Market Summary - July 3, 2026
By Kathleen Brooks, Research Director UK
Overview
The markets are experiencing a positive tone as the week comes to a close, driven by a mix of relief following the recent payroll data, a recovery in chip stocks, and increased volatility in the yen. With US markets closed, trading activity may be subdued or could see heightened volatility due to lower trading volumes.
Key Developments
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Shifting Fed Expectations
A significant slowdown in US payrolls last month, coupled with a decrease in the unemployment rate due to a drop in the participation rate, has led traders to lower their expectations for interest rate hikes in the US. The likelihood of a rate increase in July has plummeted from nearly 40% to just 17%, and the chances of a hike by December have also diminished, now standing at less than 50%.
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Tech Stocks Make a Recovery
The reduced likelihood of rate hikes is generally favorable for growth stocks, as it lowers borrowing costs and enhances the present value of future profits. This has contributed to a recovery in Asian markets, with the South Korean Kospi rising over 5%, despite an 8% weekly loss. The rally was notably supported by SK Hynix, which saw a rise of more than 10%. The previous sell-off was triggered by concerns regarding capital expenditure plans from major tech firms, particularly after Meta indicated it had excess AI compute capacity. However, the market seems to be absorbing this news, leading to a rebound in chip stocks.
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The Yen: Intervention Risks
The Bank of Japan (BOJ) executed a well-timed foreign exchange intervention to support the yen, which was aided by the weak payroll report. Reports of further intervention have emerged, with USD/JPY falling back below 161, a more manageable level for the BOJ. The intervention has been orderly thus far, avoiding excessive volatility in yen crosses.
Market Outlook
The upcoming earnings reports from the "Magnificent 7" tech companies later this month will be crucial, particularly regarding their capital expenditure plans for the year ahead. Following a dip on Thursday, the Nasdaq is expected to recover on Monday, buoyed by strong PMI readings for June that are positively influencing market sentiment in Europe.