Highlights
U.S. equity markets ended the week lower as leadership shifted away from the technology sector following the previous week’s rally. Within the S&P 500, technology and communication services were the weakest-performing sectors, reflecting renewed pressure on semiconductor and AI-related companies. Energy stocks bucked the broader trend, benefiting from higher oil prices amid escalating tensions between the U.S. and Iran. For the week, the Nasdaq Composite and S&P 500 shed 4.13% and 1.55% respectively while the Dow Jones Industrial Average experienced a comparatively smaller loss of 0.93%. Notably, second-quarter earnings season began with several major financial institutions, including JPMorgan Chase and Goldman Sachs, reporting results that exceeded expectations. Despite these encouraging earnings, selling pressure across semiconductor manufacturers, memory-chip producers, and AI infrastructure companies outweighed positive corporate news, including strong results from Taiwan Semiconductor Manufacturing and ASML. On the macro front, inflation data surprised to the downside, strengthening expectations that the Federal Reserve could delay additional interest rate increases. Consumer prices fell 0.4% in June, marking the steepest monthly decline since April 2020 and exceeding forecasts for a modest decline. On an annual basis, headline inflation eased to 3.5% from 4.2%, while core inflation slowed to 2.6% from 2.9%. Similarly, producer prices also weakened more than anticipated. The Producer Price Index declined 0.3% during June as lower energy prices pushed final demand goods prices lower. Following the inflation releases, markets significantly reduced expectations for a July Fed rate hike, with implied probabilities falling from around 40% before the reports to roughly 14% by week’s end. Across the Atlantic, European equities finished an uneven week lower, with the STOXX Europe 600 Index down 0.70%. Investors balanced corporate earnings, renewed Middle East tensions, and higher oil prices while technology stocks weakened alongside their U.S. counterparts. Eurozone inflation slowed to 2.8% in June, its lowest level since the outbreak of the Iran conflict, although it remained above the European Central Bank’s target. However, industrial production unexpectedly declined in May as weaker output of durable consumer and intermediate goods offset gains in several major economies, including Germany and Spain. In the United Kingdom, Andy Burnham formally assumed leadership of the Labour Party and prepared to become prime minister. The UK economy returned to modest monthly growth during May, although industrial production contracted more than expected, largely due to weakness in mining and quarrying. Moving over to Asia, Japanese equities recorded significant losses as investors became increasingly concerned about elevated valuations across AI-related technology companies. Rising geopolitical tensions in the Middle East and higher oil prices further reduced investor risk appetite, while the weaker yen reflected concerns about Japan’s heavy dependence on imported energy. For the week, the Nikkei 225 Index was down 6.44% while the broader TOPIX index ended the week 2.90% lower. Meanwhile, Chinese markets experienced another volatile week, with mainland indexes suffering heavy losses following renewed selling in AI, semiconductor, and memory-chip shares. Hong Kong equities outperformed, supported by gains in internet companies, automakers, healthcare firms, and selected property stocks, although technology shares also weakened sharply toward the end of the week. China’s economy expanded 4.3% year over year during the second quarter, slowing from the previous quarter and falling below expectations. Exports accelerated sharply in June while imports also rose substantially, resulting in a wider trade surplus.
Data Highlights
USD CPI (Jun) fell -35bps, from 335.12K to 333.95K, expectations were for a drop from 335.12K to 334.7K. USD Inflation Rate YoY (Jun) fell -70bps, from 4.2% to 3.5%, expectations pencilled only a -40bps fall, from 4.2% to 3.8%. USD Core Inflation Rate YoY (Jun) fell -30bps, from 2.9% to 2.6%, consensus assumed only a -10bps fall, from 2.9% to 2.8%. EUR CPI (Jun) fell from 103.13K to 103.02K, expectations were softer, assuming a fall from 103.13K to 103.07K. CNY GDP Growth Rate YoY (Q2) fell -70bps, from 5% to 4.3%, expectations were softer, assuming only a -50bps fall, from 5% to 4.5%. CNY Unemployment Rate (Jun) fell -10bps, from 5.1% to 5%, consensus wrongly expected an unchanged result at 5.1%.
Week Ahead
CAD Inflation Rate YoY (Jun), CAD Core Inflation Rate YoY (Jun) – Monday | NZD Inflation Rate QoQ (Q2), GBP Unemployment Rate (May) – Tuesday | GBP Inflation Rate YoY (Jun), GBP Core Inflation Rate YoY (Jun) – Wednesday | AUD Unemployment Rate (Jun), EUR ECB Interest Rate Decision – Thursday | JPY Inflation Rate YoY (Jun), JPY Core Inflation Rate YoY (Jun) – Friday
