Global Markets Weekly Update

U.S.

Most major U.S. stock indexes finished the week lower as concerns about the potential returns on heavy artificial intelligence (AI) investments and a sharp rise in oil prices weighed on investor sentiment. The technology-heavy Nasdaq Composite performed worst, falling 2.13%, while the Dow Jones Industrial Average, S&P 500 Index, and Russell 2000 Index fell to a lesser extent. The S&P MidCap 400 Index recorded a 0.23% gain. 

Corporate earnings were a major focus for investors during an otherwise light week of economic data that saw 86 of the S&P 500 constituents report quarterly results. Shares of Alphabet and Tesla declined following their reports, with investors focusing on elevated capital spending and weaker cash flow, which appeared to help fuel broader concerns around big tech’s AI spending and weigh on technology stocks during the week. 

Geopolitical developments also attracted investors’ attention amid ongoing hostilities in the Middle East and signs that ceasefire efforts had stalled. Oil prices rose sharply, lifting energy shares and pressuring travel- and consumer-related industries and renewing inflation concerns. The move also contributed to higher Treasury yields and increased market expectations for a possible Federal Reserve rate hike.

Services activity accelerates; manufacturing growth moderates

The S&P Global Flash U.S. Composite Purchasing Managers’ Index (PMI) rose to an eight-month high of 53.6 in July from 51.9 in June, as stronger services activity offset a moderation in manufacturing growth. The services index increased to 53.6, well above expectations and up from 51.2, while the manufacturing PMI edged down to a four-month low of 53.8. Employment rose for the first time in three months, and business expectations improved to an eight-month high.

The report also pointed to intensifying price and supply pressures. Supplier delays were the most severe in nearly four years amid Middle East-related disruptions, while input cost inflation reached a 14-month high and selling prices rose at nearly their fastest pace in four years. Domestic demand was supported by World Cup- and July 4th-related spending and increased business investment. Exports continued to decline.

Jobless claims hit lowest level since 1969; new home sales remain sluggish

The Labor Department reported that initial applications for unemployment benefits fell to 187,000 for the week ended July 18, well below consensus estimates for around 215,000 and the lowest reading since 1969. Continuing claims edged down to 1.796 million from a downwardly revised 1.798 million in the prior week.

Elsewhere, data from the Census Bureau showed that sales of new single-family homes came in at a seasonally adjusted annual rate of 628,000, a 1.6% increase from May’s revised reading but a 5.6% year-over-year decline. The median sales price dipped 3.3% from May to USD 398,300. 

Treasury yields rise amid Middle East escalation

U.S. Treasuries generated negative returns as yields rose amid escalating conflict in the Middle East and rising oil prices, which helped stoke inflation concerns and increased market expectations for the Fed to raise rates in the near term. (Bond prices and yields move in opposite directions.) The yield on the benchmark 10-year U.S. Treasury note climbed over 4.7% for the first time since January 2025 during the week, before dipping to about 4.68% on Friday. 

High yield bonds also generated negative returns as sentiment deteriorated amid a more risk-off backdrop driven by rising oil prices, sticky inflation concerns, rate-hike fears, AI-growth uncertainty, and the Iran conflict, according to T. Rowe Price traders.

Europe

The pan-European STOXX Europe 600 Index ended the week up 0.46% in local currency terms. Investors weighed generally robust quarterly corporate earnings reports, heightened tensions in the Middle East, sharply higher oil prices, and an announcement by the Trump administration that it was imposing a fresh round of tariffs on dozens of its trading partners, including the European Union and the UK. Among major stock indexes, Germany’s DAX closed 1.08% higher, France’s CAC 40 Index rose 0.40%, and Italy’s FTSE MIB slipped 0.15%. The UK’s FTSE 100 Index climbed 1.28%. 

ECB keeps interest rates on hold but leaves door open for future tightening

The Governing Council of the European Central Bank (ECB) left all three of its key interest rates unchanged. The vote was unanimous, but ECB President Christine Lagarde noted that the recent breakdown of the ceasefire between Iran and the U.S. had resulted in “serious developments” in commodity markets and that the regional central bank is closely monitoring the intensity and duration of the energy shock. Markets took her comments as a sign that the door remains open for another interest rate hike in September.

Eurozone manufacturing growth accelerates

There was a pickup in manufacturing activity in the eurozone in July, according to the S&P Global Flash Eurozone Manufacturing PMI. The reading climbed to 52.0 from the 51.4 recorded in June. (PMI readings greater than 50 indicate an expansion in activity.) Meanwhile, the services sector in the eurozone also returned to growth, with the S&P Global Eurozone Services PMI hitting 51.6 in July, up from 49.4 in June and better than the 49.8 that the market had been anticipating. 

Consumer confidence dips in Germany 

German consumer confidence softened, according to the GfK Consumer Climate Indicator, which slipped to a worse-than-expected -29.6 from the previous level of -29.3. This reflected weaker expectations for income and personal financial outlooks. 

New prime minister takes office in UK

On Monday, Andy Burnham became the UK’s seventh British prime minister since 2016. He pledged to cut taxes on energy bills, funded by ending the country’s digital ID program, emphasized regional devolution, and surprised markets by appointing former Secretary of State for Defence John Healey as the new Chancellor of the Exchequer.

There were some encouraging UK macroeconomic data points released over the week, including a return to growth of the country’s services activity. The S&P Global UK Services PMI rose to 51.8 in July, rebounding from the 48.8 registered in June and above the consensus estimate of 49.4. Meanwhile, monthly retail sales volumes surprised to the upside, according to the Office for National Statistics. Retail sales rose by 1% in June, in contrast to the 0.3% decline that had been expected.

Japan

Japan’s stock markets advanced over the week, with the Nikkei 225 Index gaining 0.73% and the broader TOPIX Index up 2.35%. Semiconductor and AI-related shares were volatile as investors weighed optimism about AI against concerns that heavy spending might not generate sufficient returns. Financials benefited in an environment of rising Japanese government bond (JGB) yields and expectations of further Bank of Japan (BoJ) monetary policy tightening. However, gains were capped as conflict in the Middle East, higher oil prices, and the latest U.S. tariff developments dampened investors’ risk appetite.

Economic blueprint prioritizes strategic investment and reaffirms BoJ independence

Japan's Cabinet approved the government's annual economic and fiscal policy blueprint, which prioritizes aggressive public and private investment in strategic growth areas such as AI, semiconductors, defense, and energy transformation to strengthen the economy. The finalized blueprint placed greater emphasis than an earlier draft on the independence of the BoJ, explicitly stating that decisions on the specific conduct of monetary policy will be left to the central bank while reaffirming price stability as the bank’s primary objective. The revisions were intended to reassure investors after the earlier draft fueled concerns that the government could pressure the BoJ to delay further interest rate hikes. 

Inflation trends reinforce expectations for tighter monetary policy

The yield on the 10-year JGB rose to 2.80% from 2.70% at the end of the previous week, as June inflation data reinforced expectations for further BoJ policy tightening. The nationwide core consumer price index (CPI) rose 1.6% year over year, in line with consensus and up from 1.4% in May. Although consumer inflation remained below the BoJ's 2% target for a fifth consecutive month, largely reflecting government subsidies, June’s reading marked the first acceleration in the core CPI since March. Reports that BoJ officials could be prepared to tighten policy more quickly than markets currently anticipate if upside inflation risks materialize provided additional support for JGB yields.

Yen weakens despite renewed intervention warnings

The yen approached JPY 164 against the U.S. dollar, weakening to a 40-year low. Renewed geopolitical tensions leading to strength in the greenback, concerns over Japan's fiscal outlook, and the still-wide U.S.-Japan interest rate differential continued to weigh on the yen. Repeated warnings of possible currency intervention failed to stem the yen's decline, despite Finance Minister Satsuki Katayama's repeated assurances that the authorities stood ready to act if necessary. 

China

China equities advanced over the week despite a broad regional sell-off on Friday, when renewed concerns about AI-related valuations and higher oil prices amid escalating Middle East tensions weighed on investor sentiment. The CSI 300 Index rose 2.65%, the Shanghai Composite Index advanced 1.33%, and the Hang Seng Index gained 1.63% in local currency terms, according to FactSet. State-backed purchases helped drive a sharp rebound earlier in the week, particularly in semiconductor and other technology shares. Some of those gains were subsequently pared as valuation concerns resurfaced and Brent crude futures traded around USD 100 per barrel. In Hong Kong, weakness in large internet platforms offset part of Monday's rally.

State support extends to technology shares

State-owned capital platforms China Reform Holdings and China Chengtong Holdings disclosed combined equity purchases of nearly RMB 60 billion (USD 8.9 billion). China Securities Regulatory Commission Chairman Wu Qing also said that the regulator would make every effort to maintain stable market operations. On Monday, the ChinaAMC STAR 50 exchange-traded fund (ETF) attracted a record RMB 13.8 billion of inflows, although the source of the buying was not disclosed. Major insurers also announced plans to increase long-term equity investment. Together, the announcements suggested that market-stabilization measures were extending beyond the large-cap ETFs more commonly associated with state buying. The technology-heavy STAR 50 Index rose 10.7% on Tuesday before giving back part of the advance later in the week, underscoring continued volatility in AI- and semiconductor-related shares.

State Council calls for more effective fiscal execution

China’s State Council called for stronger budget management, more effective fiscal spending, and better implementation of existing policy measures to ensure that the government’s annual economic and social development targets are met. Official data showed that general public budget expenditure rose 1.5% year over year in the first half, while expenditure under the government-managed funds budget fell 16.4%; a broader measure of government spending declined 11.9% year over year in June. Separately, the People’s Bank of China made a net RMB 100 billion injection through its medium-term lending facility, its largest net injection in five months, ahead of the Politburo meeting. Together, the measures helped reinforce expectations of targeted support and faster deployment of already-approved fiscal resources rather than a sweeping new stimulus program.

Other key markets

South Africa

Rate hold pressures South African assets

South African markets weakened over the week as investors reassessed the monetary policy outlook after the South African Reserve Bank unexpectedly left its policy rate unchanged. Although inflation remained above the bank’s target, policymakers emphasized weak growth, subdued consumer and business confidence, and the risk that additional tightening could place further pressure on the economy. The decision was viewed as less hawkish than expected, weighing on the rand and pushing government bond yields higher as markets continued to assess whether further tightening may still be required if fuel and services inflation remain persistent. 

Sentiment was partially supported by the recent announcement of a USD 1.5 billion World Bank infrastructure loan focused on electricity, transport, and water-sector reforms. The financing reinforced evidence of gradual structural improvement, including reduced load shedding, higher renewable energy investment, and stronger freight activity. However, these longer-term reform developments were outweighed over the week by concerns around the near-term balance between elevated inflation and weak domestic growth. 

India

External risks complicate India’s policy outlook

Markets in India weakened over the week as higher oil prices and renewed U.S.-Iran tensions raised concerns about imported inflation, the current account balance, and the outlook for monetary policy. Equities declined, government bond yields rose alongside crude prices, and the rupee remained under pressure near record lows. India’s heavy dependence on imported energy amplified the market impact, while softer foreign demand and moderating overseas investment flows provided additional headwinds. The Reserve Bank of India reportedly intervened across offshore, spot, and forward currency markets to limit rupee depreciation, although market participants continued to view oil prices as the currency’s primary near-term driver.

Economic data presented a mixed picture. Preliminary business surveys showed activity expanding at its slowest pace in more than four years, led by weaker services and manufacturing growth as geopolitical uncertainty, higher input costs, and softer overseas demand weighed on sentiment. At the same time, the Reserve Bank of India maintained that domestic demand and industrial and services activity remained resilient, while identifying higher oil prices and an uneven monsoon season as the principal risks to inflation and growth. These competing signals reinforced expectations that the central bank would remain cautious, balancing external price pressures and currency weakness against evidence of slowing economic momentum.