Europe’s pause before the pivot?

S&P 500 +1.76% last week to 7,483.24

German Bund 10-year yield +8.4 basis points last week to 2.940%

Spot gold +2.12% last week to $4,174.90 an ounce

DXY -0.48% last week to 100.88

Key data to move markets today

EU: German Factory Orders, Eurozone Sentix Investor Confidence, PPI, Retail Sales, and speeches by ECB President Cristine Lagarde, ECB Executive Board member Isabel Schnabel and ECB Chief Economist Philip Lane

UK: A speech by BoE External Member Catherine Mann

USA: S&P Global Composite and Services PMIs, ISM Services’ PMI, Prices Paid, Employment and New Orders Indices and a speech by Fed Governor Christopher Waller

JAPAN: Labour Cash Earnings

Global Macro Updates

The pause before the pivot: Europe’s policy debate recalibrates. Last week’s focus centred on the ECB’s Sintra conference in Portugal, where officials adopted a more patient policy tone. ECB President Christine Lagarde and several Governing Council members indicated that the June rate increase was appropriate, while also suggesting that additional near-term tightening is unlikely.

Falling oil prices and easing second-round inflation effects have softened the hawkish debate materially. Several officials questioned the need for further rate increases, although some continued to note that additional hikes may be warranted if inflation pressures persist.

Eurozone macroeconomic data broadly supported this dovish shift. Activity stabilised, with the composite PMI returning to expansion territory at 50.0. Regional inflation prints were generally softer or in line with expectations, although Spain remained comparatively elevated. Manufacturing posted its strongest quarter since 2022, but weak external demand continued to constrain momentum.

On the fiscal front, Germany advanced a broad reform agenda across pensions, labour and taxation, supported by renewed optimism that potential growth could rise above 1% by 2027. France, meanwhile, remained focussed on reducing its deficit to below 5% of GDP amid increasing political pressure surrounding the National Rally.

In the UK, growth momentum weakened further. The services PMI fell below 50 to its lowest level since early 2023, business confidence declined to multi-year lows and housing and credit indicators softened. Against this backdrop, the BoE maintained a firmly restrictive bias. BoE Governor Andrew Bailey reiterated at the Sintra conference that rate cuts remain off the table, while MPC hawk Catherine Mann signalled that she would be prepared to support a hike if inflation expectations re-accelerate.

Although the BoE’s DMP survey showed some easing in inflation expectations, underlying wage pressures remained sticky. Financial-stability concerns also increased, with proposals to limit hedge-fund leverage in gilt markets underscoring sensitivities around sovereign-funding dynamics.

In the UK, fiscal and political risk intensified as Andy Burnham’s leadership positioning increased uncertainty around potential tax rises, bank levies and fiscal-rule flexibility. Markets remained focussed on funding gaps linked to defence commitments, estimated at approximately £5 to £7 billion. According to press reports and Burnham’s remarks this past week, his emerging agenda points to faster infrastructure delivery, higher defence and AI spending and a rebalancing of the tax base between digital logistics and high-street activity.

US Stock Indices

US markets were closed Friday in observance of Independence Day

European Stock Indices

CAC 40 +0.39%
DAX +0.78%
FTSE 100 +0.25%

Commodities

Gold spot +1.26% to $4,174.90 an ounce
Silver spot +2.19% to $62.40 an ounce
West Texas Intermediate -0.04% to $68.78 a barrel
Brent crude +0.49% to $71.94 a barrel

Gold advanced on Friday, securing its first weekly gain after four consecutive weeks of losses, as weaker US jobs data tempered expectations of a near-term Fed rate hike.

Spot gold rose +1.26% to $4,174.90 per ounce, after reaching its highest level since 23 June. Bullion remained above its 21-day moving average and closed the week +2.12% higher.

World Gold Council data released on Thursday showed that central banks added a net 41 metric tons of gold to reserves in May. Central-bank demand is expected to remain an important support for spot prices over the longer term, although some institutions have recently sold holdings to defend their currencies.

In physical markets, demand in India eased as prices rebounded, while buying interest in China improved modestly.

Spot silver climbed +2.19% to $62.40 per ounce and finished the week +5.48% higher.

Oil prices were little changed on Friday, but ended the week lower as traders remained focussed on prospects for a successful peace agreement between the US and Iran.

Brent futures rose 35 cents, or +0.49%, to $71.94 per barrel, but still ended the week -1.36% below the previous Friday’s close. WTI slipped 3 cents, or -0.04%, to $68.78 per barrel, leaving it down -1.74% on the week.

Trading activity was subdued, with US markets closed ahead of the Independence Day holiday. On Thursday, both benchmarks had fallen to their lowest levels since before the US - Israeli war with Iran began on 28 February.

Some shipping has resumed through the Strait of Hormuz under the initial US - Iranian agreement, although uncertainty remains elevated.

Kuwait’s oil production rose sharply to 1.65 million bpd in June from 580,000 bpd in May, a source close to the matter told Reuters on Thursday.

At least five supertankers carrying a combined 10 million barrels of Saudi oil have exited the strait. Saudi Aramco has shifted to spot pricing from longer-term contracts to accelerate sales in Asia, according to trade sources and shipping data.

As supply availability has increased, the market structure has shifted from backwardation to contango, reflecting reduced expectations of future shortages.

Brent crude for prompt delivery traded below contracts for delivery up to six months ahead, underscoring signs that stronger shipments through the strait have created a near-term surplus.

Note: As of 4 pm EDT 3 July 2026

Currencies

EUR +0.02% to $1.1435
GBP +0.03% to $1.3351
Bitcoin +2.34% to $62,960.93
Ethereum +3.76% to $1,762.49

The US dollar posted its largest weekly decline in 12 weeks on Friday.

Broad dollar weakness supported the euro, which traded slightly higher at $1.1435, up +0.02% on Friday after reaching a nearly two-week high the previous day. The currency gained +0.46% for the week.

Sterling firmed +0.03% to $1.3351, bringing its weekly gain to +1.14%, its strongest performance in nearly three months.

Markets continue to price a greater likelihood of a rate hike than a rate cut from the BoE this year, despite easing hostilities in Iran and the gradual resumption of oil supplies from the Middle East.

On Thursday, BoE rate-setter Catherine Mann said looser financial conditions since the June policy meeting would be a key factor in her rate decision at the July meeting.

In remarks delivered on Thursday, Mann said she would be prepared to vote for a rate increase if higher inflation expectations following the US - Iran conflict reduced confidence that inflation would return to the 2% target.

Money-market futures now imply roughly a 70% probability of a rate hike by year-end. Before the Middle East conflict, investors had expected the BoE to cut rates twice in 2026.

Against the Japanese yen, the US dollar rose +0.20% on Friday to ¥161.37, although the yen still appreciated +0.22% over the week. Markets remained alert to intervention risks after a sharp move on Thursday lifted the currency from a 40-year low of 162.84.

The dollar index was +0.04% higher on Friday at 100.88, following a -0.54% decline on Thursday. For the week, it fell -0.48%, marking its steepest weekly drop since early April.

Japan warned currency markets on Friday, with Finance Minister Satsuki Katayama saying Tokyo was in regular contact with Washington on foreign-exchange issues and remained prepared to support the yen.

Japan’s Chief Cabinet Secretary Minoru Kihara said authorities were monitoring market moves closely and with a sense of urgency.

Market participants are concerned that Japanese officials may move away from their practice of telegraphing risks, instead signalling a more targeted effort to pressure speculators and raise the cost of betting against the yen.

Fixed Income

US 10-year Bond unchanged at 4.490%
German 10-year Bund +3.3 basis points to 2.940%
UK 10-year Gilt +1.3 basis points to 4.787%

German 10-year bond yields recorded their first weekly increase in a month on Friday, extending a five-day rise as eurozone rates markets tracked firmer core yields.

The 10-year Bund yield rose +3.3 bps to 2.940%, bringing its weekly increase to +8.4 bps.

Shorter-dated, rate-sensitive yields also moved higher, though by less than longer maturities. Germany’s 2-year yield rose +4.1 bps to 2.553% on Friday, leaving it +2.7 bps higher for the week.

German yields showed limited reaction to a Reuters report indicating that Germany’s draft 2027 budget foresees borrowing of more than €203 billion, above the €196.5 billion in total borrowing included in the key targets approved by the government in April.

According to the draft seen by Reuters on Friday, the estimate compares with €50.5 billion in 2024 under the previous government, before Germany moved away from decades of fiscal conservatism in an effort to revive its economy.

Other eurozone bonds largely moved in line with German benchmarks over the week. Italy’s 10-year yield rose +8.3 bps to 3.668%, while France’s 10-year yield increased +10.2 bps to 3.622%.

Note: As of 4 pm EDT 3 July 2026

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