Markets had a generally positive week this week, with equities rising, oil prices easing, and investors closely watching central bank policy, AI-driven growth, and developments in Japan’s currency market.
At the end of last week, Japan and the U.S. jointly intervened in currency markets to support the yen after it fell to a 40-year low against the dollar, marking their first coordinated intervention since 2011. Japan is reported to have spent around $59 billion buying yen, with U.S. support estimated at $5-10 billion. The move helped reduce the risk of market disruption, as a sustained decline in the yen could have triggered broader selling of Japanese assets and spilled over into global markets, given Japan’s status as one of the largest holders of U.S. Treasuries.
On Monday, Bank of Japan policymakers suggested that strong AI-related investment could add to inflationary pressures in the near term. Combined with higher oil prices linked to tensions in the Middle East, rising AI spending is seen as a positive global demand shock that could keep inflation elevated. While AI is expected to boost productivity and efficiency over the longer term, markets are watching closely for another rate rise after the Bank of Japan increased interest rates to 1% in June. Higher rates could also benefit Japanese households, which generally hold more savings than debt, by increasing returns on their deposits.
Oil prices fell sharply on Monday after President Trump withdrew his call for a strike on Iran and signalled that fresh peace talks would begin. Adding to the downward pressure, OPEC+ announced plans to increase oil production by a further 188,000 barrels per day from September. OPEC+ is an alliance of major oil-producing countries, led by Saudi Arabia and Russia, that coordinates production levels to help balance global supply and demand. As a result, Brent crude declined by around 5%, while West Texas Intermediate (WTI) fell approximately 6%. However, analysts noted that the latest production increase is unlikely to have a significant impact on global supply. Ongoing export disruptions caused by conflict in the Gulf and the Russia-Ukraine war continue to limit shipments from several major producers.
The latest U.S. JOLTS report pointed to further signs of a gradual cooling in the labour market during June. Job openings fell to 7.44 million, down from 7.71 million in May and below economists’ expectations, while the openings-to-unemployed ratio eased to around 1.1, suggesting a better balance between labour demand and supply. Hiring remained broadly unchanged at 5.2 million, while job quits — a key indicator of worker confidence and future wage pressures — declined to 3.1 million. The data adds to evidence that the U.S. labour market is losing momentum, with recent non-farm payroll figures for May and June potentially facing downward revisions.
This week, SpaceX was in focus after reporting earnings that comfortably exceeded expectations, with revenue surging 92% year-on-year. However, the main talking point was its substantial capital expenditure, which resulted in the company posting a net loss. Management argued the investment is laying the foundations for long-term growth, highlighting robust demand for AI computing services and forecasting an annualised revenue run rate of $100 billion by the end of 2026. The company added that demand for AI infrastructure continues to outstrip supply, reinforcing the need for continued investment. Despite the optimistic outlook, investors focused on the near-term impact on profitability, sending the shares around 7% lower in after-hours trading.
Still to come this week we have Eurozone retail sales, U.S. non-farm payrolls and Japan’s balance of trade.
Nicola Tune, Portfolio Specialist
