By Elsie Kamsiyochi
Global financial markets ended the week on a strong note as investors welcomed signs of a cooling U.S. labour market, reducing expectations that the U.S. Federal Reserve will raise interest rates in the near future.
The shift in outlook sparked a broad rally across global equities, lifted gold prices, and weakened the U.S. dollar, giving investors renewed confidence after weeks of uncertainty.
European shares led the advance, with the pan-European STOXX 600 Index climbing 0.6% to another record high. The benchmark was on track to post a weekly gain of approximately 2.6%, marking its strongest performance since mid-May. Across the globe, MSCI’s broad index of world shares also gained around 0.4%, putting it on course for a weekly increase of roughly 2%, its best showing in nearly two months.
Market sentiment improved significantly after the latest U.S. employment report showed that job creation slowed sharply in June. Payroll gains from the previous two months were also revised lower, reinforcing expectations that the Federal Reserve may delay any additional interest rate increases. Investors now believe policymakers are more likely to keep borrowing costs unchanged at least until the autumn, easing pressure on businesses and financial markets.
The prospect of a pause in monetary tightening encouraged investors to return to equities after recent volatility. Analysts noted that lower interest rate expectations generally benefit stock markets by reducing borrowing costs for companies while improving the outlook for future corporate earnings.
European markets attracted particular attention, with investors favouring the region’s relatively inexpensive valuations compared with the United States. Strategists pointed out that many European companies trade at lower price-to-earnings ratios and are less dependent on the technology-driven artificial intelligence boom that has dominated U.S. markets over the past year. As a result, European stocks have become increasingly attractive to investors seeking value and stability.
Technology shares experienced mixed fortunes during the week. Semiconductor and artificial intelligence-related stocks came under pressure on Wall Street as investors rotated into sectors such as healthcare and financial services. However, Asian chipmakers rebounded strongly on Friday, helping South Korea’s KOSPI Index surge by around 6%, while Japan’s Nikkei Index advanced about 1.5%.
Fresh economic data from Asia also supported investor confidence. Japan’s services sector returned to growth in June after stagnating the previous month, suggesting domestic demand remains resilient. In China, the services industry continued to expand despite a slight slowdown in overall activity, while overseas demand reached its strongest level in nearly 20 months. Economists said the figures indicate that economic momentum across Asia remains healthier than many had anticipated during the second quarter.
The weaker U.S. employment figures also boosted demand for safe-haven assets. Gold prices climbed about 1% to trade above $4,160 per ounce, putting the precious metal on track for its first weekly gain since the end of May. Investors often turn to gold when they expect lower interest rates because the opportunity cost of holding the non-yielding asset declines.
Meanwhile, the U.S. dollar paused after reaching its highest level in more than a year against a basket of major currencies earlier in the week. The euro edged slightly higher while the British pound held relatively steady. The Japanese yen remained under pressure near multi-decade lows, with traders closely watching for possible intervention by Japanese authorities to support the currency.
Despite the positive market mood, economists cautioned that inflation risks have not disappeared. Global shipping disruptions caused by the continued closure of the Strait of Hormuz are still affecting international supply chains, reducing shipping capacity and increasing transportation costs. Analysts warned that these higher costs could eventually feed through into consumer prices, complicating the outlook for central banks.
Oil prices also moved modestly higher, with Brent crude rising to around $71 per barrel. While energy markets have stabilized compared with the sharp swings seen earlier this year, traders continue to monitor geopolitical developments in the Middle East that could affect global supplies.
U.S. stock futures pointed to further gains despite Wall Street being closed for the Independence Day holiday. Futures linked to the S&P 500 and Nasdaq advanced, reflecting the optimism that spread across global markets following the weaker-than-expected employment report.
Overall, investors ended the week with renewed optimism that slowing economic growth may allow the Federal Reserve to avoid further interest rate hikes in the near term. While concerns over inflation, global shipping disruptions and geopolitical tensions remain, improving economic data outside the United States and easing monetary policy expectations have provided a welcome boost to confidence, leaving global markets on track for their strongest weekly performance since May.
Source Reuters
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