Global markets started the new week focused on a critical data release from the US. The nonfarm payrolls figures to be announced on Friday will be decisive for investors seeking clues about the Federal Reserve's (Fed) future monetary policy.
Last Week's Volatile Course
The previous week was shaped by conflict uncertainties in the Middle East, major central bank rate decisions, and sharp movements in technology shares. At the beginning of the week, Iran's statements regarding talks with Oman on the Strait of Hormuz created hope for easing tensions. However, Iran's attack on Jordanian forces and US President Donald Trump's threat to strike Iran 'very hard', followed by a wave of attacks on Iranian military targets, increased geopolitical risks once again.
Fed Decision and Bond Market Reaction
The US Federal Reserve (Fed) kept the policy rate steady in the 3.50-3.75% range. The decision was taken by a 9-3 vote, with Cleveland Fed President Beth Hammack, Minneapolis Fed President Neel Kashkari, and Dallas Fed President Lorie Logan voting for a 25 basis point rate hike. Fed Chair Kevin Warsh stressed that there would be no compromise on the inflation target. However, this dissent among members triggered concerns that the Fed may not be aggressive enough in fighting inflation.
This perception led to a sharp rise in long-term bond yields. The US 30-year Treasury yield surged to 5.28%, its highest level in 19 years, while the 10-year yield ended the week at 4.72%, up 6 basis points. Meanwhile, the dollar index depreciated by 1.7% to 99.7.
US Growth and Commodity Markets
The US economy grew 1.5% in the second quarter, falling short of expectations. The personal consumption expenditures price index, closely watched by the Fed, fell 0.1% month-on-month in June but rose 3.7% year-on-year. Weak growth and slowing consumer spending reinforced expectations that the Fed may keep rates high for longer. Over the week, gold traded at $4,046 per ounce, down 0.2%, while October Brent crude oil declined 4.1% to $87.9 per barrel.
Tech Wind in New York Stock Market
In New York, company earnings generally beat expectations and a rally in technology shares created a positive mood. Optimism that artificial intelligence investments will turn into profit lifted the indices. The Dow Jones closed the week up 1.04%, the S&P 500 gained 1.05%, and the Nasdaq rose 1.59%.
European and Asian Markets
European stock markets also rose, buoyed by strong corporate earnings. The Bank of England (BoE) kept its policy rate at 3.75%, with three members voting for a 25 basis point hike. BoE Governor Andrew Bailey said inflation is falling rapidly but the war in the Middle East continues to keep energy prices high. In the Eurozone, second-quarter growth beat expectations at 0.4% quarter-on-quarter and 1% year-on-year.
In Asian markets, fluctuations in technology shares painted a mixed picture. SK Hynix's revenues hit a record but failed to meet expectations, causing its shares to fall 2.33% and stoking concerns about artificial intelligence demand. In contrast, Samsung's strong earnings lifted its shares by 5.2%. The Bank of Japan (BoJ) kept its rate at 1%, with one member voting for a hike.
Turkish Markets and Upcoming Data
On the Borsa Istanbul, the BIST 100 index ended the week down 3.48% at 13,458.10 points. The dollar/lira exchange rate rose 0.4% to 47.5280. Next week, CPI and foreign trade balance data will be released. Economists surveyed in the AA Finance Inflation Expectation Survey expect the July CPI to increase by 1.82% month-on-month. If that materializes, annual inflation is expected to decline to 31.80%.
In global markets, next week will see the US manufacturing PMI, JOLTS job openings, and finally on Friday nonfarm payrolls and the unemployment rate. In Europe, PMI data and German industrial production will be on the agenda, while in Asia, manufacturing and service sector PMIs from China will be in focus.
