European markets outperformed US equities during the week of 29 June to 3 July, with the Euro STOXX 50 gaining 3% while the DAX and IBEX reached fresh all time highs. The rally was supported by softer than expected Eurozone inflation, as June flash HICP slowed to 2.8% year over year from 3.2% in May, below the 3.0% consensus. Energy inflation eased to 8.7%, while core inflation moderated to 2.4%, reinforcing expectations that inflationary pressures continue to cool across the region.
US markets weakened after June nonfarm payrolls increased by just 57,000 against forecasts of 115,000, prompting the DXY to post its sharpest weekly decline in nearly three months as September Fed hike expectations eased. Meanwhile, semiconductor stocks led a broader sector rotation, while policymakers at the ECB Forum in Sintra reinforced a more data dependent approach to monetary policy.
Key Points to Watch
FOMC June Meeting Minutes
Markets will seek clues on the Fed’s policy outlook after last week’s weak jobs report and divided stance on future rate moves.
Fedspeak After Sintra
Fed officials will be closely watched as policymakers emphasize a data-dependent approach.
AI and Semiconductor Rotation
Chip stocks will indicate whether last week’s selloff was a temporary correction or a broader sector revaluation.
Dollar Repricing and July CPI
Thursday’s jobless claims will test whether US dollar weakness and softer rate expectations continue.
Eurozone Inflation Follow-Through
ECB commentary will help determine whether softer inflation marks a lasting trend or a temporary energy-driven decline.
US: Soft Jobs, Weaker Dollar
The June jobs report significantly shifted expectations for US monetary policy. Nonfarm payrolls rose by just 57,000 against forecasts of 115,000, while the previous two months were revised down by 74,000. Although unemployment eased to 4.2%, the decline was driven by lower labour force participation rather than stronger hiring, prompting markets to sharply reduce expectations for a September Fed rate hike.
Attention now turns to the FOMC minutes and Thursday’s jobless claims for further signals on labour market momentum. While lower yields supported broader equities, the Nasdaq underperformed as semiconductor stocks extended their decline, leaving markets caught between signs of slowing growth and persistently elevated inflation.
Europe & FX: Inflation Relief Supports Markets
European markets enter the week with strong momentum after June’s flash inflation data showed headline HICP easing to 2.8% from 3.2%, while core inflation slowed to 2.4%. Germany’s inflation eased to 2.4% and France’s to 2.0%, while Germany’s ruling coalition also reached agreement on tax, labour, and pension reforms, adding further support to market sentiment.
Despite improving inflation data, ECB President Christine Lagarde maintained a cautious stance, reiterating that inflation is not expected to return sustainably to target until 2028, with markets still pricing the possibility of another rate hike later this year. EURUSD was supported by both euro strength and a weaker US dollar, while upcoming ECB commentary will determine whether policymakers reinforce the disinflation narrative or continue to warn against premature optimism.
Asia & Commodities: Dollar Retreat Boosts Assets
The US dollar’s weakest weekly performance in nearly three months provided relief for Asian currencies and commodity markets by easing imported inflation pressures across the region. Gold posted its first weekly gain in five weeks as softer US jobs data reduced pressure from higher real yields, while oil remained stable amid easing geopolitical tensions in the Strait of Hormuz following the US-Iran de-escalation.
Markets will now focus on signals from the FOMC minutes and the ECB Forum in Sintra rather than regional economic data. A more dovish Federal Reserve could extend dollar weakness and support Asian and emerging market assets, while any hawkish surprise may quickly reverse recent gains.
Conclusion
Markets enter the week of 6 to 10 July with Europe supported by softer inflation and the US facing weaker labour market data and continued semiconductor weakness. As the Fed, ECB, BoE, and BoC move away from forward guidance, market direction will depend increasingly on incoming data and central bank commentary.
The week’s key events are the FOMC minutes, US jobless claims, and ECB remarks, which will shape expectations for the dollar, interest rates, and the sustainability of Europe’s improving inflation outlook.
