Weekly Market Recap

Equity markets

Last week, the MSCI All Country World Index (MSCI ACWI) rose 2.9% (14.8% YTD).

The S&P 500 Index finished 3.6% higher (14.1% YTD). Major stock indexes advanced during the week—with several notching fresh record highs—as generally favourable 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 as it rose 5.2% (15.2% YTD).  Large-cap growth stocks returned to outperformance versus their value counterparts, while small caps performed in line with large caps. The Russell 1000 Growth Index returned 5.3% (5.7% YTD), the Russell Value Index 2.3% (23.4% YTD), and the Russell 2000 Index 3.5% (23.2% YTD).

In Europe, the MSCI Europe ex-UK Index ended the week up 2.2% (13.6% YTD). 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. Major stock indices advanced. Germany’s DAX Index climbed 2.7% (7.5% YTD), France’s CAC 40 Index added 2.4% (9.7% YTD), and Italy’s FTSE MIB Index was up 3.0% (23.2% YTD). Switzerland’s SMI made a smaller gain of 1.4% (12.8% YTD). The euro fell back against the US dollar, closing the week at USD 1.16 for EUR, down from 1.15.

The FTSE 100 Index in the UK rose 0.5% (12.1% YTD), while the FTSE 250 Index added 3.7% (12.9% YTD). The British pound was flat for the week against the US dollar, closing at USD 1.35 for GBP.

Japan’s stock markets advanced over the week. The TOPIX Index rose 1.8% (21.0% YTD), and the TOPIX Small Index added 2.5% (18.5% YTD). 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.

The yen weakened to JPY 158 against the US 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 US dollar over three sessions. Japanese authorities had initially acted unilaterally to support the yen before subsequently coordinating with the US to lift the currency from 40-year lows. The coordinated action—the first joint foreign exchange intervention in 15 years—saw Japanese authorities buy yen and sell dollars, while US 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.

The yield on the 10-year Japanese government bond was broadly unchanged from the prior week at 2.79%. 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, centred 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.

In Australia, the S&P ASX 200 Index rallied 3.2% (8.6% YTD) on the back of strong household spending and export data as well as outperformance of AI-adjacent names. Australian government bond yields moved higher with the curve modestly steepening. The Australian dollar strengthened against US dollar by 0.2%.

In Canada, the S&P/TSX Composite rose 3.3% (16.3% YTD).

Emerging markets and other markets

In contrast to developed markets, the MSCI Emerging Markets Index fell by -0.4% (19.7% YTD). The Chinese, Indian, and Taiwanese markets contributed positively, while the Brazilian and South Korean markets contributed negatively.

China equities again diverged over the week, with resilient performance from mainland benchmarks contrasting with less strong showings in Hong Kong markets. 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. The onshore CSI 300 Index, the main onshore benchmark, gained 2.4% (3.0% YTD), while the Shanghai Composite Index added 2.9% (0.8% YTD). The MSCI China Index, which primarily comprises offshore-listed stocks, rose by the smaller amount of 1.2% (-5.4% YTD).

Indian equities advanced over the week. 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, signalling 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.

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. 

Fixed income markets

Last week, the Bloomberg Global Aggregate Index (hedged to USD) performed positively, up 0.5% overall (0.6% YTD), the Bloomberg Global High Yield Index (hedged to USD) added 0.7% (3.1% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index advanced 0.8% (1.3% YTD).

U.S. Treasuries generated positive returns for the week, as declining oil prices and softer employment data helped drive yields lower across most maturities. After ending the prior week at 4.74%, the yield on the U.S. 10-year Treasury note dropped to 4.65% by Friday.  The yield remains up 48bps YTD. The 2-year Treasury yield decreased by -9bps, ending the week at 4.20% from 4.29% (up 72bps YTD).

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 US and Iran.

Over the week, the 10-year German Bund yield also decreased, ending at 3.13% from 3.21% (up 28bps YTD). The 10-year UK gilt yield fell by 13bps, ending the week at 4.92% from 5.05% (up 44bps YTD).