US stocks closed the week with mixed results as markets digested geopolitical tensions and economic signals. Investor sentiment was shaped by Middle East developments, particularly President Trump’s suggestion of potential talks with Iran, which briefly boosted markets. The Nasdaq posted gains, while the Dow remained flat, and the S&P 500 edged slightly lower. The Juneteenth holiday shortened the trading week. Meanwhile, the Federal Reserve (Fed) kept interest rates unchanged for the fourth consecutive meeting, acknowledging lingering uncertainty but maintaining a positive view of the economy. The Fed’s projections indicated two rate cuts later this year, while inflation and unemployment forecasts rose.
US economic data for the week was mostly disappointing. Retail sales declined 0.9% in May, driven by falling auto sales, although the control group component rebounded modestly. Housing indicators also weakened, the National Association of Home Builders Housing Market Index dropped to 32, its lowest since 2022, reflecting negative builder sentiment amid high mortgage rates and economic uncertainty. New home construction plummeted nearly 10% to its lowest level since 2020. US Treasury yields fell, boosting bond prices as investors sought safety amid geopolitical risks. Investment-grade corporate bonds performed well, while high-yield bond sentiment was more cautious due to macroeconomic volatility and market uncertainty ahead of the holiday.
European markets fell over the week, with the European STOXX 600 Index down 1.5% amid Middle East tensions and cautious central bank signals. The Bank of England held rates at 4.25%, with inflation easing slightly and services inflation aligning with forecasts. The Swiss and Norwegian central banks both cut rates as inflation pressures eased. German investor sentiment surged on the back of a new tax relief package, while French manufacturing confidence weakened further, with flat output expected. The eurozone’s current account surplus dropped sharply in April, reflecting a slowdown after a March surge driven by pre-tariff purchases from the US.
Japanese stocks rose over the week, with the Nikkei 225 gaining 1.5%, as markets focused on the Bank of Japan’s (BOJ) decision to keep rates steady at 0.5% and signal a cautious tapering of bond purchases starting in 2026. The yen weakened, and 10-year government bond yields edged higher. Investors speculated the BOJ might raise rates again this year. Meanwhile, Japan and the US failed to reach a tariff deal at the G7 summit, raising risks for Japan’s auto sector. In China, markets declined as mixed data dampened sentiment; retail sales surged, but industrial output and investment lagged, and property prices continued to fall.
Weekly macro highlights
Fed keeps interest rate on hold in June
The Federal Reserve kept its target range for the federal funds rate unchanged at 4.25% - 4.50% for a fourth consecutive meeting in June. The decision came amid ongoing concerns over persistent inflation. Core CPI inflation remained at 2.8% year-on-year in May, while headline CPI eased slightly to 2.3%. Labour market data remained strong, with nonfarm payrolls rising by 139,000 and average hourly earnings up 3.9% (YoY). The unemployment rate held steady at 4.2%. Fed Chair Jerome Powell emphasised that while inflation has eased, policymakers need “greater confidence” before lowering rates. He acknowledged recent progress in price stability, but said more evidence is needed that inflationary pressures have subsided. The Fed’s updated Summary of Economic Projections reflected a slightly more cautious outlook. Real GDP growth was revised down to 1.4% in 2025 and 1.6% in 2026. The unemployment rate projections were raised to 4.5% in both years. Core PCE inflation forecasts were revised higher to 3.1% in 2025 and 2.4% in 2026.
BoE holds interest rates in June
The Bank of England’s (BoE) Monetary Policy Committee (MPC) voted 6–3 to keep Bank Rate unchanged at 4.25% in June. Three members preferred a 25bp cut. The decision reflects uncertainty around the persistence of inflation, despite signs of labour market loosening. PAYE employment fell by 109,000 in May, vacancies declined to 736,000, and the unemployment rate rose to 4.4%. Wage growth has also moderated, with private sector average earnings slowing to 5.1% in the three months to April. However, inflation pressures remain. Headline CPI rose to 3.4% in May, core CPI stayed at 3.5%, and services inflation was unchanged at 4.7%. The BoE projects inflation to hover just below 3.5% for the rest of 2025, before falling towards target in 2026. The MPC judged that further evidence is needed to confirm sustained disinflation and kept its stance cautious. Markets are currently pricing the next rate cut for the next meeting in August.
SNB cuts rates while BoJ holds in June
The Swiss National Bank (SNB) cut its policy rate by 25 bps to 0% on 19 June, its sixth consecutive reduction. This comes after inflation fell to minus 0.1% in May and the franc remained strong. The SNB also downgraded its 2025 inflation forecast to 0.2%, while warning that further easing or foreign exchange intervention may be needed amid global uncertainties. In contrast, the Bank of Japan (BoJ) held its policy rate steady at 0.5%. The BoJ emphasised plans to begin tapering bond purchases at a slower pace. Core inflation in Japan rose to 3.7% year-on-year in May, the highest in over two years, driven by strong food prices. Meanwhile, Japan’s exports fell 1.7% in May, led by an 11.1% drop in shipments to the US, suggesting weakening global demand.
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