Global Markets Weekly Update

U.S.

Major U.S. stock indexes advanced during the week—with several notching fresh record highs—as generally favorable corporate earnings, renewed enthusiasm around artificial intelligence (AI)-related stocks, and optimism about the potential reopening of the Strait of Hormuz supported investor sentiment. The technology-heavy Nasdaq Composite led the way, posting its best week since April, followed by the S&P 500 and Russell 2000 Indexes. The Dow Jones Industrial Average lagged but still added nearly 3%.

Geopolitical developments appeared to largely support risk appetite. Reports of progress toward an agreement that could reopen the Strait of Hormuz helped drive a steep decline in oil prices early in the week, easing some concerns about energy-related inflation and contributing to lower Treasury yields. Optimism faded somewhat on Thursday after reports suggested that a proposed arrangement could restrict passage for U.S. and Israeli vessels, though stock indexes ultimately held up and remained solidly higher for the week. 

Labor market data signal softer hiring 

The Bureau of Labor Statistics (BLS) reported that U.S. employers shed 23,000 jobs in July, well below estimates for an increase of around 80,000 and the weakest reading since February. Prior months were also revised lower: June’s gain was cut to 20,000 from 57,000, while May’s reading was revised to 63,000 from 129,000. July marked the fourth straight month in which the monthly change weakened. The unemployment rate unexpectedly ticked lower to 4.1% along with the labor force participation rate.

The weak headline jobs figure reinforced signs of cooling hiring from earlier in the week. Data from the BLS showed that job openings declined to 7.359 million in June from a downwardly revised 7.537 million in May, while private payrolls firm ADP reported that private employers added just 44,000 jobs in July, the lowest reading since January. However, weekly unemployment claims remained relatively subdued, suggesting that layoffs have not broadly accelerated. 

Following Friday’s payrolls release, the probability of a September rate hike fell to around 42% from roughly 55% before the report, according to the CME FedWatch Tool.

Business activity remains resilient

Business activity data painted a relatively resilient picture of the economy. The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers’ Index (PMI) rose to 55.6 in July from 53.3 in June, above consensus expectations and the highest reading since May 2022. New orders and production strengthened, while the employment index moved into expansion territory for the first time in 33 months.

Services activity also remained in expansion, although the details were more mixed. The ISM Services PMI registered 54.1 in July, little changed from June and slightly below expectations. New orders strengthened, but the employment component fell back into contraction territory. Meanwhile, the prices index rose to 70.3 from 67.7, bringing the 12-month average to its highest level in over three years at 68.1. 

Treasuries advance amid Middle East diplomacy hopes and weak labor market data

U.S. Treasuries generated positive returns for the week, as declining oil prices and softer employment data helped drive yields lower across most maturities. (Bond prices and yields move in opposite directions.) After ending the prior week at 4.74%, the yield on the U.S. 10-year Treasury note dropped to about 4.64% by Friday afternoon. 

Meanwhile, high yield bonds outperformed Treasuries amid a risk-on rally that was supported by light primary market supply, lower oil prices, and optimism around a potential deal between the U.S. and Iran, according to T. Rowe Price traders. 

Europe

The pan-European STOXX Europe 600 Index ended the week up 1.70% in local currency terms. European equities were supported by firmer risk appetite and resilient earnings, although the geopolitical backdrop remained volatile. Hopes for a framework to reopen the Strait of Hormuz pushed crude lower and supported cyclicals early in the week, before renewed uncertainty around shipping terms lifted energy risk into Friday. Among major stock indexes, Germany’s DAX closed 2.69% higher, France’s CAC 40 Index advanced 2.41%, while Italy’s FTSE MIB gained 2.96%. The UK’s FTSE 100 Index climbed 0.30%.

Eurozone services activity returns to growth

Services PMI increased to 51.7—its highest level in five months—from 49.4 in June. The improvement was accompanied by stronger employment and business confidence. Selling-price pressures also moderated. The data provided some reassurance that economic activity was recovering after the energy shock earlier in the year, although underlying conditions remained uneven across the region.

Services PMI readings tick higher in France and Germany but remain in contractionary territory

Business activity improved in France and Germany, the eurozone’s two largest economies, although the services PMI for both countries remained below 50. France’s services PMI increased to 49.8 in July from 46.8, its strongest reading in seven months, helped by firmer domestic demand. Germany’s equivalent measure rose to 49.8 from 48.6, indicating a slower contraction and improving business confidence. 

UK private sector activity picks up

UK services PMI improved to 52.1 in July from 48.8 in June, returning to expansionary territory after two months below. Manufacturing activity strengthened as well, with the manufacturing PMI increasing to 52.8 from 52.5. The improvement reflected stronger demand and easing input-cost pressures, although service sector employment remained subdued, and businesses continued to highlight uncertainty surrounding energy prices and the broader economic outlook.

Japan

Japan’s stock markets advanced over the week, with the Nikkei 225 Index gaining 1.93% and the broader TOPIX Index up 1.79%. Investors assessed the impact of the prior week’s currency interventions to support the yen, while speculation continued over the timing of the Bank of Japan’s (BoJ’s) next rate hike. The government advanced its consumption tax cut plan through Cabinet, raising fiscal concerns, while economic data suggested that improving household incomes have yet to translate into stronger consumption. 

Investors assess impact of authorities’ recent interventions to support the yen

The yen weakened past JPY 158 against the U.S. dollar on Friday, giving back some of the gains that followed the prior week’s currency interventions, which had prompted the yen to surge by nearly 5% against the U.S. dollar over three sessions. Japanese authorities had initially acted unilaterally to support the yen before subsequently coordinating with the U.S. to lift the currency from 40-year lows. The coordinated action—the first joint U.S.-Japan foreign exchange intervention in 15 years—saw Japanese authorities buy yen and sell U.S. dollars, while U.S. authorities supported the yen by purchasing it against the euro. Officials from both countries indicated they were prepared to take further joint action if needed.

Yields find support amid expectations that interest rate hike could be imminent

The yield on the 10-year Japanese government bond (JGB) was broadly unchanged from the prior week at 2.79%. JGB yields remained supported by expectations that another interest rate hike by the BoJ could be imminent. The central bank held rates steady at its July meeting, but its rhetoric, centered on the need to remain vigilant about upside inflation risks, was viewed as relatively hawkish and keeping the door open for a move in September. 

Tax cut plan raises fiscal concerns

Japan’s Cabinet approved the government’s consumption tax cut plan, which Prime Minister Sanae Takaichi had pledged to pursue during her election campaign to ease the impact of rising living costs on households. The levy on food products will be lowered to 1% from 8%, starting April 2027 for two years, supplemented by a benefit payment that would eliminate the tax burden on food purchases. The approval of the measure raised concerns about how it would be funded given the country’s already strained finances.

Economic data paint mixed picture of falling household spending despite rising wages

The latest economic data showed that household spending fell 3.3% year over year in June, compared with consensus expectations for a 0.9% increase and following a 0.4% contraction in May. The sharp decline points to continued caution among consumers following several years of real-income pressure and elevated food and other essential costs. Average nominal wages rose 3.4% year over year in June, matching estimates and up slightly from 3.3% in May, supported by continued strong wage settlements and a tight labor market. Real (inflation-adjusted) wages rose 1.6%, in line with consensus and stable on the prior month.

China

China equities diverged over the week, with resilient performance from mainland benchmarks contrasting with weakness in Hong Kong markets. The Shanghai Composite Index rose 2.81% and the CSI 300 Index advanced 2.32%, whereas the Hang Seng Index fell 0.84% in local currency terms, according to FactSet. Renewed strength from technology and semiconductor-related shares supported mainland markets’ gains, while weakness from financial names dragged on Hong Kong amid news that Chinese tax authorities are levying taxes on offshore insurance policies.

PMI surveys point to slowing activity

Manufacturing activity growth in China slowed by more than expected in July, a private sector survey showed. Although it stayed in expansion territory, the RatingDog China General Manufacturing PMI eased to 50.9 in July from 51.7 in June, a four-month low. New orders and production both expanded at softer rates, though export orders returned to growth for the first time in three months. The decline added to worries about the mainland’s economic momentum after the official survey last week showed factory activity falling into contraction for the first time since February. 

Meanwhile, the RatingDog China General Services PMI moderated to 50.4 in July from 54.1 in June, its weakest level since September 2024. Soft domestic demand dragged on new business growth, while firms’ 12-month outlook declined to its lowest since February 2020. 

China enforces tax on offshore insurance income

Mainland Chinese authorities will start taxing returns from overseas insurance policies held by mainland residents, sending shares of Hong Kong-listed insurers and financial institutions sharply lower. According to reports, regional tax authorities in Beijing and Hangzhou had started to apply a 20% tax rate on income from returns from these products, including dividend payouts and interest on prepaid premiums. The measure was viewed as the latest in a series of efforts by China to tighten regulatory scrutiny on outbound investments and cross-border capital flows.

Exports resilient, though signs of fresh U.S. frictions emerging

China’s exports grew by 23.9% in U.S. dollar value terms from a year ago in July, moderating from June but still outpacing forecasts. Meanwhile, imports rose by 27.5%. Healthy demand for AI-related electronics and other high-tech products remained the key driver of export growth.

That said, trade relations between China and the U.S. appeared to come under strain following fresh trade and technology curbs from both countries. Notably, the U.S. recently banned imports of foreign-made humanoid robots and power inverters due to security concerns and blacklisted 43 Chinese companies over alleged forced labor abuses. Washington is also reportedly planning restrictions on imports of new Chinese-made data center components, such as optical transceiver modules, which led to a pullback in Chinese optical equipment makers’ shares. In retaliation, Beijing tightened controls over U.S.-bound drone exports and imposed sanctions on several U.S. businesses. 

Other key markets

India

RBI holds repo rate as inflation concerns remain contained

Indian equities advanced over the week, with the Sensex gaining 1.3% in U.S. dollar terms. Sentiment appeared to benefit from lower oil prices early in the week and the Reserve Bank of India’s (RBI’s) relatively dovish policy communication, although renewed gains in crude and weakness in financial shares weighed on stocks on Friday. Indian government bond yields fell, while the rupee remained under pressure but was stabilized by further RBI intervention.

The RBI unanimously kept its benchmark repo rate at 5.25% and maintained its neutral policy stance, signaling that policymakers were prepared to wait for clearer evidence that higher energy costs were feeding into broader inflation. The RBI characterized the geopolitical shock as largely supply-driven and indicated that monetary policy would need to respond more forcefully if higher energy costs began generating broader inflation pressures. The central bank lowered its fiscal year inflation forecast to 5.0% from 5.1% while raising its gross domestic product growth projection to 6.7% from 6.6%. The policy decision prompted investors to scale back expectations for near-term tightening. 

Mexico

Banxico holds rate while core inflation remains near 4%

Banco de México (Banxico) unanimously kept its benchmark interest rate unchanged at 6.50% for a second consecutive meeting, extending the pause in its easing cycle. Policymakers indicated that maintaining the rate at its current level remained appropriate and continued to expect headline and core inflation to decline, but at a more gradual pace than previously anticipated. The central bank maintained its end-2026 forecasts for headline and core inflation at 3.5% and pushed back its estimate for inflation to converge to the 3% target to the fourth quarter of 2027 from the second quarter previously.

Annual headline inflation slowed to 3.12% in July from 3.37% in June, matching consensus expectations and reaching its lowest level since May 2020. Core inflation eased to 3.95% from 4.03%, slightly above the 3.94% consensus estimate. On a monthly basis, headline prices rose 0.03%, while core prices increased 0.23%. The data reinforced the broader disinflation trend, but the persistence of core inflation near the upper end of Banxico’s target range appeared consistent with the central bank’s decision to remain on hold.