Global Markets Weekly Wrap KW 26 : US Stocks Hit Fresh Highs as Labor Market Surprises and Global Hopes Rise
The past week in the markets felt like a continuation of momentum rather than a sudden surge, especially across the U.S., where major indexes not only moved higher but locked in fresh all-time highs for a second week in a row. It was a shorter week due to the Independence Day holiday, with U.S. markets closing early on Thursday and remaining shut on Friday, but that didn't stop investors from pushing equities higher in relatively calm trading sessions. What stood out most was how smaller-cap names stole the spotlight, outperforming the giants for once. While the S&P 500 and Nasdaq grabbed headlines with their record closes, it was the midcaps and small caps that actually posted the strongest gains on a percentage basis. That kind of breadth gives this rally a little more backbone.
The political backdrop added a layer of complexity to everything. Washington was buzzing again as lawmakers worked through the reconciliation bill tied to the Trump administration's broader economic goals. It narrowly passed the Senate early in the week and cleared the House just in time before everyone scattered for the holiday. Alongside that, the noise around trade policy returned, with President Trump announcing a trade agreement with Vietnam and teasing potential outcomes in talks with other partners. The clock is ticking toward July 9, when the 90-day tariff freeze is set to expire. There's anticipation, tension, and not much clarity about what that could bring next.
On the economic side, the labor market reminded everyone that the U.S. consumer is still standing on fairly solid ground. June brought a surprisingly strong employment report. Job creation exceeded expectations, and the previous month's numbers were revised higher too. The unemployment rate edged lower, and while wage growth wasn't explosive, it kept moving in the right direction. It came as something of a relief after Wednesday's private payrolls report from ADP had shown a surprising drop. That reading had spooked some corners of the market, especially since it marked the first contraction since early last year. But then came the government's official figures, which painted a more optimistic picture.
Even within the employment data, there were encouraging signals. The number of job openings jumped again, reaching a level not seen in months. That kind of demand, especially from sectors like hospitality and finance, suggests that businesses are still looking to expand despite macro uncertainties. Initial jobless claims also declined, another sign of relative labor market stability.
Still, not everything pointed to strength. Manufacturing remained in contraction territory, continuing a four-month streak of softness. The ISM's purchasing manager index nudged higher but stayed below the threshold that would signal expansion. However, the pace of the decline is easing, and that might be enough to hold off fresh concerns—for now at least. Inventories and production saw modest improvements, which helped stabilize the picture slightly. Meanwhile, the services sector turned a corner. After briefly dipping into contraction, it rebounded back into expansion with solid readings in business activity and new orders. Prices in the services sector continued to rise, though, suggesting inflation pressure hasn't entirely faded in some corners.
In the bond market, the reaction was fairly muted for most of the week. Treasuries barely budged until the employment report hit, after which yields ticked up in response. Investment-grade corporates saw some inflows, with all newly issued bonds getting snapped up quickly. High yield bonds also enjoyed support, buoyed by the strength in equities and a relatively benign macro landscape. Traders noted that sentiment in the high yield space remained constructive, and with many companies rushing to lock in favorable conditions before the long weekend, issuance was active.
Beyond U.S. borders, the mood was more mixed. In Europe, major indexes moved sideways to slightly higher. France and Italy showed modest gains while Germany slipped and the UK drifted marginally higher. The big story there was inflation, with eurozone price growth ticking up to the European Central Bank's target, though core inflation remained sticky. Labor markets held up well, though, suggesting underlying strength. ECB President Christine Lagarde, speaking at a key central banking forum in Portugal, tried to manage expectations. She acknowledged that the target had been hit but warned that the battle with inflation wasn't over and that rate cuts would remain a cautious and data-dependent affair.
In the UK, housing market dynamics took center stage. Nationwide reported a pullback in prices for June following a brief rise in May, but the broader tone from the Bank of England's data suggested some improvement. Mortgage approvals climbed, signaling a rebound in demand as the market adapts to the end of earlier tax incentives. It's a reminder that real estate, often seen as a lagging indicator, still has the capacity to surprise on the upside when underlying credit conditions begin to loosen.
Over in Japan, the mood was a bit more downbeat. Markets slipped across the board, weighed down in part by uncertainty in trade discussions with the U.S. The yen strengthened slightly, benefiting from a weaker dollar, and bond yields crept a bit higher. Investors were also keeping a close eye on the latest Tankan survey, which showed a modest uptick in confidence among big manufacturers, though their forward-looking expectations remained more cautious. Political risk looms too, with an upcoming Upper House election that could shake the current balance of power, particularly after the ruling party lost its majority in the Lower House last fall. Frustration with the cost of living and economic management has made leadership less secure than in previous years.
In China, equity markets found some footing. The week saw a rebound in key indexes after recent weakness, helped by improving sentiment around the manufacturing side of the economy. The latest official PMI came in a bit stronger, suggesting that the pause in tariff tensions between the U.S. and China may be having a stabilizing effect. But the services sector showed signs of strain, with the Caixin PMI falling to a nine-month low. Hiring slowed again, and new business growth decelerated. The picture is still mixed, and while the manufacturing side may be clawing its way back, services are telling a different story.
Looking at other key markets, Poland took an unexpected step by cutting interest rates. The move came as a surprise to many and was backed by the argument that inflation pressures are receding and growth is likely to be slightly stronger than earlier projections. The central bank clearly felt comfortable enough to ease policy even as global uncertainties linger. By contrast, in Colombia, central bankers opted for caution. The board left rates unchanged, though the vote revealed internal divisions. Some members favored cuts, but the majority pointed to lingering inflation risks and the prospect of a wider fiscal deficit as reasons to pause. The message was clear: while growth is improving, the space for more easing is narrowing.
All in all, it felt like a week where the markets continued to push higher, not out of euphoria, but thanks to resilience and the absence of bad news. Economic signals remain somewhat uneven, but none of them were alarming enough to shake the foundations of this rally. Investors now look ahead to the tariff deadline and upcoming earnings season for the next cues.