Highlights
U.S. equity markets delivered mixed performance during the week as continued weakness in large-cap technology and artificial intelligence (AI) stocks weighed on the Nasdaq Composite and the S&P 500. The S&P 500 declined 1.95% and the Nasdaq 100 retreating 4.24% for the week. In contrast, smaller companies and large-cap value-oriented stocks outperformed, with the Russell 2000 and the Dow Jones Industrial Average posting gains. Data coming in during the week showed that the annual headline PCE inflation accelerated to 4.1%, its highest level since April 2023, while core inflation edged up to 3.4%, the strongest reading since October 2023. Positively, despite higher inflation, consumer finances remained resilient. Both personal income and consumer spending rose 0.7% during May, exceeding economists’ expectations. Spending gains were broad-based, led by financial services, insurance, healthcare, housing, utilities, and energy-related purchases. Further, preliminary June Purchasing Managers’ Index (PMI) data from S&P Global indicated that U.S. business activity continued to improve for a third consecutive month. However, companies remained cautious about hiring. Employment declined for a second straight month as businesses focused on managing costs amid elevated input prices and economic uncertainty. Supply chain disruptions also became more pronounced, reflecting the combined effects of tariffs and ongoing Middle East tensions. Separately, the Bureau of Economic Analysis revised first-quarter U.S. GDP growth upward to an annualized 2.1% from 1.6%, primarily due to lower-than-previously estimated imports. Across the great Atlantic Pond, the pan-European Euro STOXX 600 Index finished the week lower by 1.31%. After beginning the week on a positive note, European markets weakened on Friday as investors sold technology shares amid concerns that AI-related stock valuations had become stretched. Among major markets, Germany, France, and Italy declined, while the UK’s FTSE 100 posted gains. Notably, the European Central Bank’s latest consumer survey showed that eurozone inflation expectations for the coming year declined to 3.5% in May, their lowest level in three months. Consumers also became slightly less pessimistic about the economic outlook, with expected economic contraction easing compared with April. Lower oil prices, which have retreated toward pre-conflict levels, also reduced expectations that the ECB would need to implement further interest rate increases. Further to this, the eurozone Composite PMI improved to 49.5 in June, the highest level since March and above market expectations. Separately, in the U.K., political uncertainty rose at the beginning of the week as UK Prime Minister Keir Starmer announced his resignation after months of political pressure, with Labour expected to select Andy Burnham as its new leader. Mr. Starmer indicated that he would remain in office until the new substantive leader is duly appointed. Economic data also weakened. The Confederation of British Industry reported a sharp decline in retail sales during June as higher prices and weak consumer confidence weighed on spending. Meanwhile in Asia, Japanese equities declined over the week as an early rally in AI-related technology shares reversed following a broad global sell-off in technology stocks. The Nikkei 225 and TOPIX both ended lower, while investors remained alert for possible government intervention as the yen weakened toward JPY 161 per U.S. dollar. Positively, reduced concerns over energy costs and inflation supported demand for Japanese government bonds, pushing the 10-year government bond yield slightly lower. Separately, Chinese equities weakened during the week as an early rally in AI and semiconductor stocks gave way to a broader regional technology sell-off. Mainland indexes posted modest declines, while Hong Kong’s Hang Seng Index fell more sharply as large internet companies came under pressure.
Data Highlights
CAD Inflation Rate YoY (May) rose by +40bps, from 2.8% to 3.2% +20bps stronger than the expected +20bps rise to 3%. CAD Core Inflation Rate YoY rose in line with expectations, +10bps, from 2.1% to 2.2%. USD PCE Price Index YoY (May) rose in line with expectations, +30bps, from 4.1% to 4.4%. USD Core PCE Price Index YoY (May) rose in line with expectations, +10bps, from 3.3% to 3.4%. AUD CPI (May) rose against an expected drop, +9.72bps, from 102.8 to 102.9, +39bps against the wrongly expected -29bps drop to 102.5. AUD Inflation Rate YoY fell by -20bps, from 4.2% to 4%, -40bps against the wrongly expected +20bps rise to 4.4%. AUD Unemployment (May) fell in line with expectations, -10bps, from 4.5% to 4.4%.
Week Ahead
JPY Unemployment Rate (May), GBP GDP Growth Rate YoY (Q1) – Tuesday | EUR Inflation Rate YoY (Jun), EUR Core Inflation Rate YoY (Jun) – Wednesday | CHF Inflation Rate YoY (Jun), EUR Unemployment Rate (May) – Thursday
