shift the question from « when will the Fed move? » to « what happens after the first cut? »

Fixed Income: the decline in long-term yields opens a tactical window in 7-10 year Treasuries. Adding +3 to 5% in fixed income exposure, funded from short-duration money market, improves the risk-return profile without altering the portfolio’s directional equity exposure. EUR Investment Grade bonds remain attractive at 3.8% yield for 5-year IG.

Equities: the multiple expansion linked to rate cuts is already partly priced into US equities (forward P/E at 22.5x on the S&P 500). We do not recommend overweighting US equities at this point. European value stocks (P/E 13x) and quality emerging markets (India, ASEAN) offer more asymmetric catch-up potential if global growth holds.

Gold: maintain 5-7% of the portfolio. At $3,285/oz, the metal benefits from declining real yields and structurally high central bank demand from emerging market institutions. A pullback toward $3,000 would represent an attractive addition opportunity.

Dollar & Currencies: DXY weakness at 102.8 supports maintaining unhedged international exposures. However, a significant upside surprise in August inflation data could rapidly reverse this move.