Barclays Global Economics Weekly: Preparing for the Second Half of 2026

Overview

This Barclays Global Economics Weekly report focuses on the macro environment for the second half of 2026. After a dense first half, oil prices have returned to pre-Iran-war levels, easing input-cost and inflation pressure and improving market sentiment, but major central banks have not therefore entered a clear easing cycle. Under Fed Chair Warsh, changes in the communication framework could introduce new volatility, the ECB is still keeping open the option of further hikes, the Bank of England has clearly ruled out near-term rate cuts, and the Bank of Japan is being pushed by both a strong Tankan and yen weakness. Regionally, U.S. growth remains resilient but employment growth is slowing; China shows a dual-speed recovery with stronger exports and high-tech versus weaker domestic demand and real estate; the euro area showed improved momentum at the end of Q2; the UK is expected to slow; and the Asian semiconductor cycle remains strong.

Core views

The core view is that global inflation pressure has eased somewhat due to lower oil prices, but central bank policy is not shifting simply toward easing. Barclays expects the Fed to stay on hold for an extended period through the second half of 2026, the ECB to raise rates by 25 bps in September, the BoE to keep the Bank Rate unchanged this year, and the BoJ to raise rates in October 2026 and April 2027. In the U.S., 57K was added to payrolls in June and the prior month was revised down, indicating slower job growth, while unemployment fell from 4.3% to 4.2%; weak labor supply means inflation risk has not disappeared. In China, manufacturing PMI rose to 50.3, and the RatingDog China manufacturing PMI held at 51.6, while the services sector only improved modestly and construction and real estate chains remained weak. In Japan, large manufacturers Tankan DI rose to +22 and large non-manufacturers to +37, with price and inflation-expectation indicators strengthening; combined with sharp yen depreciation, this raises the risk of policy normalization and FX intervention.

Analysis framework

The report uses a global macro weekly framework, cross-validating central bank speeches, policy meetings, inflation data, labor markets, PMI, consumer confidence, GDP tracker, regional high-frequency indicators, and market events. The focus is not on any single data point but on how data affect central bank reaction functions, rate paths, and market volatility. The regional section is organized across the U.S., euro area, UK, China, Japan, Emerging Asia, and Latin America, and uses next-week data and policy events to highlight potential catalysts.

Methodology notes

• macro policy analysiscentral bank reaction function tracking

  Uses inflation, growth, employment, and central bank communication to infer the interest-rate path.

  The report combines Sintra central bank forum remarks, expected FOMC minutes commentary, ECB and BoE remarks, and BoJ policy outlook to assess whether major central banks will hold, hike, or adjust communication frameworks in the second half.

• macro data trackingGDP tracker

  Estimates quarterly GDP growth using already released indicators.

  The report cites a U.S. Q2 GDP tracker of 2.1% q/q SAAR and euro area Q2 GDP tracker of 0.2% q/q, using these to judge whether growth momentum can still support the current policy path.

• cycle monitoringPMI and high-frequency data comparison

  Identifies economic momentum using manufacturing, services, orders, exports, and consumer confidence.

  The report uses Chinese PMI, U.S. ISM manufacturing, euro area PMI, and consumer confidence indicators to assess the relative strength and structural divergence of recoveries across economies.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• U.S. rates

  Affected jointly by the baseline scenario of the Fed holding policy rates and the risk of renewed hikes.

  Strengths

  U.S. growth remains robust, with a Q2 GDP tracker of 2.1%.

  Weaknesses

  Nonfarm payroll additions slowed to 57K, so policy direction needs confirmation from more data.

  Comparison

  Compared with the ECB and BoJ, the Fed is more inclined to wait.

  Risks

  If employment and consumption re-accelerate while labor supply remains constrained, inflation pressure could bring rate hikes back into the discussion.

• Euro area rates

  Aligned with the view of a possible further 25 bps hike by the ECB in September.

  Strengths

  Improvement in end-Q2 economic conditions and consumer confidence.

  Weaknesses

  Headline inflation has eased, but pipeline price pressures are still high.

  Comparison

  More inclined toward additional hikes than the Fed.

  Risks

  Lower oil prices could reduce the ECB’s need for proactive hikes, causing its reaction function to shift.

• Yen and Japan rates

  A strong Tankan, firmer inflation expectations, and yen weakness jointly support policy normalization.

  Strengths

  Both large manufacturing and large non-manufacturing Tankan readings came in stronger than expected.

  Weaknesses

  The yen is near a 40-year low, with significant FX pressure.

  Comparison

  The BoJ faces stronger hike and FX intervention pressure than most developed-market central banks.

  Risks

  If the yen fails to stabilize, there is a risk of summer FX intervention or earlier rate hikes.

• China macro and RMB-related assets

  Impacted by a dual-speed structure of export-driven recovery versus weak domestic demand.

  Strengths

  Manufacturing PMI recovered; exports and high-tech sectors remain relatively strong.

  Weaknesses

  Real estate chains, construction, domestic demand, and the labor market remain weak.

  Comparison

  The recovery structure is more imbalanced than that of the U.S. and euro area.

  Risks

  If policy stimulus is insufficient, domestic-demand drag could persist; July and October Politburo meetings are important windows for observing new stimulus.

• Asian semiconductor chain

  Korean exports and Japan’s Tankan both indicate continued demand strength for semiconductors.

  Strengths

  The semiconductor cycle remains intact and supports Korean and some ASEAN exports.

  Weaknesses

  Growth is highly dependent on external demand and the technology cycle.

  Comparison

  Clearly stronger than real estate and traditional domestic-demand-related segments.

  Risks

  If global tech demand or AI capex cools, export momentum may fade.

Key data

• U.S. June nonfarm payrolls increase57KBelow both Barclays and market consensus expectations; April and May data were also revised down, but the three-month average remains 111K.
• U.S. June unemployment rate4.2%Below May’s 4.3%, indicating the labor market has not weakened markedly.
• U.S. Q2 GDP tracker2.1% q/q saarBarclays views underlying U.S. growth as still relatively solid.
• Euro area June overall HICP2.8% y/yBelow May’s 3.2%, but manufacturing and retail price pressures remain elevated.
• Euro area Q2 GDP tracker0.2% q/qEconomic momentum improved toward the end of the second quarter.
• China June manufacturing PMI50.3Up from 50.0, slightly above the forecast and consensus expectation of 50.1, but the recovery remains fragile.
• China June RatingDog manufacturing PMI51.6More export-oriented enterprises, indicating continued support from external demand and high-tech sectors.
• China June CPI forecast1.0%Barclays expects food disinflation and lower energy prices to drive CPI down.
• China June TSF flow forecastabout CNY4trnCredit growth is expected to slow further from 7.7% in May to 7.6%.
• Japan large manufacturing Tankan DI+22Up from +17, the highest since March 2018.
• Japan large non-manufacturing Tankan DI+37Shows non-manufacturing activity remains strong.
• JPY/USD162.6The yen has fallen near a 40-year low, heightening expectations of possible renewed FX intervention by Japan.
• U.K. Q1 GDP0.6% q/qFinal estimate was not revised, but Barclays expects growth to slow subsequently.
• U.K. 2026 GDP forecast0.9% y/yRevised down by 0.1 percentage point due to historical data revisions.

Impact & implications

From an investment perspective, lower oil prices are a short-term positive for inflation and risk sentiment, but not enough to remove policy uncertainty. In rates markets, attention should stay on changes in the Fed’s communication framework and internal FOMC divergences; in FX, on whether yen weakness triggers further Japanese intervention or a more aggressive rate hike path. In equities, the semiconductor-related export chain remains a growth bright spot in Asia, while real estate, traditional domestic-demand themes, and some consumption segments remain under pressure. For global asset allocation, the second half is more likely to be driven by data and central bank communication and regional divergence than by synchronized easing or synchronized recovery.

Risks

• The Fed’s framework review and communication-policy changes under Warsh could increase market volatility.
• If U.S. inflation, employment, and consumption fail to cool as expected, rate hikes could re-enter policy options.
• Pipeline price pressures in the euro area may still flow through to broader inflation.
• Continued weakness in China’s domestic demand, real estate, and labor market may weigh on overall growth.
• Sharp yen depreciation could trigger Japanese FX intervention or a more aggressive BoJ tightening.
• Post-election governance, fiscal credibility, and policy execution risks in Latin America may drive stronger regional divergence.

What to watch

• Upcoming FOMC minutes and announcements from members of Warsh's five task groups.
• U.S. summer inflation, employment, consumption, and ISM services data.
• Final inflation data and pipeline price pressures in the euro area before the ECB September meeting.
• China June credit and inflation data, and possible stimulus signals from the July and October Politburo meetings.
• Japan cash earnings, PPI, yen level, and signs of FX intervention.
• Korean and ASEAN tech export data to monitor whether the semiconductor cycle remains intact.
• BoE Decision Maker's Panel and REC/KPMG Report on Jobs.