Market Watch — July 3, 2026

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U.S. equities advanced early in the holiday-shortened week as easing oil prices, resilient manufacturing activity and improving risk sentiment supported markets. Attention later shifted to labour market data and Federal Reserve (Fed) commentary, where softer-than-expected job gains weighed on growth expectations and led to some intraday pressure. However, markets ultimately finished the week higher as investors scaled back expectations for a near-term Fed rate hike and looked through a significant pullback in semiconductor stocks.

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Canadian equities were largely range-bound through much of the week, also shortened by holiday, as investors balanced ongoing trade uncertainty, fluctuating commodity prices and questions surrounding the domestic growth outlook. Following the Canada Day closure, markets moved higher as stronger-than-expected GDP data and improving manufacturing activity reinforced confidence in the resilience of the Canadian economy, while lower bond yields supported rate-sensitive sectors. Investor sentiment was further aided by renewed momentum behind nation-building infrastructure projects, including plans for a new West Coast oil pipeline, which provided additional support to energy and resource shares.

European equities advanced over the week as moderating eurozone inflation, resilient manufacturing activity and supportive commentary from policymakers at the European Central Bank’s (ECB’s) annual forum reinforced confidence in the region’s economic outlook. Gains strengthened later in the period as incoming data pointed to continued economic resilience, while easing concerns around energy markets and a constructive risk backdrop supported cyclical sectors.

In China and emerging markets, equities were mixed through much of the week as investors balanced trade and geopolitical developments against signs of improving economic momentum. Sentiment strengthened later in the period as Purchasing Manager Index (PMI) data pointed to resilient activity and technology shares recovered, while firmer domestic conditions in China supported regional markets. Gains were tempered by lingering trade and semiconductor-related uncertainties.

Highlights:

• U.S. equities returned 1.78%1, as investors were encouraged by easing energy prices and evidence of continued economic expansion, though enthusiasm moderated later in the week following softer labour-market data and renewed scrutiny of Federal Reserve policy signals.
• Canadian equities returned 1.30%2 after being range-bound for much of the week and then moving higher following the Canada Day holiday, supported by stronger GDP and manufacturing data, lower yields and optimism around new infrastructure projects.
• European stocks returned 2.82%3 as cooling inflation and resilient economic activity reinforced confidence in the region’s outlook, while supportive ECB commentary and easing energy concerns further lifted sentiment.
• Chinese and emerging markets declined 2.95%, strengthening later into the week as PMI data indicated resilient activity and technology shares rebounded, although trade and semiconductor-related uncertainties remained a headwind.

Bond markets lag as economic activity and moderating inflation encourage risk appetite

Treasury markets remained under pressure throughout the week as improving risk sentiment, easing concerns around energy markets and economic data that generally pointed to a resilient economy. While softer-than-expected U.S. labour market data provided some support to bonds later in the week, investors continued to balance signs of moderating growth against a policy backdrop focused on inflation and price stability following commentary from Fed Chair Kevin Warsh. Canadian bond yields moved higher alongside global rate markets as stronger-than-expected GDP and manufacturing data also reinforced confidence in the domestic economy. In Europe, sovereign yields also trended higher despite softer inflation readings, as resilient economic activity and expectations for a still-restrictive ECB policy stance limited demand for duration.

Highlights:

• The 2- and 10-year U.S. Treasury yields were up 1 basis point (bps) and 9 bps, respectively. In Canada, the 2- and 10-year yields were up 1 bps and 6 bps, respectively. Bond yields and prices move inversely to one another.
• Sovereign yields generally moved higher over the week as resilient economic data and reduced recession concerns outweighed the supportive impact of softer U.S. employment data and moderating Eurozone inflation.
• Credit markets remained supported by firm risk appetite, stable corporate fundamentals and improving macro sentiment, allowing spreads to remain relatively contained despite higher government bond yields.

Weekly dashboard

Canada’s GDP rebounds while manufacturing remains in expansion mode

Canada’s economic data offered a cautiously constructive signal heading into the second half of the year. April GDP exceeded expectations and followed a weak first quarter, indicating a rebound in economic activity for the month and pulling the country out of technical recession. Growth was broad-based across several sectors despite ongoing trade uncertainty related to tariffs and Canadian-United States-Mexico Agreement (CUSMA) negotiations. At the same time, the June PMI pointed to improving operating conditions in the factory sector, with activity remaining in expansion territory. However, the survey also highlighted that manufacturers continue to navigate tariff-related uncertainty, supply-chain disruptions and elevated cost pressures.

Highlights:

• April GDP rose 0.5% month over month, exceeding preliminary estimates of 0.4% and marking the strongest monthly increase since July 2025. Growth was broad-based, with 14 of 20 industries expanding during the month.
• The S&P Global Canada Manufacturing PMI edged up to 53.0 in June from 52.9 in May, remaining above the 50-expansion threshold for a third consecutive month. Output, new orders, employment and purchasing activity all increased.
• Despite stronger activity, manufacturers reported ongoing challenges. Input-cost inflation accelerated to its highest level since July 2022, while supplier delivery times lengthened to the greatest extent since September 2022, reflecting continued supply-chain disruption and tariff-related pressures.

Softer U.S. job gains ease pressure on U.S. Federal Reserve

U.S. labour market data for June showed a loss of momentum, with non-farm payrolls increasing just 57k, below expectations, and prior months revised lower. While the unemployment rate declined unexpectedly to 4.2%, the move was driven by a sharp drop in labour force participation rather than stronger hiring, making the headline improvement less constructive. Even though a lower unemployment rate could fuel a policy tightening, the illusory data, particularly related to the ease of the unemployment rate, reduces the pressure and urgency for additional Fed tightening.

Highlights:

• April GDP rose 0.5% month over month, exceeding preliminary estimates of 0.4% and marking the strongest monthly increase since July 2025. Growth was broad-based, with 14 of 20 industries expanding during the month.
• The S&P Global Canada Manufacturing PMI edged up to 53.0 in June from 52.9 in May, remaining above the 50-expansion threshold for a third consecutive month. Output, new orders, employment and purchasing activity all increased.
• Despite stronger activity, manufacturers reported ongoing challenges. Input-cost inflation accelerated to its highest level since July 2022, while supplier delivery times lengthened to the greatest extent since September 2022, reflecting continued supply-chain disruption and tariff-related pressures.

Eurozone inflation eases as labour market remains resilient

Eurozone economic data was broadly supportive during the week, reinforcing confidence that inflation pressures are gradually easing while the labour market remains resilient. The June flash inflation report showed a continued moderation in price growth across key categories, helping to alleviate concerns about persistent inflationary pressures. At the same time, stable employment conditions suggested underlying economic activity remains on reasonably solid footing despite pockets of slower growth.

Highlights:

• April GDP rose 0.5% month over month, exceeding preliminary estimates of 0.4% and marking the strongest monthly increase since July 2025. Growth was broad-based, with 14 of 20 industries expanding during the month.
• The S&P Global Canada Manufacturing PMI edged up to 53.0 in June from 52.9 in May, remaining above the 50-expansion threshold for a third consecutive month. Output, new orders, employment and purchasing activity all increased.
• Despite stronger activity, manufacturers reported ongoing challenges. Input-cost inflation accelerated to its highest level since July 2022, while supplier delivery times lengthened to the greatest extent since September 2022, reflecting continued supply-chain disruption and tariff-related pressures.

• 1  S&P 500 Index USD
• 2 S&P/TSX Composite Index USD
• 3 Bloomberg Developed Markets ex N. America Large & Mid Cap Price Return Index USD
• 4 Bloomberg EM Large & Mid Cap Price Return Index USD

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