Relief for Hormuz, reality for tech

In the US, equities came under pressure as AI stocks retreated sharply. After driving market gains for much of the past year, investors once again began questioning whether the extraordinary levels of capital being invested in AI infrastructure will generate returns quickly enough to justify current valuations.

Semiconductor companies and large technology firms led the decline, while newly listed SpaceX also came under significant pressure as investors reassessed its high valuation following its recent market debut.

Easing geopolitical tensions provided welcome relief for global markets. Progress in implementing the recent US–Iran memorandum of understanding helped restore some shipping activity through the Strait of Hormuz. As a result, oil prices fell sharply, with WTI declining almost 10% over the week to finish below $70 per barrel. Lower energy prices helped improve sentiment by easing inflation concerns, although isolated incidents in the region later in the week briefly reminded investors that geopolitical risks remain.

Economic data from the US presented a mixed picture. Flash Purchasing Managers' Index (PMI) data showed business activity expanding for a third consecutive month, with the Composite PMI rising to 52.2 from 51.5.

The Services PMI increased to 51.3 from 50.7, while the Manufacturing PMI climbed to 55.7 from 55.1. However, inflation remained stubborn.

The Personal Consumption Expenditures (PCE) Price Index, rose 0.4% month-on-month in May, matching April's increase. On an annual basis, headline PCE inflation accelerated to 4.1%, while Core PCE, which excludes food and energy, edged up to 3.4%, its highest level since October 2023, reinforcing expectations that interest rates may remain higher for longer.

Japanese equities also weakened as the global technology sell-off spread across Asian markets. Nevertheless, falling oil prices provided an important tailwind for Japan's import-dependent economy by easing energy costs.

Inflation data also surprised, with the Tokyo Core Consumer Price Index (CPI) rising 1.6% year-on-year in June, up from 1.3% in May. As Tokyo inflation is widely viewed as a leading indicator for national price trends, the data strengthened expectations that the Bank of Japan will continue gradually raising interest rates as it normalises monetary policy.

Equities

Global stocks finished down -1.1% in euro terms and down -1.7% in local terms last week. Year-to-date global markets are up by 11.1% in euro terms and up by 7.8% in local terms. The US market, the largest in the world, finished down at -1.3% in euro terms and down at -2.0% in local terms.

Fixed Income & FX

The US 10-year yield finished at 4.4% last week. The German equivalent finished at 2.9%. The Irish 10-year bond yield finished at 3.0%. The Euro/US Dollar exchange rate finished at 1.14, whilst Euro/GBP finished at 0.86.

Commodities

Oil finished the week at $69 per barrel and is up 24.4% year-to date in euro terms. Gold finished the week at $4,089 per troy ounce and down -2.3% year-to-date in euro terms. Copper finished the week at $13,336 per tonne and is up 10.5% year-to-date in euro terms.

The week ahead

Wednesday 1^st July

Eurozone CPI data is released.

Thursday 2^nd July

US nonfarm payrolls and employment data is reported.

Friday 3^rd July

Eurozone PMI data goes to print.