Markets rebounded midweek following a ceasefire extension, though geopolitical uncertainty lingered. Corporate earnings provided support, with around a fifth of S&P 500 companies reporting and the majority beating expectations. Strength in artificial intelligence (AI)-related stocks remained a key driver, alongside resilient consumer demand and firms’ ability to manage rising costs.
Despite ongoing tensions, most major indices finished higher, with several reaching record highs. The Nasdaq Composite led gains, followed by the S&P 500, while the Dow Jones Industrial Average edged lower. Economic data was mixed but broadly supportive - retail sales rose strongly, suggesting momentum in the US economy, although consumer sentiment weakened and inflation expectations picked up. Business activity improved modestly, but price pressures intensified. In fixed income, Treasury yields rose, resulting in negative returns, while corporate bonds proved relatively more resilient.
European markets declined over the week, with the STOXX 600 falling 2.5% as geopolitical risks dominated sentiment. Defensive sectors such as utilities and telecoms outperformed, while major indices across Germany, France, Italy and the UK all posted notable losses. Economic data was generally weak, with German business confidence dropping to its lowest level since the pandemic and French consumer confidence falling sharply. Elsewhere, Spanish producer prices surged on higher energy costs, while UK data was mixed - unemployment fell unexpectedly and retail sales beat expectations, but consumer confidence deteriorated.
Japanese markets were mixed, with the Nikkei 225 rising while the broader TOPIX declined. Gains in technology and AI-linked stocks supported equities, even as uncertainty in the Middle East persisted. Inflation edged higher, driven by energy costs, reinforcing expectations that the Bank of Japan will maintain a cautious, “wait and see” approach to policy. Bond yields rose slightly, while the yen weakened toward levels that could prompt intervention. In China, equities were broadly stable, with modest gains on the mainland but weaker performance in Hong Kong. Policymakers kept interest rates unchanged, signalling confidence in growth following solid recent data, while developments in AI and ongoing geopolitical engagement remained in focus.