Market Watch — July 10, 2026

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U.S. equities started the week higher as ISM data pointed to continued economic expansion and easing price pressures, supporting optimism around growth. Sentiment weakened midweek as semiconductor stocks came under pressure and escalating U.S.-Iran tensions pushed oil prices sharply higher, raising inflation concerns. Markets later stabilized as geopolitical fears eased and investors digested Federal Reserve (Fed) minutes that reinforced a hawkish but divided policy outlook. AI-related investment themes remained a support through the end of the week.

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Canadian equities were supported by resilient economic and trade data and higher oil prices amid renewed Middle East tensions. While broader risk sentiment weakened midweek as escalating U.S.-Iran tensions lifted inflation concerns, energy shares helped cushion the pullback and supported a rebound as geopolitical fears eased later in the week. Stronger-than-expected labour market data also reinforced expectations for a more restrictive Bank of Canada (BoC) policy backdrop.

European equities weakened over the week as investors contended with rising oil prices, higher sovereign bond yields and escalating U.S.-Iran tensions. Concerns that higher energy costs could add to producer price pressures and reinforce a restrictive European Central Bank (ECB) policy backdrop weighed on sentiment, while Europe’s limited exposure to energy producers offered little offset to the broader drag on risk assets.

Chinese equities remained under pressure for much of the week as investors reassessed technology and AI-related valuations, though sentiment improved into Friday as renewed enthusiasm around AI investment and semiconductor and memory spending helped support technology shares. Emerging markets experienced a sharp early-week risk-off rotation following the resumption of open hostilities between the U.S. and Iran, only partially recovering some of the losses throughout the remainder of the week.

Highlights:

• U.S. equities returned 0.30%1 with strong manufacturing and services data helping support equities early in the week, but rising oil prices, pressure on semiconductor shares and a hawkish Fed backdrop tempered risk appetite before sentiment stabilized.
• Canadian equities returned 0.26%2, supported by higher crude prices and resilient economic data, while stronger employment figures reinforced expectations for BoC tightening keeping inflation and rate expectations in focus.
• European stocks returned -0.82%3 after facing headwinds from rising energy costs, higher bond yields and persistent inflation pressures, with concerns over the ECB policy outlook weighing on sentiment.
• Chinese and emerging markets declined X.XX%, with the former pressured by a reassessment of AI and technology valuations before improving on renewed optimism around semiconductor and AI spending, while emerging markets only partly recovered from an early-week risk-off selloff.

Inflation risks reprice global rate expectations despite resilient growth backdrop

U.S. Treasury markets began the week firmer as investors reassessed the Fed’s policy path following softer payroll data and evidence of continued economic growth alongside moderating price pressures. Yields moved higher midweek as escalating U.S.-Iran tensions lifted oil prices and inflation concerns, while Federal Open Market Committee (FOMC) minutes reinforced a broadly hawkish policy backdrop despite divisions over the path of rates. Canadian yields largely tracked U.S. markets through the week, though stronger-than-expected labour market data reinforced expectations that the BoC may maintain a tightening bias amid persistent inflation risks and weak productivity trends. European sovereign bonds experienced the sharpest reaction to rising geopolitical tensions, with higher oil prices and rising producer price pressures fueling concerns over inflation and reinforcing expectations for a restrictive ECB backdrop.

Highlights:

• The 2- and 10-year U.S. Treasury yields were up 4 basis point (bps) and 7 bps, respectively. In Canada, the 2- and 10-year yields were up 5 bps and 8 bps, respectively. Bond yields and prices move inversely to one another.
• Government bond markets swung between growth and inflation concerns, with an early rally giving way to a broad midweek selloff as oil prices surged, before stabilizing as geopolitical risks became better understood.
• Investment-grade credit remained relatively resilient amid solid economic data, while higher-yield spreads faced modest pressure from rising geopolitical risks, higher energy prices and the prospect of tighter monetary policy.

Weekly dashboard

Canada’s labour market and trade performance show signs of resilience

Canada’s economy showed continued resilience in recent data releases, with employment rising in June and the country’s trade surplus reaching a four-year high in May. According to Statistics Canada, the country added 18,200 jobs in June, marking a second consecutive month of employment growth and modestly exceeding economists’ expectations. The unemployment rate edged down to 6.5% from 6.6% in May. Additionally, Canada’s merchandise trade surplus widened to $4.2 billion from a revised $3.4 billion in April, marking the third consecutive monthly surplus and the largest in four years. Exports rose 0.9% to a record $77.1 billion, while imports slipped 0.2% to $72.9 billion.

Highlights:

• Job growth was concentrated in the services sector, particularly wholesale and retail trade and accommodation and food services, while manufacturing employment declined. Youth employment was a bright spot, rising by 33,000 positions and helping lower the youth unemployment rate to 12.7% from 13.4% a month earlier. Average hourly wages for permanent employees increased 3.7% year over year, while the participation rate held steady at 65.0%.
• Export growth was driven by a 16.1% increase in metal ores and non-metallic minerals, including higher sulphur shipments amid global supply disruptions and stronger exports of gold ores to China. Aluminum exports also surged, supported by increased demand from Europe.
• Canada’s trade surplus with the United States widened to $11.6 billion from $10.3 billion in April as exports increased and imports declined.

U.S. services sector activity continued to expand in June as employment rebounds

The U.S. services sector continued to grow in June, underscoring the resilience of the country’s largest economic engine despite signs of moderating momentum and ongoing cost pressures. The Institute for Supply Management (ISM) reported that its Services Purchasing Managers Index (PMI) registered 54.0 in June, down slightly from 54.5 in May but still comfortably above the 50-point threshold that separates expansion from contraction. The reading marked the 24th consecutive month of growth in the services sector, which accounts for more than two-thirds of U.S. economic activity.

Highlights:

• While overall activity remained healthy, some components of the survey softened. The business activity index fell to 55.4 from 57.7, and the new orders index slipped to 55.1 from 57.3, suggesting demand growth cooled during the month.
• A bright spot was the labour market. The employment index rose to 51.2, returning to expansion territory for the first time in four months after posting 47.9 in May. The improvement suggests service-sector firms increased hiring as business conditions remained generally supportive.
• Price pressures eased but remained elevated. The prices index declined to 67.7, its lowest level since February and down from 71.3 in May. Survey respondents continued to cite higher energy-related costs, though the pace of increases moderated compared with recent months.

Eurozone producer prices rise again in May as annual inflation accelerates

Eurozone industrial producer prices rose modestly in May, extending a recent upward trend and highlighting lingering cost pressures in the region’s industrial sector, according to data released by Eurostat, the European Union’s statistical office. The Producer Price Index (PPI), which measures prices received by manufacturers for their goods, increased 0.2% month-over-month in May after a revised 0.7% increase in April. On an annual basis, producer prices were 5.9% higher than a year earlier, accelerating from 5.0% in April and marking the strongest yearly increase since early 2023.

Highlights:

• The monthly rise came despite a 1.0% decline in energy prices, which had been a key driver of recent volatility. Excluding energy, industrial producer prices increased 0.7%, suggesting underlying price pressures remained firm across much of the manufacturing sector.
• Among the major industrial categories, prices for intermediate goods, products used in the production of other goods, rose 1.4% from April, while prices for capital goods increased 0.2% and durable consumer goods climbed 0.3%. Prices for non-durable consumer goods slipped 0.1%.
• At the country level, the largest monthly increases in producer prices were recorded in Cyprus (+3.6%), Ireland (+2.8%) and the Netherlands (+1.9%), while the sharpest declines were seen in Croatia (-2.1%), Hungary (-1.3%) and Italy (-0.5%).

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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