Such a surge in energy prices can again strengthen inflationary pressure. Rising energy prices have most affected US technology stocks, while European stock indices have been more resilient. Meanwhile, China’s economic growth slowed to its lowest level since the end of 2022.
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Geopolitical risk raises energy prices again
The most significant market change of the week was recorded in the energy sector. Brent crude oil prices rose 15.9%, and European TTF natural gas prices jumped 18.0% – some of the largest weekly changes in recent months. These were driven by the collapse of fragile US-Iran ceasefire talks – reports of attacks on energy and shipping infrastructure near the Strait of Hormuz, through which nearly a fifth of the world’s seaborne oil is transported, as well as renewed concerns about disruptions to shipping in the Red Sea.
With doubts about physical supply routes, traders again factored a geopolitical risk premium into prices – an additional price component reflecting fear that geopolitical events could disrupt energy resource supplies, and European gas prices rose along with oil. A week ago, we noted that the decline in energy prices would not necessarily be uniform. Last week confirmed this – energy prices have been rising for the second consecutive week, and their growth rate has accelerated significantly.
US inflation fell faster than expected, but oil prices cloud the outlook
Annual US inflation in June fell from 4.2% in May to 3.5% – the slowdown was faster than expected. Consumer prices fell 0.4% over the month, and fuel prices dropped nearly 10%. Core prices, excluding energy and food, remained unchanged over the month, while several groups of goods, including clothing, medicines, and used cars, became cheaper. Annual core inflation slowed to 2.6% from 2.9% in May and was lower than market expectations.
However, the jump in oil prices in July may again increase pressure on US inflation. Despite this, analysts have lowered their forecasts – average inflation is expected to be 3.4% in 2026 and to fall to about 2.1–2.2% by mid-next year.
The US economy remains resilient, eurozone industry weakens, and China’s growth slows
US economic activity remained relatively strong in June. Retail sales, excluding autos and fuel, increased 0.4% over the month. This was the sixth consecutive increase. Compared to June last year, sales were 5.7% higher, mainly due to online purchases. Manufacturing output was unchanged over the month but was 1.1% higher than a year ago. US oil production continued to grow moderately and approached 13.9 million barrels per day.
In the eurozone, industrial production fell 0.4% in May – the first decline in four months. Production volumes decreased in more than half of the member states, although growth was recorded in Germany and Spain. Compared to last year, eurozone industrial production was 1.3% lower. The computer and electronics manufacturing sector stood out from the overall context, recording the third consecutive double-digit annual growth.
China’s economy grew 4.3% in the second quarter, compared to 5% at the beginning of the year – the weakest result since the end of 2022 and noticeably lower than analysts had forecast. The greatest weakness continued to be felt in the construction and real estate sectors, while consumption remained sluggish – retail sales in June increased only 1% year-on-year. Export-oriented industries continued to show better results: export growth accelerated to 27% year-on-year, mainly due to computers, microchips, and other technological goods. Despite this, China’s economic growth forecasts for 2026 remain stable at 4.6%.
Greatest pressure on US technology stocks, Europe more resilient
US stock indices fell, with the most sensitive growth market segments hit hardest. The technology-heavy Nasdaq Composite index dropped 2.9%, the S&P 500 fell 1.6%, while the small-cap Russell 2000 held up better, falling 0.5%. Although June inflation was lower than expected, market attention was overshadowed by the oil price surge. Rising energy prices increase near-term inflation expectations, reducing hopes for a quick interest rate cut and most affecting highly valued technology stocks.
European stocks held up better – the Euro Stoxx 50 index fell 0.6%, Germany’s DAX and Spain’s IBEX 35 lost 0.9% each, while France’s CAC 40 remained unchanged. Expensive technology companies make up a smaller share of European indices, while energy, financial, and industrial companies have a larger share. This partly explains why the region’s markets suffered less, even though Europe is more sensitive to rising energy prices.
Precious metals fell, and currency rates changed little
Precious metals fell, although geopolitical tension usually increases their appeal as a safer investment. Gold prices fell 2.2% to $4,012.70 per ounce, and silver dropped 6.3% to $56.04.
After several weeks of rapid gains, this pullback reflected profit-taking and higher interest rate expectations – higher yields increase the holding costs of alternative, non-income-generating assets. The euro exchange rate against the US dollar remained essentially unchanged at 1.1435. This indicates that the week’s tension was reflected in commodity and stock markets rather than major currency markets.
This week’s market focus
The most important event of the week is the European Central Bank’s monetary policy meeting on Thursday. Economists forecast that interest rates will remain unchanged, and the deposit rate will stay at 2.25%. With rising energy prices, attention will focus less on the rate itself and more on the statement and press conference – whether the tone regarding inflation risks will change.
Preliminary July eurozone PMI indices will be released on Friday – the most timely business activity indicator. It is forecast that the manufacturing sector index will remain slightly above the 50-point growth threshold at 51.6 points, while the services sector will improve to 49.8 points but remain slightly below it. Corresponding US indices are expected to remain in the growth zone.
The week has already brought initial signals. Monday’s release of Germany’s June producer price data showed a 0.3% monthly decline – slightly more than expected, indicating weak inflationary pressure in the production chain. Tuesday’s release of Germany and eurozone ZEW investor sentiment surveys will show whether investor confidence is stabilizing – results are expected to improve.
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