Highlights
U.S. equities ended the shortened trading week in the green, supported by news that Washington and Tehran signed a memorandum of understanding that could lead to the reopening of the Strait of Hormuz, easing concerns over global energy supplies and helping oil prices decline. The technology-focused Nasdaq Composite led major indexes higher, up 2.60% in the week while the S&P 500 added 0.93% in the week. Markets were closed Friday in observance of Juneteenth. As expected, the Federal Reserve left its benchmark interest rate unchanged at 3.50%–3.75%. However, investors interpreted the updated economic projections and comments from Fed Chair Kevin Warsh as more restrictive than anticipated. Markets reacted with a temporary sell-off in equities and higher short-term Treasury yields. The Fed’s latest forecasts now suggest policymakers expect modest policy tightening by the end of the year, a sharp shift from March projections that indicated potential rate cuts. Warsh emphasized the Fed’s commitment to controlling inflation and indicated that forward guidance is less useful in the current environment. On the data front, retail sales rose 0.9% in May, exceeding expectations and improving from April’s revised increase. However, housing indicators painted a less favourable picture. The NAHB Housing Market Index unexpectedly fell to 35 in June, reflecting affordability concerns, elevated mortgage rates, and rising construction costs. Over in Europe, the pan-European Euro STOXX 600 Index gained 1.37% over the four-day trading week. Investor confidence improved following the U.S.-Iran agreement, although economic data across the region remained mixed. The eurozone recorded a EUR 1 billion trade deficit in April, surprising economists who had expected a surplus. The deterioration was largely driven by a wider energy deficit and weaker performance in machinery and vehicle exports. Separately, the Bank of England left interest rates unchanged at 3.75%, noting uncertainty surrounding the inflation impact of the Iran conflict. UK inflation held steady at 2.8% in May. Similarly, the Swiss National Bank maintained its policy rate at 0%, while Norway’s central bank kept rates unchanged but hinted that future increases may be necessary. In Asia, the bullish tone remained the same in the week as Japanese equities surged, with the Nikkei 225 rising 7.92% and the TOPIX gaining 4.20%. Technology and semiconductor-related stocks led gains as investors continued to favour companies benefiting from global AI investment trends. The Bank of Japan increased its short-term policy rate by 25 basis points to 1.0%, marking its first rate hike since late 2025 and pushing borrowing costs to their highest level in three decades. The move reflects concerns about inflation driven by higher energy costs and ongoing yen weakness. The central bank also announced further reductions in its purchases of Japanese government bonds as it continues its gradual exit from ultra-loose monetary policy. The yen weakened slightly to around JPY 160.8 per U.S. dollar, prompting speculation that authorities could intervene again in currency markets. In China, equities delivered mixed performance during the holiday-shortened week. Mainland markets advanced, while Hong Kong stocks declined. May economic data highlighted continued strength in manufacturing and exports but persistent weakness in domestic consumption while China’s real estate market remained a drag on the economy. People’s Bank of China Governor Pan Gongsheng announced a series of initiatives aimed at improving financial market efficiency, supporting offshore use of the renminbi, and strengthening Shanghai’s role as a financial hub.
Data Highlights
USD Fed Interest Rate stayed the same at 3.75%, in line with consensus. CAD BoC Interest Rate remained at 2.25%. CAD PPI YoY (May) rose less than expected, +250bps, from 11.1% to 13.6%, lower than the expected increase to 14%. GBP Inflation Rate YoY (May) stayed the same at 2.8%, against a stronger expected +20bps increase to 3%. GBP Core Inflation Rate YoY (May) rose +10bps, from 2.5% to 2.6%, softer than the expected increase to 2.7%. CHF SNB Interest Rate Decision stayed the same, at 0%, matching analysts’ expectations. GBP BoE Interest Rate stayed the same, at 3.75%, in line with expectations. EUR Inflation Rate YoY (May) rose +20bps, from 3% to 3.2%, as expected. EUR Core Inflation Rate YoY (May) rose more than expected, +40bps, from 2.2% to 2.6%, against the expected increase to 2.5%. JPY BoJ Interest Rate rose +25bps, from 0.75% to 1%, in line with consensus. CNY Unemployment Rate (May) fell -10bps, from 5.2% to 5.1%, against a flat expectation. AUD RBA Interest Rate stayed the same at 4.35%, in line with consensus. NZD GDP Growth Rate YoY (Q1) stayed the same, at 1.5%, against the expected drop to 1.1%.
Week Ahead
CAD Inflation Rate YoY (May), CAD Core Inflation Rate YoY (May), AUD CPI (May) – Monday | JPY Unemployment Rate (May), GBP GDP Growth Rate YoY (Q1), EUR Inflation Rate YoY (Jun) – Tuesday | EUR Inflation Rate YoY (Jun), EUR Core Inflation Rate YoY (Jun), -Wednesday | CHF Inflation Rate YoY (Jun), EUR Unemployment Rate (May) – Thursday
