Week commencing
29 June 2026

AI spending fears and Fed outlook drive global market split

United States (US) equity markets are set to finish the week mixed. The small-cap Russell 2000 and blue-chip Dow Jones are on track to finish higher, while the S&P 500 and Nasdaq 100 are heading for weekly losses, weighed down by the out-of-favour Magnificent Seven (Mag 7). This divergence has become one of the defining themes into the end of the first half (H1) of 2026. As things stand, the small-cap Russell 2000 is outperforming the Nasdaq 100, up around 21% year-to-date compared with roughly 17% for the tech-heavy index.

The shift reflects growing investor unease over the enormous artificial intelligence (AI)-related capital expenditure (capex) being undertaken by the biggest names and increasing uncertainty about when those investments will translate into earnings growth that justifies current valuations. With the US second quarter (Q2) earnings season now only three weeks away, the bar is set high; analysts are looking for around 22% earnings growth after a very strong 29% in the first quarter (Q1), a result which shot the lights out compared to the 9% expected.

The week that was: highlights

• The Federal Reserve’s (Fed) preferred measure of inflation the core personal consumption expenditures (PCE) price index rose 0.3% in May, in line with forecasts, lifting the annual rate to 3.4% - the highest since October 2023
• Final Q1 2026 gross domestic product (GDP) growth was revised higher to an annualised 2.1% from 1.6%
• New home sales in the US fell 7.3% month-on-month (MoM) in May to 0.58 million, failing to reach the 0.64 million consensus as the housing sector faced renewed headwinds
• Initial jobless claims fell 11,000 to 215,000 for the week ending 20 June, beating the 225,000 consensus, while continuing claims rose 21,000 to 1.821 million
• China’s foreign direct investment (FDI) year-to-date (YTD) fell 8.6% year-on-year (YoY) in May, though the result was slightly better than the 11% decline the market had braced for
• The People’s Bank of China (PBoC) maintained a steady hand on policy, leaving both the one-year and five-year loan prime rates (LPR) unchanged at 3% and 3.5% respectively
• Euro area consumer confidence edged lower to -17.7 in June, a slight miss against the consensus forecast of -17.5
• The RBA’s preferred trimmed mean consumer price index (CPI), however, rose to 3.6% YoY, slightly exceeding the 3.5% forecast and underscoring the ‘sticky’ nature of core inflation
• West Texas Intermediate (WTI) crude oil fell 5.55% this week to $71.65
• The US dollar index (DXY) gained 0.73% this week to 101.49
• Bitcoin lost 5.72% this week to $59,628
• Gold fell 3.4% to $4014
• Wall Street’s gauge of fear, the volatility index (VIX), rose to 18.88 from 16.41 the previous week

Key dates for the week ahead

China & Japan

• CN – National Bureau of Statistics (NBS) manufacturing purchasing managers’ index (PMI): Tuesday, 30 June at 9.30am SGT
• CN – NBS non-manufacturing PMI: Tuesday, 30 June at 9.30am SGT
• JP – Tankan large manufacturers index: Wednesday, 1 July at 7.50am SGT
• CN – Caixin manufacturing PMI: Wednesday, 1 July at 9.45am SGT
• CN – Caixin services PMI: Friday, 3 July at 9.45am SGT

United States

• US – job openings and labor turnover survey (JOLTs): Tuesday, 30 June at 10.00pm SGT
• US – Conference Board (CB) consumer confidence: Tuesday, 30 June at 10.00pm SGT
• US – automatic data processing (ADP) employment change: Wednesday, 1 Jul, at 8.15pm SGT
• US – Institute for Supply Management (ISM) manufacturing PMI: Wednesday, 1 July at 10.00pm SGT
• US – non-farm payrolls: Thursday, 2 July at 8.30pm SGT
• US – initial jobless claims: Thursday, 2 July at 8.30pm SGT

Europe & United Kingdom

• EA – inflation rate YoY flash: Wednesday, 1 July at 5.00pm SGT
• EA – core inflation rate YoY flash: Wednesday, 1 July at 5.00pm SGT
• EA – unemployment rate: Thursday, 2 July at 5.00pm SGT

Key events for the week ahead

CN: NBS Manufacturing PMI

Date:  Tuesday, 30 June at 9.30am SGT

Last month, China’s official NBS Manufacturing PMI slipped to 50.0 in May, down 0.3 points from April and sitting exactly at the 50 threshold that separates expansion from contraction.

The survey highlighted a widening K-shaped demand pattern with elevated oil prices weighing on the sector: consumption and export orders weakened noticeably, energy-intensive production softened, while high-end and high-tech manufacturing remained resilient, supported by the global AI capex super-cycle.

Tuesday’s June reading will offer an important early gauge of whether manufacturing momentum is stabilising or facing further headwinds given this two-speed demand dynamic, soft domestic consumption and lingering global uncertainties. Consensus expectations point to a modest rebound to 50.1.

A print in line with or above expectations would support the view that the sector is holding steady, while a reading at or below 50 would raise fresh questions about the durability of China’s recovery and the effectiveness of recent policy measures. With weak April and May data already pointing to rising downside pressures on Q2 GDP, policymakers are expected to re-accelerate the fiscal rollout from June, including targeted infrastructure support to prevent growth from slipping below 4.5%.

China NBS manufacturing PMI chart

US: non-farm payrolls

Date: Thursday, 2 July at 8.30pm SGT

Last month, US non-farm payrolls added 172,000 jobs in May, following an upwardly revised 179,000 gain in April and continuing to point to a resilient labour market. The unemployment rate held steady at 4.3%, while average hourly earnings rose 3.4% YoY, down from 3.6% the previous month.

After a run of stronger jobs reports and the hawkish tone at the 17 June FOMC meeting - where new Fed Chair Kevin Warsh struck a notably firm line on inflation risks and the need to maintain policy vigilance - Thursday’s June jobs report will be closely scrutinised for fresh evidence on the health of the labour market.

Consensus expectations point to a gain of around 115,000 jobs, with the unemployment rate forecast to hold steady at 4.3%. Warsh’s comments have placed extra weight on the data: a strong print could reinforce the case for tighter policy later this year, while a soft outcome would ease pressure on rate hike expectations.

The US interest rates market is pricing in a 30% (7 bp) chance of a Fed rate hike next month, with a full 25 bp Fed rate hike priced for October.

 US unemployment rate chart

EA: inflation rate YoY flash

Date: Wednesday, 1 July at 5.00pm SGT

In May, Euro Area headline inflation rose to 3.2% YoY from 3.0% in April, surprising to the upside and marking the highest reading since September 2023. Core inflation, which excludes energy, food, alcohol and tobacco, jumped to 2.6% from 2.2%, remaining well above the European Central Bank’s (ECB) 2% target.

Following May’s warmer inflation numbers, the ECB responded by raising interest rates 25 bp earlier this month - its first increase since 2023 - as policymakers acted on their commitment to anchoring inflation at the 2% medium-term target.

The ECB also revised its inflation forecasts higher, now expecting headline inflation to reach 3.0% in 2026 and 2.3% in 2027. Core inflation forecasts were lifted to 2.5% for both years.

Next week’s June flash estimate will be scrutinised for any signs that the recent energy-driven uptick is broadening across the economy. Markets anticipate headline inflation will hold around 3.2%, with the core measure expected to remain firm near 2.6%.

The European rates market is currently fully priced for another 25 bp rate hike at the ECB’s December meeting. A hotter-than-expected core print may see this pulled forward into October or even September.

Euro Area core inflation chart