Global Markets Weekly Update

U.S.

Major U.S. equity indexes closed the week lower in a reversal of the prior week’s large-cap tech outperformance. The Nasdaq Composite and S&P 500 Index fared worst, while the Dow Jones Industrial Average and Russell 2000 Index declined to a lesser extent. Within the S&P 500, information technology and communication services posted the steepest losses, weighed down by large-cap tech and artificial intelligence (AI)-linked shares. The energy sector advanced alongside oil prices amid escalating tensions between the U.S. and Iran.

Earnings season began in earnest on Tuesday, with several major banks, including JPMorgan Chase and Goldman Sachs, reporting results that largely topped consensus estimates. However, selling in semiconductor, memory, and AI infrastructure shares weighed on the broader market despite encouraging results from Taiwan Semiconductor Manufacturing and chip-machine supplier ASML. 

Rate-hike odds drop amid cooler-than-expected inflation data

Consumer inflation slowed considerably in June, helping send Treasury yields lower midweek and reducing expectations for a near-term Federal Reserve rate hike. The Bureau of Labor Statistics reported that its consumer price index (CPI) fell 0.4% month over month, below consensus expectations for a 0.1% decline and down from a 0.5% increase in May. The decrease—the largest since April 2020—was driven by a 5.7% drop in energy prices. Core CPI, which excludes food and energy costs, was unchanged for the month, below forecasts for a 0.2% increase. On a year-over-year basis, headline inflation slowed to 3.5% from 4.2%, while core inflation eased to 2.6% from 2.9%.

Producer prices also surprised to the downside. The producer price index (PPI) fell 0.3% in June compared with expectations for an unchanged reading, as final demand goods prices dropped 1.4% amid a 6.4% decline in energy costs. PPI excluding food and energy rose 0.2%, below forecasts for a 0.4% increase. The market-implied probability of a July rate hike fell from roughly 40% before the inflation reports to about 14% by Friday afternoon, according to the CME FedWatch tool.

Meanwhile, the University of Michigan’s preliminary consumer sentiment survey for July showed that expectations for inflation in the year ahead dropped to 4.2% from 4.6% in June, while long-run expectations were unchanged at 3.3%. The headline index indicated a solid overall improvement in sentiment for the month, driven by easing gas prices, though the reading was still 12% lower year over year.  

Retail sales and jobless claims show resilience; housing data remain weak

Elsewhere, economic data released Thursday pointed to continued resilience in consumer spending and the labor market. Retail sales rose 0.2% in June, in line with expectations but down from May’s upwardly revised 1.0% increase. However, excluding gas stations, sales rose 0.7% during the month, reflecting the impact of lower gas prices on the headline figure.

Initial applications for unemployment benefits in the week ended July 11 declined to 208,000, down from the prior week’s revised reading of 216,000 and the lowest level since May 2. Continuing claims were also lower, declining 16,000 to 1.805 million. 

Housing data were less favorable. Pending home sales fell 5.4% month over month in June, while the National Association of Home Builders’ Housing Market Index showed declining homebuilder confidence amid elevated economic uncertainty and ongoing affordability challenges. Meanwhile, data from Freddie Mac showed that the average rate for a 30-year fixed rate mortgage climbed to 6.55%, the highest point since August 2025.

Treasuries advance on encouraging inflation data

U.S. Treasuries generated positive returns, with yields decreasing across most maturities as the week’s cooler-than-expected inflation reports and subsequent repricing of rate expectations largely offset Monday’s oil- and Fed-driven sell-off. (Bond prices and yields move in opposite directions.) Investment-grade corporate bonds also advanced but underperformed Treasuries.

T. Rowe Price traders noted that high yield bonds were resilient but uneven throughout the week, facing pressure from geopolitical tensions and higher oil prices before ultimately rising amid support from soft inflation data and strong bank earnings.

Europe

The pan-European STOXX Europe 600 Index ended a volatile week broadly unchanged, up 0.07% in local currency terms as weakness in tech stocks in the U.S. and Asia spread to Europe on Friday. Investors digested quarterly corporate earnings reports, signs of reescalating tensions in the Middle East, and higher oil prices. Among major stock indexes, Germany’s DAX closed 0.94% lower, France’s CAC 40 Index was flat, and Italy’s FTSE MIB fell 1.39%. The UK’s FTSE 100 Index, which has relatively little exposure to technology names, climbed 0.98%. 

Eurozone inflation confirmed at 2.8% in June; industrial production slides in May

The annual inflation rate across the eurozone fell to 2.8% in June, down from the 3.2% registered in May and the lowest level since the start of the Iran war. This reading was still above the European Central Bank’s 2% target.

Despite expectations of a rise, industrial output in the eurozone fell by 0.2% month over month in May. The fall was due primarily to lower production of durable consumer goods and intermediate goods. The steepest decline was in Ireland, while Germany and Spain both continued to show production growth. 

German wholesale prices sharply higher

Wholesale prices in Germany increased by 4.9% year on year in June, a slowdown from the 5.9% uptick in the previous month. This was driven by sharply higher prices for mineral oil products, nonferrous ores and metals, chemical products, and iron, steel, and semi-finished ferrous metal products.

Mixed signs in Irish economy

The country’s trade surplus narrowed in May, with exports plunging by 29.1% year on year, driven by sharp falls in shipments of items, including chemicals and medicinal and pharmaceutical products. Meanwhile, residential property prices rose by 6.2% year on year in May, the same rate as in April. The latest reading of the widely watched AIB Ireland Construction Purchasing Managers’ Index contracted to a level of 45.4 in June, down from 50.2 in May, with broad-based weakness covering both residential and commercial activity. 

Andy Burnham appointed as leader of UK’s Labour Party

On Friday, Andy Burnham officially became leader of the governing Labour Party. He is set to become prime minister on Monday, July 20.

As expected, the UK economy returned to growth in May, expanding by 0.1% month on month, slightly stronger than the 0.1% contraction the previous month. Other data released over the week showed that industrial production in the country fell by 0.5% sequentially in May. This was a bigger drop than the 0.1% that the market had been expecting and lower than the 0.2% rise registered in April. The decline was largely driven by a drop in mining and quarrying output.

Japan

Japan’s stock markets suffered sizable losses over the week, with the Nikkei 225 Index falling 6.44% and the broader TOPIX Index down 2.90%. The declines were driven largely by bearish sentiment on technology stocks and concerns mounting about whether companies within the AI complex can sustain their lofty valuations. Escalating conflict in the Middle East and surging oil prices provided an unfavorable geopolitical backdrop, dampening investors’ risk appetite further. The sharp rise in oil prices pressured the yen, which weakened to around JPY 162.3 against the U.S. dollar, from about JPY 161.8 at the end of the previous week, amid worries about the negative impact on Japan’s terms of trade, given the country’s high dependence on Middle Eastern oil imports. 

Government bond yields decline

Investors awaited the release of the final version of the government’s economic blueprint. An earlier draft had raised worries among investors that the government could encroach on the independence of the Bank of Japan (BoJ) in setting monetary policy, for example, by pressuring the central bank to proceed cautiously with further rate hikes. However, investors’ concerns were to a degree assuaged by news that the government would state in the final version of the economic blueprint that the BoJ’s independence needs to be protected. Over the week, the yield on the 10-year Japanese government bond fell to 2.70% from 2.78%. Speculation was ongoing about the potential for Japan’s Government Pension Investment Fund to adjust its portfolio if needed to invest more in domestic financial assets, as called for by Finance Minister Satsuki Katayama.  

Weakness seen in business investment

Economic data released during the week showed that Japan’s core machinery orders dropped 12.4% month on month in May, more than the 4.2% decline expected and marking a reversal from an 8.7% increase in April. The bigger-than-expected fall reflected broad-based weakness in business investment. Among manufacturers, orders from shipbuilding fell the most, and in the nonmanufacturing sector, orders weakened significantly in real estate. Meanwhile, the Reuters Tankan manufacturers' sentiment index was unchanged in July at +13, with optimism supported by solid semiconductor demand. Sentiment among nonmanufacturers fell to +25, from +32 in June, as cost pressures and geopolitical uncertainty weighed on confidence.

 

China

China equities diverged during a volatile week, with a renewed sell-off in AI, memory-chip, and other semiconductor shares driving steep mainland losses, while the broader Hong Kong market remained positive despite sharp technology declines on Friday. The CSI 300 Index fell 5.26% and the Shanghai Composite Index declined 5.81%, while the Hang Seng Index gained 1.60% in local currency terms, according to FactSet. A sharp Tuesday rebound, supported by stronger-than-expected trade data, was more than reversed by Friday’s sell-off amid concerns about elevated AI valuations and intensifying competition among Chinese large language model developers; mainland losses narrowed late as trading activity increased in several large index exchange-traded funds (ETFs) often favored by state-backed investors.

Hong Kong nevertheless outperformed over the week, supported by mainland buying through the Stock Connect program and gains among large internet platforms, automakers, health care companies, and selected property stocks, although mainland investors became net sellers on Friday as technology shares fell sharply.

Second-quarter slowdown highlights China’s uneven growth

China’s gross domestic product expanded 4.3% year over year in the second quarter, below the 4.5% consensus estimate and down from 5.0% in the first quarter. The quarterly pace was below the lower end of the government’s full-year 2026 growth target range of 4.5% to 5.0%, although first-half growth of 4.7% remained within the range. June industrial production rose a stronger-than-expected 5.3%, while retail sales increased 1.0% after declining 0.6% in May. However, fixed asset investment fell 5.7% year over year in the first half, including declines of 2.4% in infrastructure, 1.2% in manufacturing, and 18.0% in property investment. 

Exports surge amid weak domestic demand

China’s exports rose 27.0% year over year in June in U.S. dollar terms, up from 19.4% in May and above expectations. Imports increased 36.0%, and the trade surplus widened to USD 125.6 billion. Higher semiconductor prices and strong overseas demand for data-processing equipment and automobiles supported export growth. However, the contrast with weak household consumption, business investment, and property activity highlighted the economy’s reliance on external demand and its exposure to shifts in global technology demand and trade policy.

Credit data point to subdued borrowing demand

Chinese banks extended CNY 1.61 trillion (USD 238 billion) in new yuan loans in June, according to Reuters calculations based on cumulative People’s Bank of China (PBOC) data. The figure was below the CNY 2.0 trillion consensus estimate and CNY 2.24 trillion a year earlier. Outstanding yuan loan growth slowed to 5.2% year over year from 5.5% in May. The monthly increase in total social financing was approximately CNY 3.36 trillion, below the CNY 3.77 trillion consensus estimate, while M2 money supply growth slowed to 8.0% from 8.6% in May. The PBOC noted that bond financing accounted for a larger share of financing in the first half, while direct financing through corporate bonds and equities increased. 

Other key markets

South Korea

Semiconductor sell-off overshadows stronger growth outlook and central bank tightening

South Korean equities experienced significant volatility over the week, with the KOSPI ending sharply lower as a correction in AI- and semiconductor-related stocks weighed on market sentiment. Memory-chip leaders Samsung Electronics and SK Hynix faced heavy selling pressure amid valuation concerns, positioning unwinds, and broader weakness across global semiconductor equities, although the market staged a brief midweek rebound as investors rotated back into AI beneficiaries. Trading conditions were further amplified by leveraged exchange-traded fund activity, prompting regulators to announce temporary restrictions on new single-stock leveraged ETF products in an effort to curb volatility.

On the macroeconomic front, the Bank of Korea raised its policy rate by 25 basis points to 2.75% and maintained a hawkish tone, citing resilient economic activity, semiconductor-driven growth, persistent inflation pressures, and rising household debt. Policymakers indicated that growth is likely to exceed previous forecasts, while economic data remained broadly constructive, including a decline in unemployment and an upgraded government growth outlook. The policy tightening supported the Korean won and contributed to modestly higher local bond yields, though monetary developments were largely overshadowed by equity market volatility and continued focus on the technology sector.

Saudi Arabia

Regional escalation drives spreads wider in the Middle East

Middle Eastern bond spreads widened as investors demanded greater compensation for geopolitical, fiscal, and supply chain risks. Saudi markets were particularly weak as renewed U.S.-Iran hostilities, reduced traffic through the Strait of Hormuz, and the threat of disruption in the Red Sea increased the regional risk premium. Although oil prices rose sharply as attacks on energy and shipping infrastructure intensified, the benefit of higher crude prices was outweighed by concerns about export reliability, tanker availability, and broader economic disruption. Saudi oil loadings from Gulf terminals also slowed, though the kingdom’s East-West Pipeline and Red Sea export capacity provided greater flexibility than many regional peers.

Risk sentiment deteriorated further after Houthi missile and drone attacks on Saudi Arabia raised the possibility that the kingdom could be drawn more directly into the conflict. The escalation also increased the risk of wider disruption to Red Sea shipping and heightened concerns about Saudi Arabia’s regional security commitments, including its defense relationship with Pakistan.