Highlights
In the week, investors’ attention was turned to the U.S. 20-year Treasury bonds which had a weaker-than-expected auction pushing longer term yields higher and saw the 30-year yield hit its highest level since 2023, though Treasuries across most maturities recovered some ground by the end of the week. This volatility in the Treasury market sent U.S. stocks lower for the week, with the S&P 500 Index and Dow Jones Industrial Average both falling back into negative territory for the year after ending the prior week slightly positive. The weak auction and subsequent move in yields was partially attributed to credit rating agency Moody’s downgrade of U.S. sovereign debt at the end of the prior week amid concerns about rising U.S. federal debt and fiscal deficits. This appeared to be amplified later in the week after the House of Representatives passed President Donald Trump’s tax bill, which some believe could increase federal debt considerably over the next several years. Piling on to the bearish sentiment, President Trump on Friday announced plans to impose a 50% tariff on imports from the European Union, effective June 1, stating that trade talks are “going nowhere.” This led to the pan-European STOXX 600 Index closing in negative territory for the week, snapping a five-week winning streak. The European Commission (EC) reduced its forecast for economic growth in 2025 to 0.9% from the 1.3% it had projected in late 2024. The downward revision reflected rising tariffs and uncertainty surrounding U.S. trade policy. In Asia, market participants kept a watchful eye on Japanese 10-year government bond yields which rose to 1.54%, near the highest level since 2008, on rate-hike expectations. This comes after comments from the Japanese Prime Minister stating that the country’s fiscal health is worse than that of Greece during its debt crisis in the early 2010s while rejecting calls for tax cuts. Investors remain watchful on the ripple effects that a weaker Japanese economy could cause to the broader global economy while also watching for the longevity of the tariff threat to the European Union.
Data highlights
Canada’s inflation report for April showed inflation rose by 1.7% YoY, down from March 2.3% gain. Though slightly higher than market 1.6% expectation. The Eurozone inflation for April was reported at 2.2% YoY, which matched analysts’ expectations. In the U.K, the YoY inflation rate for April surged higher to 3.5%. The biggest jump between two months since 2022. In Japan the YoY inflation rate for April was reported at 3.5%. Higher than analysts’ expectation of 3.4%. Australia cut its interest rates by 25 basis points to 3.85% which also matched market expectations.
Week ahead
U.S FOMC Minutes, Australia Consumer Price Index – Wednesday | U.S Preliminary GDP Growth Rate QoQ – Thursday | Japan Unemployment Rate, Australia Retail Sales – Friday
