Investors are focusing intently on US employment data due Friday as they assess the Federal Reserve’s likely next steps on interest rates amid ongoing inflation concerns linked to escalating tensions in the Middle East. Following the Fed’s decision to hold rates steady at its Wednesday meeting, market participants expressed frustration with Chair Kevin Warsh’s subdued communication style and limited forward guidance during his first post-meeting press conference, heightening volatility in US borrowing costs.

Economic analysts surveyed by Bloomberg anticipate an increase of approximately 90,000 non-farm payroll jobs in July, reflecting a continued moderate pace of job growth consistent with June figures. Citi economist Veronica Clark noted that a soft employment report, coupled with probable downward revisions to prior data, would challenge the view that the labor market is tightening significantly, which has implications for inflationary pressures. She expects the unemployment rate to rise to 4.3% in July and projects that workforce participation rates will shift as more workers, including young female caregivers, reenter the labor pool with the start of the school year, potentially pushing unemployment above 4.5%.

Meanwhile, China’s trade data for July, also due Friday, will be closely scrutinized for signs of whether the country’s sizable trade surplus is plateauing. ING economists forecast imports will rise 33.6% year-on-year while exports increase 28.1%, continuing a trend from June that has been fueled by strong global investment in artificial intelligence. This surge has heightened demand for Chinese electronic components and increased costs for key imported goods like memory chips.

Debate persists over the trajectory of China’s trade surplus. While Absolute Strategy Research’s Adam Wolfe contends the surplus has peaked—data indicate a $576 billion surplus in the first half of 2026, slightly below the $583 billion recorded in the same period last year—others highlight factors such as a sharp rise in gold imports, which distort the picture. According to Brad Seter of the Council on Foreign Relations, excluding gold imports reveals an $80 billion increase in the surplus this year. Sustained shifts in China’s trade balance will likely hinge on Beijing’s ability to stimulate domestic demand, as weak internal consumption has pressured prices and driven exporters to seek markets abroad. Officials signaled intentions to accelerate spending during the second half of the year to bolster economic activity.

In European markets, the FTSE 100 index reached multiple record highs last week amid a flight to safety as technology shares experienced a broadly negative month. The index’s relative lack of technology exposure, combined with its focus on fossil fuels and financial sectors, proved advantageous amid rising European interest rates and renewed volatility in oil prices tied to developments in the Iran conflict.

However, some analysts remain cautious about the sustainability of the FTSE’s rally. Emmanuel Call, head of European equity strategy at Barclays, noted that the index’s strong performance is primarily attributable to its sector composition rather than underlying UK economic strength. ING’s Carsten Brezski described the rally as “slightly counterintuitive” given ongoing geopolitical risks and Europe’s economic stagnation risks. By contrast, Société Générale’s Roland Kaloyan expects the FTSE 100 to continue benefiting from its commodity and financial sector weightings alongside limited exposure to consumer discretionary industries. He reaffirmed the FTSE 100 as a preferred market heading into 2026.