Market Wrap US-Europe 1 July: Wall Street and Europe Slip to Start the Second Half as Warsh Keeps a Firm Line on Inflation

By The Edge Research Team

US and European stocks began the second half of the year mostly lower, as investors adjusted to a less supportive rate signal from the Federal Reserve. New Fed Chair Kevin Warsh kept the focus on inflation, said prices remained too high and declined to guide markets toward a July rate move, pushing Treasury yields higher, supporting the dollar and weighing most on rate-sensitive technology shares.

On Wall Street, the S&P 500 closed down 0.22 percent at 7,483.23 and the Nasdaq Composite fell 0.66 percent to 26,040.03, led lower by technology, while the Dow Jones Industrial Average was little changed, easing 0.03 percent to 52,305.24. The move looked more like a valuation reset than a risk-off selloff, with the Nasdaq underperforming because higher yields reduce the present value of long-duration earnings. Softer labour data limited the downside, as the ADP report showed just 98,000 private-sector jobs added in June.

European markets were mixed to lower. Germany’s DAX outperformed with a 0.18 percent gain to 25,040.28, while the UK’s FTSE 100 slipped 0.18 percent to 10,478.34, the Euro Stoxx 50 fell 0.72 percent to 6,282.50 and France’s CAC 40 dropped 0.79 percent to 8,337.29. Cooler euro-area inflation helped at the margin, with Eurostat’s flash estimate showing annual inflation easing to 2.8 percent in June from 3.2 percent in May, but the US rate signal dominated global sentiment.

In rates and currencies, the US 10-year Treasury yield edged up to about 4.48 percent as Warsh’s comments and firm data pushed out expectations of near-term rate cuts. The dollar was firmer, with the euro easing to 1.1376 after the softer inflation print, while sterling held at 1.3271 and the yen was broadly flat at 162.59 per dollar. Bitcoin rose about 2.1 percent to near 60,000, and the VIX volatility index edged up to 16.59.

Earlier in the day, MENA and Asian markets had closed mostly higher. Dubai’s DFM General Index rose 0.91 percent to 6,010.07, Oman’s MSX 30 gained 0.71 percent to 7,561.13, Saudi Arabia’s TASI advanced 0.53 percent to 10,856.90 and Egypt’s EGX 30 rose 0.09 percent to 50,532.70, while Japan’s Nikkei added 0.59 percent and Hong Kong was closed for the Special Administrative Region Establishment Day holiday.

Why it matters: The cautious start to the second half reflects a repricing of the rate outlook rather than a growth scare. With the new Fed chair signalling patience and no near-term cuts, and US yields rising, equity valuations came under mild pressure while the dollar firmed. For the Gulf, higher-for-longer US rates flow directly through the currency pegs into regional borrowing costs and liquidity, so the Warsh message matters as much for the region as the day’s index moves, while a firmer dollar also affects commodity prices, import costs and external financing across the wider region.

Outlook: The focus now shifts to the US jobs report, brought forward to Thursday 2 July because markets are closed on Friday 3 July for the Independence Day holiday, along with further central-bank commentary and the July policy meetings on both sides of the Atlantic. A firm payrolls print would reinforce Warsh’s cautious line and keep yields and the dollar supported, pressuring equity valuations and Gulf liquidity, while a softer report, especially alongside easing inflation, would revive the case for rate cuts later in the year.

US and Europe equities, ranked highest to lowest

MENA and Asia equities, ranked highest to lowest

Hong Kong Hang Seng: closed for a public holiday (last close 22,881.02, -0.63% on 30 June).

Rates, FX and crypto

Sources: CNBC; Euronext; Eurostat.

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