Contents
Global markets navigated a complex web of mixed signals this week, as easing geopolitical tensions fueled a rally in risk assets while faltering growth forecasts and divergent central bank policies painted a more cautious macroeconomic picture. This weekly roundup examines the key developments and their impact across global and Indian markets.
Geopolitical Thaw Eases Investor Fears
A significant easing of geopolitical tensions provided a major tailwind for markets. A U.S.-brokered ceasefire between Iran and Israel, announced on June 24, brought an end to 12 days of direct military conflict.1 This was followed by a preliminary trade truce between the United States and China, which saw the U.S. lower its effective tariff rate on Chinese goods to 55% and China reduce its retaliatory tariffs to 10%.
These diplomatic breakthroughs reduced the headline risks that had clouded investor sentiment. The market reaction was swift, with a clear rotation out of safe-haven assets and into equities. Gold, a traditional safe haven, saw its "geopolitical premium" evaporate, with prices slumping 2.9% in the week of the ceasefire announcement. Meanwhile, economically sensitive assets, such as energy stocks, which had been under pressure, began to rebound, with the S&P 500 Energy sector gaining 4.74% in June.
Tech and AI Stocks Propel US Markets to Record Highs
Riding the wave of optimism, U.S. equity markets surged to new heights. In the final week of June, the S&P 500 gained 3.4% and the Nasdaq Composite climbed 4.2%, their best weekly performances in over a month. The rally was narrowly focused, driven by strong performance in mega-cap technology stocks and the unabated frenzy around artificial intelligence (AI).
- The NYSE FANG+ Index, which tracks tech giants, saw related funds jump over 5% in the last week of June.
- Prominent AI-related stocks have rallied by approximately 20% over the past month, and newly launched AI-focused ETFs have seen massive inflows, highlighting intense investor demand.
This surge, however, has pushed valuations into concerning territory, with the S&P 500's forward price-to-earnings (P/E) ratio climbing above 22. This has prompted some institutional investors to rotate capital into defensive plays, such as infrastructure equities, which saw the S&P Global Infrastructure Index gain 1.43% in June and 12.73% year-to-date.
Economic Reality Check: Growth Forecasts Cut as Central Banks Diverge
Beneath the market's bullish surface, the fundamental economic outlook grew more cautious. The Organisation for Economic Co-operation and Development (OECD) revised its global GDP growth forecast for 2025 downward to 2.9%, citing headwinds from trade barriers, tighter financial conditions, and heightened policy uncertainty.18
This sobering forecast was accompanied by a clear divergence in monetary policy between the world's major central banks:
- The European Central Bank (ECB) cut its benchmark interest rate by 25 basis points to 2.00% to support a decelerating Eurozone economy, which is grappling with sluggish industrial production. Eurostat data showed industrial producer prices fell 0.6% in May.
- In contrast, the U.S. Federal Reserve held its rates steady, opting for a cautious, data-dependent approach amid uncertainty over trade policies. This growing divergence between an easing ECB and a waiting Fed is a key theme for global asset allocators.
Indian Equities Consolidate Amid Sectoral Churn
Indian markets remained volatile, with benchmark indices closing the week essentially flat. The Sensex ended at 83,432.89 and the Nifty 50 at 25,461.00 on July 4, both up marginally for the day but showing little change over the week.
A tug-of-war between institutional investors drove the sideways movement. Foreign Institutional Investors (FIIs) were significant net sellers, withdrawing ₹6,604.56 crore during the week.30 This outflow was absorbed by Domestic Institutional Investors (DIIs), who were net buyers to the tune of ₹7,609.42 crore, showcasing the strength of domestic liquidity.
Sectoral performance was mixed, reflecting a defensive shift among investors:
- Gainers: The Nifty Pharma (+2.23%) and Nifty IT (+0.89%) indices were the top performers, benefiting from their defensive characteristics and appeal as safe havens during global uncertainty.
- Laggards: Cyclical sectors, such as the Nifty Auto (-0.11%), underperformed, reflecting concerns about the impact of a global slowdown on growth-sensitive industries. The Nifty Metal index also lagged on Friday, though it posted a weekly gain.
Looking Ahead
Markets enter the following week in a fragile balance. The relief from easing geopolitical tensions has provided a powerful, if narrow, rally. However, this optimism is tempered by a weakening macroeconomic outlook and stretched valuations in the tech sector. Investors will be closely watching for shifts in central bank guidance and the looming July 9 deadline for the U.S. to strike further trade deals, which could set the market's tone in the near term.
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