According to Deutsche Bank strategists, global equities experienced a notable rally over the past week, driven by a dovish repricing of Federal Reserve and European Central Bank (ECB) expectations following a softer US payrolls report [1]. The S&P 500 posted its strongest weekly gain since early May, advancing by 1.76% [1]. This positive momentum was attributed to a shift in market pricing for a July Fed rate hike, which declined from a 30% probability to 22% during the week [1].
In Europe, the STOXX Europe 600 index climbed 2.66% for the week, including a 0.68% gain on Friday, reaching a new record high [1]. This was supported by growing market skepticism regarding the likelihood of further ECB rate hikes this year, especially after the latest flash CPI print came in lower than expected [1].
Despite the overall strength in equities, certain sectors underperformed. The Philadelphia Semiconductor Index (Philly semiconductor index) dropped 4.37%, marking its second consecutive week of losses and highlighting ongoing weakness in the chip sector [1].
In fixed income markets, longer-dated yields rose despite the dovish shift in rate expectations. The 10-year US Treasury yield increased by 11.5 basis points to 4.48%, while the 10-year German yield rose by 8.4 basis points to 2.93% [1].
CONCLUSION
Equity markets rallied strongly on dovish central bank repricing, with the S&P 500 and STOXX Europe 600 posting significant gains. However, the chip sector lagged, and longer-term yields moved higher despite softer rate hike expectations. The market's risk tone has improved, but sectoral divergences and yield movements suggest ongoing caution.