Global Markets Weekly Update

U.S.

Major U.S. stock indexes finished the week mixed, as renewed weakness in large-cap technology and artificial intelligence (AI)-related shares weighed heavily on the Nasdaq Composite and S&P 500 Index, while the small-cap Russell 2000 Index and Dow Jones Industrial Average advanced 1.01% and 0.60%, respectively. As measured by Russell indexes, large-cap value stocks outpaced their growth counterparts by 368 basis points (3.68 percentage points), while the equal-weighted S&P 500 Index also solidly outperformed its market cap-weighted peer.

PCE inflation accelerates, but spending and income rise

The Bureau of Economic Analysis (BEA) reported that its personal consumption expenditures (PCE) price index rose 0.4% in May, matching April’s increase, while the core PCE price index—which excludes food and energy costs—rose 0.3%, also unchanged from the prior month. On a year-over-year basis, headline PCE inflation accelerated 0.3 percentage points to 4.1%, the highest since April 2023, while core PCE inflation edged higher to 3.4%, the highest since October 2023.

Meanwhile, personal income and personal consumption expenditures both increased 0.7% in May, both ahead of consensus estimates, pointing to continued consumer resilience despite elevated prices. The increase in spending was relatively broad-based and led by gains in financial services and insurance, health care, housing and utilities, and energy goods. 

June business activity improves; GDP growth revised higher

The S&P Global Flash Purchasing Managers’ Index (PMI) data showed that U.S. business activity improved for the third consecutive month in June, although the expansion was somewhat modest relative to the pace seen early in the year. The flash composite output index rose to 52.2 from 51.5 in May, its highest level in five months. The services PMI increased to 51.3, up from 50.7 in May, while the manufacturing PMI rose 0.6 points to 55.7, its highest level since May 2022.

However, employment softened for the second straight month, as companies continued to focus on cost control amid elevated input prices and concerns about the outlook. Supply chain delays also became more widespread, largely due to tariffs and the war in the Middle East, while input price inflation remained historically elevated.

Separately, the BEA revised first-quarter real gross domestic product (GDP) growth up to an annualized 2.1% from its prior estimate of 1.6%. The change was driven by a downward revision to imports, which are subtracted from GDP, though this was partially offset by a downward revision to consumer spending. U.S. real GDP grew 0.5% in the fourth quarter of 2025.

Treasury yields decline amid falling oil prices and in-line inflation data

U.S. Treasuries advanced during the week, with yields moving lower across most maturities as oil prices declined and the May PCE data came in roughly in line with expectations. (Bond prices and yields move in opposite directions.) The yield on the benchmark 10-year U.S. Treasury note dropped below 4.40% for the first time in over a month.

Investment-grade corporate bonds also generated gains, while new issues were, on average, oversubscribed. Meanwhile, T. Rowe Price traders noted that high yield bonds were more pressured amid concerns over monetary policy and AI-driven equity valuations, heavy new issuance, slowing fund inflows, and broader risk-off sentiment.

Europe

The pan-European STOXX Europe 600 Index ended the week broadly unchanged, up 0.04% in local currency terms. After a positive start to the week, global technology stocks sold off on Friday amid concerns over elevated valuations in AI-related stocks. Among major stock indexes, Germany’s DAX closed 1.26% lower, France’s CAC 40 Index declined 0.43%, and Italy’s FTSE MIB fell 3.00%. The UK’s FTSE 100 Index climbed 1.40%.

Inflation expectations ease in May

According to the European Central Bank’s (ECB) latest survey, consumer inflation expectations for the next 12 months in the eurozone declined to 3.5% in May, their lowest level in three months. The same survey also found that eurozone consumers expect overall negative growth of 1.7% in the year ahead; this marks an improvement from the 2.2% contraction that had been expected in April.

In addition, oil prices trading back toward their pre-Middle East conflict levels could reduce expectations that the ECB will have to pursue further interest rate hikes.

Mixed PMI data across eurozone

The S&P Global Flash Eurozone Composite PMI increased to 49.5 in June, the highest reading since March. This was higher than both the forecast 49.2 and May’s reading of 48.5. The manufacturing PMI fell to 51.3 but remained in expansionary territory for the fifth consecutive month.

In contrast, the S&P Global Flash Germany Composite PMI declined to 48 in June, below the 49.9 that had been forecast. This was the third consecutive month of declining private market activity in the country, with respondents citing deteriorating economic conditions and heightened market uncertainty. 

UK prime minister resigns

On Monday, Keir Starmer announced his resignation as prime minister following several months of political pressure. The Labour Party will now choose a new leader, currently expected to be Andy Burnham.

Data released by the Confederation of British Industry (CBI) showed that UK retail sales fell at a sharp pace in June, on the back of weak consumer confidence and rising prices. The Distributive Trades Survey found that retail sales volumes dropped to a weighted balance of -54 in the year to June, down from -46 in May. Wholesale sales volumes also remained weak. Separate data released by the CBI showed that the country’s total order book for manufacturing fell to a net level of -45 in June, its lowest level since 2020. This was lower than both the -41 recorded in May and the -35 that had been expected.

Japan

Japan's stock markets declined over the week, with the Nikkei 225 Index falling 2.65% and the broader TOPIX Index losing 2.02%. AI-related technology stocks initially rallied after upbeat forecasts from leading U.S. chipmakers bolstered confidence in the AI theme, but a global technology sell-off later in the week prompted profit taking in the sector and weighed on Japan’s markets. In the currency markets, investors remained on watch for authorities’ potential intervention to prop up the yen as it weakened further toward the high end of the JPY 161 range against the U.S. dollar.

Oil prices ease, supporting demand for JGBs

Falling oil prices were favorable for Japan, a major importer of Middle Eastern oil, as they eased concerns about energy import costs and inflationary pressures. Brent crude, the global benchmark, fell back to pre-Iran war levels, helping support demand for Japanese government bonds (JGBs). The yield on the 10-year JGB declined to 2.60% from 2.64% at the end of the previous week.

Tokyo consumer inflation pickup reinforces BoJ tightening expectations

The core consumer price index for the Tokyo area, considered a leading indicator of nationwide trends, rose 1.6% year over year in June, matching consensus estimates and accelerating from 1.3% in May, largely due to higher water service fees following the expiration of government subsidies. The first pickup in Tokyo consumer inflation in eight months reinforced expectations that the Bank of Japan (BoJ) will continue raising interest rates. Governor Kazuo Ueda, in remarks delivered by Deputy Governor Ryozo Himino, echoed this view, saying the BoJ sees upside risks to inflation relative to its 2% target and expects to continue adjusting policy in response to economic activity, prices, and financial conditions while monitoring risks from the conflict in Iran and other factors.

Fiscal expansion targets long-term economic growth

Prime Minister Sanae Takaichi announced a major fiscal expansion aimed at strengthening Japan’s long-term growth prospects, setting out an investment road map of around JPY 370 trillion (USD 2.3 trillion) through 2040. The plan envisages public-private investment across 17 strategic sectors, including AI and semiconductors, as the government seeks to enhance Japan’s industrial competitiveness and economic security. The initiative is a flagship policy of the Takaichi administration, which advocates responsible and proactive fiscal policy.

China

China equities ended the week lower as an early rally in AI and semiconductor-related shares gave way to a broader regional technology sell-off late in the week. The CSI 300 Index fell 1.48% while the Shanghai Composite Index declined 1.55% in local currency terms, according to FactSet. Hong Kong equities underperformed sharply, with the Hang Seng Index falling 5.24%, as weakness in large internet companies added to the broader decline in technology shares across Asia. The divergence also reflected differences in index composition, with mainland benchmarks carrying greater exposure to AI infrastructure and semiconductor companies, while Hong Kong indexes remain more concentrated in internet platforms and financials.

PBOC begins implementing new liquidity framework

The People's Bank of China (PBOC) said it will begin conducting overnight reverse repo operations at the end of June using a new liquidity management instrument designed to improve short-term liquidity management and strengthen monetary policy transmission. The move follows Governor Pan Gongsheng's announcement at last week's Lujiazui Forum outlining changes to the central bank's operating framework. Investors will watch the inaugural operation, particularly the operating rate and usage of the facility, for further signals on the evolution of the PBOC's monetary policy framework.

Separately, the PBOC left the one-year and five-year loan prime rates (LPRs) unchanged at 3.00% and 3.50%, respectively, in line with market expectations. The rates have been held steady for 13 straight months. The one-year LPR is used as a benchmark for household and corporate loans, while the five-year LPR is a reference for mortgages.

Premier Li Qiang reiterates commitment to innovation-led growth

Speaking at the World Economic Forum's Summer Davos meeting in Dalian, Premier Li Qiang defended China's technological and industrial competitiveness, rejected claims that China's export strength is primarily driven by state subsidies, and reiterated Beijing's commitment to innovation, advanced manufacturing, and further opening of the economy. The remarks were broadly consistent with recent official messaging and reinforced policymakers' emphasis on technological upgrading and high-quality growth amid ongoing trade tensions with the U.S. and Europe.

Other key markets

South Korea

AI-linked shares reverse sharply after record highs

South Korean equities fell sharply over the week, with the KOSPI Composite Index losing 7.08%, as a steep reversal in AI- and memory-linked shares overshadowed a midweek rebound. The KOSPI climbed higher to start the week, supported by strong gains in SK Hynix and Samsung Electronics, but selling pressure intensified as investors reassessed stretched valuations, heavy retail participation, and the role of leveraged products in amplifying market swings. SK Hynix briefly overtook Samsung Electronics as the country’s largest company by market value, helped by optimism around high-bandwidth memory demand and expectations that a planned U.S. listing could broaden foreign investor access, before both chipmakers came under heavy pressure.

The sell-off added to scrutiny of South Korea’s increasingly volatile equity market. Trading halts were triggered twice during the week as leveraged single-stock exchange-traded funds tied to Samsung Electronics and SK Hynix, along with elevated retail margin debt, appeared to intensify index-level moves. Regulators were reportedly considering stabilization measures, including potential limits on some leveraged products. Macro and policy concerns also remained in focus, with the Bank of Korea again signaling a hawkish stance as it cited rising home prices, household debt, and leveraged investment activity as risks to financial stability, while the won weakened against a stronger U.S. dollar.

Romania

Political deadlock threatens EU funding and fiscal repair

Romanian assets came under pressure earlier in the week as the country’s political impasse deepened, raising concerns about fiscal consolidation, access to European Union (EU) recovery funds, and sovereign credit risk. Investor concerns centered on the failure of prime minister nominee Adrian Veștea to secure parliamentary approval, prolonging a deadlock that has stalled efforts to form a stable government and advance reforms needed to unlock billions of euros in EU funding before an August deadline.

The political crisis followed the collapse of Romania’s pro-European coalition in May and left President Nicușor Dan trying to secure support for a minority government in a fragmented parliament. Three center-right parties proposed European Parliament lawmaker Siegfried Mureșan as prime minister, while the Social Democrats put forward their leader, Sorin Grindeanu, leaving both camps short of a clear governing majority. Another failed attempt to approve a cabinet could increase the risk of early elections, an outcome that could benefit the far-right Alliance for the Union of Romanians, which has been leading in opinion polls. The uncertainty comes as Romania faces one of the EU’s widest budget deficits and the risk that further delays in fiscal adjustment could pressure its investment-grade credit rating.