ETO Markets Buzz | Super El Niño Raises Food Inflation Risk as Growth Signals Soften

Global Market Overview | August 2026

According to ETO Markets analysis, global markets are entering a more fragile phase as US growth signals soften while inflation remains above central bank comfort levels. US equities lost momentum as investors reassessed the balance between weaker demand, still-elevated prices and the Federal Reserves next policy move.

US inflation held at 3.4% year on year, unchanged from the previous month and still above the Feds target range. Retail sales fell 0.6% month on month, missing expectations for a 0.3% gain, while the University of Michigan Consumer Sentiment Index dropped to 51 from 55.2. The data suggest households are becoming more cautious as higher prices and tighter financial conditions continue to weigh on demand.

US Growth Loses Momentum

The latest US data point to a slower economy rather than a clean disinflationary cycle. Retail weakness suggests consumer spending is losing strength, while weaker sentiment shows households are becoming more defensive.

This creates a difficult backdrop for the Federal Reserve. Growth is softening, but inflation remains too high for aggressive easing. Markets will therefore focus closely on this weeks Fed statement for clearer guidance on whether policy can shift lower or remain restrictive for longer.

China Demand Remains Weak

China is facing a different pressure point. Consumer inflation softened further to 0.5% year on year, while producer prices also came in weaker than consensus at 3.5%.

The data reflect weak domestic demand and continued pressure across the industrial sector. Markets will watch whether policymakers provide additional support to stabilise activity, confidence and consumer spending.

Super El Niño Enters Focus

This weeks ETO Markets Buzz focuses on the potential emergence of a Super El Niño. A normal El Niño is generally identified when sea-surface temperatures in the key Niño 3.4 region stay at least 0.5°C above average, while a Super El Niño usually refers to an exceptionally strong event near 2°C or more above average.

The market risk is inflationary, but uneven. A strong El Niño can trigger drought and heat in some major agricultural regions while bringing floods to others. This can reduce crop yields, disrupt exports and lift prices for grains, rice, edible oils, sugar and other food commodities.

Food and Energy Channels Matter

The most direct transmission channel is food. A strong El Niño can push global food commodity prices higher, with the largest impact often arriving many months after the event begins.

Energy is another channel. Drought can reduce hydroelectric output, forcing greater reliance on coal, gas and oil. Extreme heat can also raise electricity demand for cooling. In a 2026 environment already shaped by geopolitical tension, energy uncertainty and elevated fertiliser costs, a major weather shock could reinforce existing price pressure.

Wheat Risk Looks Asymmetric

Wheat remains one of the most important commodities to watch. El Niño can affect Australia, the US Plains, India, Southeast Asia, Brazil, Argentina and Southern Africa. If weather stress hits key exporting regions at the same time as Black Sea disruption continues, exportable wheat supply could tighten materially.

Russia and Ukraine account for close to 30% of internationally traded wheat, making the Black Sea a critical grain corridor. Ukraine‘s recent strike on Russia’s Novorossiysk grain terminals pushed Chicago wheat higher, highlighting how quickly grain markets can reprice when logistics and export routes come under pressure.

Precious Metals Stay Supported

Precious metals continued to perform strongly, with silver gaining around 12% over the month. Safe-haven demand, rate expectations and strong industrial demand remain key supports.

Gold and silver may continue to benefit if growth slows and markets price lower real yields. However, if weather or energy shocks keep inflation sticky, central banks may have less room to ease, keeping volatility elevated across metals and rates.

Outlook

Looking ahead, ETO Markets expects Federal Reserve communication, US inflation and activity data, Chinas recovery signals, El Niño developments, wheat supply risks and Middle East tensions to remain key market drivers.

In this environment, ETO Markets continues to emphasise close monitoring of food inflation, energy costs, central bank signals and agricultural supply conditions. A Super El Niño would not lift all prices equally, but it could create targeted supply shocks that complicate the disinflation path and limit the scope for easier monetary policy.

Disclaimer

The information contained herein is for general reference only and does not constitute investment advice, a solicitation, or an offer to buy or sell any financial products.

ETO Markets does not guarantee the accuracy, completeness, or timeliness of the information and shall not be liable for any losses incurred from reliance on such content.