Global Markets Experience a Turbulent Week
The week began with global markets bracing for a busy period, marked by tariffs, major central bank decisions, and significant economic data releases. However, the week ended with markets sliding due to the U.S. imposing increased tariffs on dozens of trading partners.
U.S. Market Performance
In the U.S., the Federal Reserve (Fed) decided to hold interest rates steady, while the gross domestic product (GDP) surprised with a 3.0% growth rate in the second quarter. The Personal Consumption Expenditures Price Index (PCE) rose, indicating the Fed’s concerns about sustaining inflation at its 2% target. The U.S. job report released on Friday showed a slowdown in hiring, signaling that weaknesses in the labor market are starting to emerge. As a result, U.S. markets ended the week in the red, with a decline of 2.32%.
Canadian Market Performance
In Canada, equities also ended the week in negative territory, with a decline of 1.69%. The Bank of Canada (BoC) kept its overnight rate unchanged at 2.75%. The GDP edged down in May, but preliminary guidance suggests a slight increase in June, indicating a resilient but stagnant Canadian economy.
European Market Performance
European markets were down despite the EU signing a trade deal with the U.S. The deal avoided a 30% tariff, but a 15% duty on exports to the U.S. remains. Preliminary GDP data showed the eurozone economy slowing down, with a 0.1% growth rate in the second quarter. However, this slowdown was less severe than expected, indicating some resilience in the face of tariffs.
Emerging Markets and Asia
Emerging markets declined by 3.78%, with Chinese leaders signaling a pause in major stimulus measures. In Asia, Japanese equities were lower as the Bank of Japan held its monetary policy rate at 0.50%, with modest growth forecasts for the country.
Key Highlights
- U.S. equities returned -2.32%, despite strong GDP data and earnings beats from Microsoft and Meta.
- Canadian markets returned -1.69% after the U.S. increased duties on Canadian goods.
- European markets returned -3.14%, despite the EU signing a trade deal with the U.S.
- Emerging markets declined -3.78%, with Chinese leaders refraining from rolling out more major stimulus.
Short-term U.S. Treasury Yields Decline
U.S. rates were lower early in the week, but reversed higher after the Fed rate announcement and GDP data release. However, they ended the week lower due to the release of weak U.S. jobs data, which increased the chances of a Fed rate cut in the fall. Canadian yields also moved downward, with weaker GDP data strengthening the case for a rate cut from the Bank of Canada.
Central Bank Decisions
The Bank of Canada held its policy interest rate steady, citing that the Canadian economy has weathered U.S. tariffs better than expected. However, uncertainty remains, and the door is open to additional rate cuts if needed. The U.S. Federal Reserve also held rates steady, referencing "solid" expansion and removing references to falling uncertainty.
Economic Resilience
The U.S. economy returned to growth in the second quarter, with a 3.0% annualized growth rate. However, there are soft spots beneath the positive headline number, with consumer spending strengthening and business investment weakening. The eurozone economy also showed signs of resilience, with a 0.1% growth rate in the second quarter, despite the impact of tariffs.
Conclusion
The global markets experienced a turbulent week, marked by tariffs, central bank decisions, and significant economic data releases. While some economies showed resilience, others struggled with the impact of tariffs and trade disputes. As the global economy navigates this uncertain landscape, investors and policymakers will be closely watching the developments in the coming weeks and months. The outlook remains uncertain, with the potential for further rate cuts and stimulus measures to support economic growth.
