Market Matters – The Bond Market Bites Back

• Long-term government bond yields rose sharply. Markets diverged: MSCI China gained 2.8% and the FTSE 100 rose 0.7%, while the S&P 500 fell 1.4% and Japan declined 3.4%.
• US growth remained strong and was led by services. Services PMI reached 56.8, the composite was 56.0 and manufacturing was 53.2. Treasury buybacks calmed markets briefly, but much of the move reversed within 24 hours.
• With roughly 90% of MSCI World companies having reported, combined second-quarter net income rose 39.7% year on year. However, heavy AI financing is increasing balance-sheet and credit-market risks.
• UK and eurozone data were more resilient than expected. China’s technology sector performed strongly despite weak domestic activity, while Japan’s export strength contrasted with subdued domestic demand.
• Brent rose 6.4% to $94.39 as traffic through the Strait of Hormuz remained severely restricted. Higher energy prices remain the main near-term risk to inflation, interest rates and bond yields.