Global Markets Weekly Update

U.S.

Major U.S. stock indexes closed the week mixed, as a late-week rebound in semiconductor and artificial intelligence (AI)-related shares helped the Nasdaq Composite and the S&P 500 Index overcome earlier volatility that was driven in part by higher oil prices and renewed hostilities between the U.S. and Iran. The Nasdaq led the major benchmarks with a 1.74% gain, while the S&P 500 advanced 1.23%. In contrast, the Dow Jones Industrial Average declined 0.50%, and the small-cap Russell 2000 Index fell 0.61%. Growth stocks solidly outpaced their value counterparts.

Within the S&P 500, information technology led sector performance, while the energy and communication services segments also posted strong gains. Materials and health care were the weakest performers.

T. Rowe Price traders noted that trading volumes were relatively light through most of the week, potentially reflecting the limited economic data calendar as well as investors looking ahead to a busy week that includes the start of second-quarter earnings season, inflation data, and the June retail sales report. 

Fed minutes reveal divergence over policy outlook

Minutes from the Federal Reserve’s June meeting showed that a few policymakers saw a case for raising interest rates at the meeting, although they ultimately supported leaving borrowing costs unchanged. Officials were somewhat divided over the path for rates through the remainder of the year, given a high level of uncertainty regarding possible economic scenarios, while most supported removing language from the central bank’s policy statement that had implied an easing bias.

Elsewhere, the week’s economic data release calendar was relatively light. The Institute for Supply Management reported that its services Purchasing Managers’ Index eased to 54.0 in June from 54.5 in May, matching consensus estimates and remaining in expansion territory for the 24th consecutive month. The employment component returned to growth after three straight months in contraction, while the prices index declined but indicated rising prices for the 109th consecutive month.

Initial jobless claims for the week ended July 4 came in at 215,000, a modest decrease from the previous week’s revised reading of 217,000, while continuing claims rose by 8,000 from the prior week to 1.814 million. Housing data were weaker, with existing home sales falling 2.4% in June to a seasonally adjusted annual rate of 4.09 million, as elevated prices and borrowing costs continued to weigh on affordability.

Treasuries slide amid escalation in the Middle East

U.S. Treasuries generated negative returns as rising oil prices and the somewhat hawkish Fed minutes helped push yields higher across most maturities. (Bond prices and yields move in opposite directions.) The yield on the 10-year U.S. Treasury note increased to about 4.56% from 4.49% at the end of the previous week.

Investment-grade corporate bonds also declined, underperforming Treasuries, while new issues were generally oversubscribed. Meanwhile, high yield bond market sentiment weakened midweek as geopolitical headlines drove oil prices higher and revived inflation concerns, though the market stabilized somewhat by the end of the week.

Europe

The pan-European STOXX Europe 600 Index ended the week down 1.79% in local currency terms. Geopolitical tensions remained at the forefront as the ceasefire between the U.S. and Iran collapsed and the two countries exchanged strikes, although they continued to hold negotiations. Investors considered the possible implications for inflation and monetary policy, with markets increasing their expectations for European Central Bank tightening. Among major stock indexes, Germany’s DAX closed 2.76% lower, France’s CAC 40 Index declined 1.99%, while Italy’s FTSE MIB fell 0.39%. The UK’s FTSE 100 Index dropped 1.70%.

Moderating inflation in Germany 

The annual inflation rate in Germany fell to 2.3% in June from 2.6% the previous month, confirming preliminary estimates. 

Robust household spending in the Netherlands

Household consumption in the Netherlands rose by 1.8% year on year in May 2026. This was higher than the 1.0% growth in April and is the highest level in well over a year. The increase was driven by higher spending across most categories, particularly durable goods such as cars, clothing, and household goods.

German exports surprise to the upside

Exports from Germany unexpectedly increased by 0.9% month on month in May. This was moderately higher than the 0.8% registered in April and the 0.3% decline that had been expected. Sharply higher shipments to the U.S., Germany’s largest export market, accounted for much of the growth. German imports fell.

Swedish economy expands for third straight month

The economy in Sweden expanded by 0.9% month on month in May, higher than the 0.6% growth registered in April. This marks the third consecutive month of growth, with the information and communication industries particularly strong while energy-related goods and

durable consumer goods shrank. Inflation data showed that consumer prices rose in June by 0.7% year on year, a slight easing from 0.8% in May, driven by lower food and transport prices.

Andy Burnham secures majority backing to lead UK’s Labour Party

On Thursday, 322 of the 403 Labour members of Parliament gave their backing to Andy Burnham to succeed Keir Starmer as leader of the governing party. This could pave the way for Burnham to be formally announced as party leader next Friday (July 17) and enter Downing Street on Monday, July 20.

Data from the Royal Institution of Chartered Surveyors UK Residential Market Survey showed that the country’s housing market remains subdued. New buyer inquiries remained negative in June, with a net balance of -29%, a slight improvement on the -34% recorded in the previous two months. Agreed sales also remained subdued at a net balance of -32%.

Japan

Japan’s stock markets declined over the week, with the Nikkei 225 Index falling 1.70% and the broader TOPIX Index down 0.70%. Renewed geopolitical tensions in the Middle East and higher oil prices weighed on investor sentiment, particularly given Japan’s reliance on imported energy, while some profit taking in technology shares following their recent strong gains also dampened market performance. Reports toward the end of the week indicating that the U.S. and Iran would continue peace negotiations despite the escalation in hostilities helped improve risk appetite and limited further declines.

The yield on the 10-year Japanese government bond ended the week at around 2.78%, little changed from the previous week’s close. Although the benchmark yield briefly climbed to its highest level since 1996 on Thursday, it retreated on Friday after Finance Minister Satsuki Katayama called on Japanese pension funds to increase allocations to domestic financial assets. The remarks also supported the yen, which, after weakening for much of the week, strengthened against the U.S. dollar to trade back within the JPY 161 range.

Producer prices accelerate as household income growth moderates

Japan’s latest economic data highlighted persistent inflationary pressures alongside moderating household income growth. The corporate goods price index, a measure of wholesale inflation, rose 7.1% year over year in June, above consensus expectations of 6.8% and revised growth of 6.6% in April. Higher fuel and nonferrous metals prices drove the acceleration as firms increasingly passed on rising input costs stemming from the Middle East conflict.

Meanwhile, nominal average wages rose 3.2% year over year in May, below consensus expectations of 3.4% and following revised growth of 3.6% in April. Real wages increased 1.4%, down from a revised 2.0%, as reaccelerating consumer inflation slowed the pace of purchasing power gains. Against this backdrop, household spending fell 0.4% from a year earlier in May, a smaller decline than the consensus forecast for a 2.5% contraction and following a 0.5% fall in April. Spending on culture and recreation, including domestic and overseas travel, declined, although the overall household spending data suggested consumer demand remained more resilient than expected.

 

China

China equities diverged during the week, with mainland benchmarks declining despite a sharp but narrow rally in AI, semiconductor, and other companies benefiting from China’s technology self-sufficiency drive, while Hong Kong equities advanced. The CSI 300 Index fell 1.27%, and the Shanghai Composite Index declined 1.17% while the Hang Seng Index rose 3.53% in local currency terms, according to FactSet. China-specific AI developments—including ChangXin Memory Technologies’ upcoming initial public offering and reports that domestic developers are working on proprietary AI chips—supported technology sentiment earlier in the week, but mainland semiconductor stocks reversed sharply on Friday amid reported profit taking following their earlier gains. Hong Kong outperformed, helped by strength in large internet stocks during the week and by health care and materials shares on Friday, although discounted capital raisings and volatility among selected pure-play AI developers highlighted increasingly divergent performance within the technology sector.

Inflation data highlight firmer upstream pricing but subdued consumer demand

China’s June consumer price index rose 1.0% year over year, slightly below consensus and slowing from May’s 1.2% increase, while core inflation, which excludes both food and energy costs, edged down to 1.0%. Food prices and some travel-related services remained soft, consistent with still-subdued consumer demand. By contrast, producer prices increased 4.1% year over year, matching expectations and marking the fastest pace since July 2022, supported by stronger prices for nonferrous metals, petroleum, coal, and other upstream industries. The split was consistent with the relative strength of selected upstream and technology supply chain companies compared with consumer-oriented areas. Attention now turns to second-quarter gross domestic product (GDP) and June activity data for a broader assessment of China’s growth momentum.

PBOC policy remains supportive but targeted

The People’s Bank of China (PBOC) said it would maintain an appropriately accommodative monetary policy, keep liquidity reasonably ample, and strengthen support for domestic demand, technology innovation, and small and medium-sized enterprises, following its second-quarter Monetary Policy Committee meeting chaired by Governor Pan Gongsheng. The committee also called for stronger countercyclical and cross-cyclical adjustments and lower overall financing costs. It acknowledged that the economy remained generally stable but continued to face insufficient domestic demand, structural imbalances, and a more complex external environment. The statement maintained a supportive policy signal without announcing a broad-based stimulus program.

Other key markets

New Zealand

Central bank raises rates and signals further tightening may be needed

The Reserve Bank of New Zealand raised its official cash rate by 25 basis points to 2.50%, marking its first increase in three years. Policymakers pointed to persistent domestic inflation pressures and expectations for stronger economic growth, despite the earlier decline in global oil prices. The central bank also signaled that further increases are likely, although their timing will depend on incoming inflation data, business pricing behavior, and the strength of the recovery. The widely anticipated decision reinforced a broader theme of central banks remaining alert to inflation risks amid Middle East tensions and higher energy prices.

Inflation remains above the central bank’s target, although the near-term outlook has improved as energy prices have retreated from recent highs. The Reserve Bank expects annual inflation to have peaked at 3.9% in the second quarter and to slow to 3.3% in the third quarter before gradually moving toward the 2% midpoint of its target range by mid-2027. Policymakers remain concerned, however, that earlier increases in fuel and other costs could feed into broader prices, particularly if businesses seek to rebuild profit margins as demand recovers. Against this backdrop, the New Zealand dollar strengthened against the U.S. dollar, while the yield on policy-sensitive two-year government bonds rose.

Mexico

Inflation cools as external risks weigh on the peso

Mexico faced a more difficult external backdrop this week as renewed U.S.-Iran tensions, higher oil prices, and a stronger U.S. dollar weighed on emerging market sentiment. The Mexican peso weakened during periods of risk aversion as investors reduced exposure to higher-yielding currencies. Domestically, June inflation slowed more than expected, with headline inflation falling to 3.37%, its lowest level since 2020, while core inflation eased to 4.03%. Although underlying price pressures remained elevated, weaker demand, economic slack, and a cooling labor market helped reduce inflation.

The growth outlook also drew attention after the International Monetary Fund lowered its forecasts for Mexican GDP growth in 2026 and 2027. Finance Minister Edgar Amador argued that the revisions reflected a broader global slowdown linked to the energy shock rather than weaker domestic fundamentals. Overall, markets balanced improving inflation and expectations for stable monetary policy against softer growth, fiscal concerns, and continued global volatility.