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Introduction

Markets opened the week balancing pockets of economic strength against a backdrop of rising geopolitical tensions, volatile energy prices and renewed questions about the sustainability of heavy AI investment across major economies. While business activity and labour market data in the U.S. pointed to continued resilience, investor sentiment remained cautious as conflict driven oil price spikes, higher bond yields and uncertainty around central bank policy kept risk appetite subdued. This mix of solid underlying fundamentals and persistent external pressures shaped market performance across regions, setting the stage for a complex trading environment heading into August.

United States

U.S. markets ended last week lower as investors weighed encouraging economic data against mounting geopolitical risks and concerns about artificial intelligence (AI) investments. Technology stocks led the decline, with major companies such as Alphabet and Tesla coming under pressure after reporting earnings. Investors questioned whether the significant capital being invested in AI would generate returns quickly enough, prompting a broader sell-off across the technology sector. 

At the same time, renewed conflict in the Middle East pushed oil prices sharply higher, adding another layer of uncertainty. Higher energy prices fuelled concerns that inflation could remain elevated, increasing expectations that the U.S. Federal Reserve may need to keep interest rates higher for longer or even introduce another rate hike. Rising Treasury yields reflected these expectations, with the benchmark 10-year yield climbing above 4.7% during the week before easing slightly. 

Despite weaker market sentiment, the underlying U.S. economy continued to show resilience. Business activity expanded at its fastest pace in eight months, supported by stronger services sector performance, while manufacturing growth remained positive, though it slowed slightly. Employment also improved, with businesses increasing hiring for the first time in three months. 

The labour market remained particularly strong, with new unemployment claims falling to their lowest level since 1969, underscoring continued demand for workers. Meanwhile, the housing market sent mixed signals. Sales of new homes rose modestly from the previous month but stayed below last year's levels as elevated borrowing costs continued to weigh on affordability. 

Overall, investors remain encouraged by the strength of the U.S. economy but cautious about persistent inflation, geopolitical uncertainty, and the long-term profitability of AI investments. 
 
European Markets 
 
European equity markets recorded modest gains during the week, supported by generally strong corporate earnings despite a challenging global backdrop. Investors monitored several key developments, including higher oil prices, escalating tensions in the Middle East, and the latest round of U.S. trade tariffs affecting multiple trading partners, including the European Union and the United Kingdom. 

The European Central Bank (ECB) kept interest rates unchanged, reflecting confidence that inflation is gradually moving in the right direction. However, ECB President Christine Lagarde warned that higher energy prices stemming from geopolitical tensions could create renewed inflationary pressures. Although no immediate policy changes were announced, markets interpreted the comments as leaving open the possibility of another interest rate increase later this year if inflation accelerates again. 

Economic data across the eurozone painted a positive picture. Manufacturing activity continued to recover, while the services sector returned to growth after a period of weakness, indicating that business activity is stabilising across the region. These improvements suggest that the European economy remains resilient despite ongoing external challenges. 

Germany presented a more cautious outlook, with consumer confidence declining as households remained concerned about future income and personal finances. This highlights that although businesses are showing signs of recovery, consumers remain hesitant amid ongoing economic uncertainty. 

In the United Kingdom, political developments also drew attention as Andy Burnham assumed office as Prime Minister. Alongside policy announcements to reduce household energy costs, the UK released encouraging economic data. Services activity returned to growth, while retail sales exceeded expectations, suggesting that consumer spending remains relatively resilient despite broader economic pressures. 
 
Asia
 
Asian markets posted mixed but generally positive results as investors weighed domestic policy support against mounting global uncertainties. In Japan, stocks rose, supported by optimism about strategic investment plans and expectations of stronger economic growth. The government reaffirmed its commitment to investing in priority sectors, including artificial intelligence, semiconductors, defence, and energy transformation, reinforcing confidence in the country's long-term economic strategy. 

Inflation also continued to rise gradually, reinforcing expectations that the Bank of Japan may continue tightening monetary policy after years of exceptionally low interest rates. Rising government bond yields reflected these expectations. Meanwhile, the Japanese yen weakened to its lowest level in four decades against the U.S. dollar, largely due to the widening interest rate gap between Japan and the US and ongoing geopolitical uncertainty. 

China's equity markets also posted gains despite volatility driven by higher oil prices and concerns about AI valuations. Investor confidence was bolstered by significant government intervention, including state-backed investment in technology companies and additional liquidity provided by the People's Bank of China. Authorities also pledged to improve fiscal spending and to accelerate the implementation of existing economic support measures, rather than introducing broad new stimulus packages. 

While AI and semiconductor stocks remained volatile throughout the week, continued government backing helped stabilise market sentiment. Across Asia, policymakers are increasingly focused on supporting long-term economic growth while managing risks from inflation, geopolitical tensions, and shifting global trade conditions. 
 
Looking Ahead 
 
As global markets continue to navigate an uncertain environment, investors are likely to remain focused on central bank decisions, geopolitical developments, corporate earnings, and government policy measures that will shape economic and market performance over the months ahead. 
 
Bas Kooijman is the CEO and Asset Manager of DHF Capital S.A.