Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) gained 0.3% (12.2% YTD).

The S&P 500 Index finished the week 1.3% higher (11.3% YTD), as a late-week rebound in semiconductor and artificial intelligence (AI)-related shares helped the market overcome earlier volatility that was driven in part by higher oil prices and renewed hostilities between the US and Iran.

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.

Trading volumes were relatively light throughout most of the week, potentially reflecting a light economic data calendar and investors looking ahead to a busy week that includes the start of second-quarter earnings season, inflation data, and the June retail sales report.

Large-cap growth stocks solidly outperformed their value counterparts, while small caps underperformed large caps. The Russell 1000 Growth Index returned 2.2% (5.1% YTD), the Russell Value Index was little changed (18.3% YTD), and the Russell 2000 Index lost -0.6% (20.8% YTD). The technology-heavy Nasdaq Composite rose 1.7% (13.4% YTD).

In Europe, the MSCI Europe ex-UK Index ended the week with a -1.9% loss (10.6% YTD). Geopolitical tensions remained at the forefront as the ceasefire between the US 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. Major stock indices retreated. Germany’s DAX Index fell -2.8% (2.4% YTD), France’s CAC 40 Index dropped -2.0% (5.0% YTD), and Italy’s FTSE MIB Index slid -0.4% (20.3% YTD). Switzerland’s SMI was down -1.3% (10.4% YTD). The euro was little changed against the US dollar, closing the week at USD 1.14 for EUR.

The FTSE 100 Index in the UK lost -1.7% (7.7% YTD), while the FTSE 250 Index gave back -0.7% (5.9% YTD). The British pound was little changed against the US dollar, closing at USD 1.34 for GBP.

Japan’s stock markets declined over the week. The TOPIX Index retreated by -0.7% (19.8% YTD), and the TOPIX Small Index was down by -1.0% (16.1% YTD). 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 US and Iran would continue peace negotiations despite the escalation in hostilities helped improve risk appetite and limited further declines.

In Australia, the S&P/ASX 200 Index declined by -0.4% (3.2% YTD) as US-Iran tensions re-escalated. Longer-term Australian government bond yields moved higher with the curve modestly steepening. The Australian dollar appreciated against the US dollar by a marginal 0.1%.

In Canada, the S&P/TSX Composite was up 0.2% (12.7% YTD).

Emerging markets and other markets

The MSCI Emerging Markets Index lost -1.7% (21.9% YTD). The Brazilian market contributed positively, while the Taiwanese, South Korean and Indian markets contributed negatively.

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 onshore CSI 300 Index, the main onshore benchmark, lost -1.1% (4.5% YTD), while the Shanghai Composite Index moved -1.0% lower (1.8% YTD). Hong Kong's benchmark Hang Seng Index rallied 3.5% (-3.8% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, jumped 3.5% (-3.8% YTD).

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.

In New Zealand, the Reserve Bank of New Zealand raised its official cash rate by 25bps 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 signalled that further increases are likely, although their timing will depend on incoming inflation data, business pricing behaviour, and the strength of the recovery. The widely anticipated decision reinforced a broader theme: central banks remain 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 US dollar, while the yield on policy-sensitive two-year government bonds rose.

In Mexico, the country faced a more difficult external backdrop this week as renewed US-Iran tensions, higher oil prices, and a stronger US 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 labour 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.

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned -0.3% (0.6% YTD), the Bloomberg Global High Yield Index (hedged to USD) was flat (2.9% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index lost -0.2% (1.3% YTD).

US Treasuries generated negative returns as rising oil prices and the somewhat hawkish Fed minutes helped push yields higher across most maturities. Over the week, the 10-year Treasury yield increased by 7bps to 4.56% from 4.49% (up 39bps YTD). The 2-year Treasury yield also rose by 7bps, ending the week at 4.21% from 4.14% (up 73bps YTD).

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

Over the week, the 10-year German Bund yield increased by 13bp, ending at 3.06% from 2.93% (up 21bps YTD). The 10-year UK gilt yield rose by 9bps, ending the week at 4.87% from 4.78% (up 39bps YTD).