Cooling US employment and easing eurozone inflation are strengthening the case for an extended pause from both the Federal Reserve (Fed) and the European Central Bank (ECB) – a supportive backdrop for risk assets.

Credit markets continue to reward carry, even as long-term yields moved higher. Equities advanced, with leadership broadening from technology into European cyclicals. The US dollar remains underpinned by attractive carry, while gold extended its gains. All eyes have now turned to the first Federal Open Market Committee (FOMC) minutes of the Warsh era.

Macroeconomics

Central bankers gathered in Sintra last week, offering some fodder for markets starved of any significant data. Kevin Warsh made two dovish remarks during his first press conference as Fed Chair: he noted that inflation risks have receded and sounded genuinely optimistic about artificial intelligence’s potential to expand the economy’s supply side over the medium term – an argument he championed during his campaign for the chairmanship.

America’s labour market backed up the dovish case. After three months of robust hiring, job creation slowed sharply in June: non-farm payrolls rose by just 57,000, against expectations of 115,000, as leisure and hospitality shed jobs (-61,000) amid weaker-than-usual seasonal hiring. The unemployment rate ticked down to 4.2% from 4.3%, though the decline reflected a shrinking labour force rather than a hiring surge. Overall, June’s slowdown looks more like normalisation than a cause for alarm: jobless claims (215,000 versus 218,000 expected) and the JOLTS and ADP releases point to a labour market that remains solid without overheating, reinforcing the case for the Fed to keep interest rates on hold through 2026.

Across the Atlantic, the picture inverted. European Central Bank officials sounded more cautious than their American counterparts on inflation, arguing that it is too early to rule out second-round effects. However, June’s data undercut that caution rather than vindicating it: both headline (2.8% versus 3.2% previously) and core inflation (2.4% versus 2.6% previously) fell by more than expected, helped by lower energy costs, while services inflation also moderated, easing concerns about a broadening of price pressures. Against this backdrop, we expect the ECB to keep its rates on hold through 2026, as it awaits further evidence of disinflation.

The eurozone economic confidence survey firmed slightly in June but remained depressed by historical standards; taken together with last week’s upward revision to the services PMI (49.4 versus 47.7 previously), this supports the view that the drag from Middle East spillovers is fading.

This week, ISM services data will offer a read on America’s service sector, alongside the first FOMC minutes under Warsh. In the eurozone, producer prices will gauge pipeline pressures, while retail sales will take the pulse of domestic demand.

Equities

Global equities posted gains last week (MSCI ACWI total return +2.0%), with regional and sector rotations being the dominant theme. US equities lagged modestly behind (S&P 500 +1.8%) on the back of underperformance in the global technology sector (+0.8%), while Europe outperformed (STOXX Europe 600 +2.7%, led by Germany at +4.5%) as cyclical and value sectors found support, including global financials (+3.2%), healthcare (+2.7%) and industrials (+2.5%). Taken together, these three sectors represent around 56% of European equities versus roughly 30% of their US counterparts.

Volatility remained elevated in the global semiconductor space, which suffered a second consecutive week of losses (-2.5%) after reports that Meta would look to monetise excess compute capacity fuelled questions about future artificial intelligence (AI)-related capital expenditure and whether compute supply now outweighs end demand. Investors booked profits in high-momentum areas of the AI trade, notably memory-chip makers, which declined 15% on average over the week. Nevertheless, the sharp move lower appears to be primarily positioning-led after exceptional gains over the first half of 2026 (Micron +263%, SK Hynix +287%, Samsung +152%), with fundamentals remaining intact.

On the macro front, weaker-than-expected US jobs data and softer-than-expected European inflation figures also reined in rate expectations, supporting appetite for risk assets overall and encouraging rotation into broader areas of the market beyond technology. As investors look towards the second half of the year, corporate earnings remain our guiding force, with global EPS now projected to grow 28%, up from 15% at the start of the year. While the majority of the upward revision stems from the technology sector, positive spillover effects into other sectors are emerging, supported by a resilient US labour market, lower energy prices and receding rate-hike expectations.

Ahead of the Q2 earnings season, which kicks off in mid-July, the week ahead brings the US listing of South Korean memory-chip maker SK Hynix. The deal, which aims to raise around USD 29 billion, will be another test of the market’s capacity to absorb supply, ranking as the second-largest share sale after SpaceX’s USD 85.7 billion IPO in June.

Corporate earnings remain our guiding force: global EPS growth is now projected at 28%

Fixed income

Developed market curves steepened on bearish sentiment, with long-end yields rising faster than short-end yields over a holiday-shortened week. US 10-year yields rose 11 bps to 4.48%, with the 2-year up 4 bps to 4.14%. The move was concentrated on Wednesday, when long-end Treasury yields rose 6 bps in the wake of Fed Chair Warsh’s comments at the ECB’s Sintra forum. Warsh continued to highlight the potential for AI-driven productivity to lift growth, while declining to speculate on timing. He offered little in the way of forward guidance or context around his reaction function, and notably, Warsh, Lagarde, Bailey (UK) and Macklem (Canada) found common cause in questioning the practice of forward guidance altogether. Warsh was blunt in stating that prices remain too high and hinted that the September dots would stand, at least for now. He indicated that further details on the staffing of task forces could be released as early as this week, noting that the committee had cast its net wide, and expressed the hope that within a year the committee would be drawing on contemporary, real-time data from private businesses in its assessment of the economic backdrop.

The week’s other Fed-related milestone came with the US Supreme Court’s decision on Trump v. Cook. The 5–4 ruling allows Governor Lisa Cook to retain her seat while the challenge to her dismissal proceeds. While this places a hurdle in the way of lower rates, it should be seen as a positive in terms of the Fed’s independence.

In Europe, 10-year Bund yields rose 8 bps to 2.94%, even after June inflation offered the ECB some relief and reduced the pressure for a quick follow-up to last month’s rate hike. Gilt yields moved up 5 bps to 4.78%, though Governor Bailey used Sintra to flag rising leverage in core government bond and equity markets as a potential source of instability.

High yield (HY) and AT1s each returned 0.3% in dollar terms over the week, while Treasuries and investment grade (IG) both lost 0.2%, and emerging markets (EM) slipped 0.1%, consistent with tighter spreads into the rates sell-off. More importantly, the half-year scorecard rewards carry: IG and HY spreads currently sit at similar levels to the start of the year despite the significant widening in March, while AT1 and EM spreads have compressed 15–20 bps, both now very close to their post-global financial crisis lows. In dollar terms, EM led with a 3.3% return, ahead of AT1s at 2.4%, high yield at 2.1%, IG at 0.9%, and Treasuries at 0.3%. In euro terms, AT1s returned 3.3%, high yield 1.8%, IG 1.2%, and government bonds 0.9%.

Primary markets were the month’s standout feature. IG issuance set a June record at USD 200 billion – more than double the average for the month over the past four years – taking first-half supply to a record USD 1.2 trillion, above the USD 1.17 trillion set in 2020. High yield added USD 35 billion, lifting the year-to-date total to USD 187 billion versus last year’s USD 145 billion. All of it was well absorbed.

The half-year scorecard rewards carry: AT1 and EM spreads are near post-GFC lows

Forex & Commodities

The US dollar fell last week following the publication of weaker-than-expected US non-farm payroll data. US front-end yields declined, and markets moved to modestly pare back Federal Reserve rate-hike expectations. This week, attention turns to the publication of the FOMC minutes from its June meeting, with comments regarding the upward shift in the Fed’s dot plot to be monitored closely. With few other significant data releases scheduled, the USD is likely to remain range-bound in the near term. We maintain a favourable stance on the USD over the short term, given its high level of carry and solid underlying activity data.

The USD/JPY declined towards the end of last week, following comments from Tokyo that any potential FX intervention would not be flagged up in advance. We note that the USD/JPY continues to trade near 40-year highs, and that the yen remains deeply undervalued on most valuation metrics. In the absence of any intervention, however, we struggle to make the case for meaningful JPY appreciation given still deeply negative real interest rates.

Sterling rose last week following Andy Burnham’s (UK prime minister-presumptive) policy speech, which appeared to reassure markets. Gilt yields edged lower and perceptions of political risk receded. The Governor of the Bank of England noted that any discussion of rate cuts remains off the table, despite the apparent slowing in both headline and core inflation. Markets hold a sizeable short position in sterling, and further appreciation could trigger a short squeeze. Few heavyweight data releases are scheduled over the coming week.

Gold traded slightly higher to just under USD 4,200 per ounce following the weaker-than-expected payroll data. Retail-focused ETFs continued to record small outflows over the week, while IMM net-long futures positions rose, pointing to a modest increase in institutional longs.

We remain favourable on the USD, supported by carry and solid activity data

The opinions expressed herein are correct as at 6 July 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.