Global markets rose for a second consecutive week, led by small-cap stocks and the technology sector, driven by positive sentiment around artificial intelligence (AI). Tensions between the US and China briefly eased after Presidents Trump and Xi Jinping held positive talks. The US labor market cooled slightly but performed better than expected, adding 139,000 jobs in May and holding unemployment steady at 4.2%. However, manufacturing contracted for a third straight month, and the services sector contracted for the first time in 11 months. Treasury yields rose following the jobs report, while investment-grade corporate bonds performed well amid strong investor demand.
European markets rose, led by Germany and Italy, as inflation slowed and the ECB cut its deposit rate to 2%, signaling policy easing may soon conclude. President Lagarde indicated future decisions depend on economic data, with markets anticipating possibly one more rate cut. Eurozone GDP growth was revised upward to 0.6% in Q1, boosted by stronger performances in Ireland and Germany. Inflation cooled to 1.9%, while core inflation dropped to 2.3%. Industrial production in Germany and France fell sharply in April, though German manufacturing orders increased unexpectedly due to domestic demand. Bank of England Governor Andrew Bailey signaled further rate cuts but highlighted rising uncertainties.
