Global stock markets saw a broad-based rally last week, primarily driven by positive signals on easing international trade tensions, encouraging signs of cooling inflation in major economies, and hints of more dovish monetary policy from central banks. However, a closer look reveals a more nuanced landscape with regional disparities and underlying volatility. This weekly market update dives into the key performances, driving factors, and critical economic indicators to watch.
United States: Market Rebound Fueled by Trade Optimism and Inflation Relief
U.S. stock markets posted strong gains as investor sentiment improved:
S&P 500: +1.88%
Nasdaq Composite: +2.01%
Dow Jones Industrial Average: +1.6%
The week began on a high note with news of President Trump potentially delaying a significant 50% tariff on EU goods. This boosted market confidence, though concerns about the legal framework surrounding executive trade powers tempered some of the enthusiasm later in the week.
Critically, April's core PCE inflation (Personal Consumption Expenditures) data showed a decrease to 2.5% year-over-year, its lowest point since 2021. This development strengthened hopes that the Federal Reserve's (Fed) interest rate hikes are effectively curbing price pressures. Complementing this, the Conference Board’s consumer confidence index surged by 12.3 points to 98, snapping a five-month decline.
U.S. Market Takeaway: A potent combination of trade de-escalation hopes and positive inflation data propelled the U.S. market rally. However, traders remain watchful of lingering legal trade uncertainties and ongoing inflation dynamics.
Europe: Rate Cut Speculation Grows Despite Sticky Inflation Expectations
European equity markets saw modest advances:
STOXX Europe 600: +0.65%
German DAX: +1.56%
French CAC 40: +0.23%
UK FTSE 100: +0.62% (Covered in more detail below)
Reports of falling inflation in Spain (1.9%), Italy (1.9%), and France (0.6%) amplified expectations for a European Central Bank (ECB) rate cut in June. Conversely, the labor market presented a mixed picture, with German unemployment unexpectedly rising by 34,000 – three times the anticipated figure.
Adding another layer of complexity, the ECB’s latest consumer survey revealed that households still anticipate 3.1% inflation over the next year, significantly above the ECB's 2% target.
European Market Takeaway: While cooling headline inflation supports the case for ECB easing, stubbornly high consumer inflation expectations and signs of labor market fragility create a challenging policy environment for the ECB.
United Kingdom: FTSE 100 Gains Mask Domestic Economic Headwinds
The FTSE 100 climbed 0.62%, benefiting from the overall positive global market sentiment. However, domestic economic indicators painted a more challenging picture for the UK economy:
Vehicle output plummeted 15.8% year-over-year in April, marking the worst April for car manufacturing (excluding COVID-19 impacted years) since World War II.
Services sector confidence fell to a 2.5-year low, largely attributed to increased payroll taxes and pressure on business margins.
On a more stable note, mortgage lending figures held steady, suggesting some resilience in consumer borrowing.
UK Market Takeaway: The UK economy is grappling with significant sector-specific challenges, particularly in manufacturing and services. However, a resilient housing market (reflected in mortgage lending) and positive global tailwinds offer some counterbalance.
Japan: Inflation Unexpectedly Surges, Trade Deal Hopes Emerge
Japanese equities experienced a notable rally:
Nikkei 225: +2.17%
TOPIX: +2.41%
A key domestic development was the acceleration of Tokyo's core CPI (Consumer Price Index) to 3.6% year-over-year – the fastest pace in over two years. This surprising inflation surge fueled speculation about a potential shift in the Bank of Japan's (BoJ) ultra-loose monetary policy. Despite this, BoJ Governor Ueda adopted a cautious tone, referencing ongoing trade uncertainties.
Market sentiment was also buoyed by reports of a potential U.S-Japan trade agreement being discussed ahead of the mid-June G7 meetings.
Japanese Market Takeaway: Strong optimism around a potential trade deal and an unexpected spike in inflation are creating a complex scenario for the BoJ, potentially challenging its long-held dovish stance.
China: Stimulus Buzz Fails to Ignite Market Confidence
Chinese markets lagged behind their global counterparts:
Shanghai Composite: -0.03%
CSI 300: -1.08%
Hang Seng Index (Hong Kong): -1.32%
Despite reports of a substantial RMB 500 billion (approximately USD 70 billion) infrastructure stimulus package aimed at bolstering the AI and digital economy sectors, markets remained largely unmoved. The lack of clear execution details for the stimulus plan left investors wanting more concrete action, especially amidst ongoing global trade concerns and persistently weak domestic consumer sentiment.
Chinese Market Takeaway: Vague signals on economic stimulus and underwhelming data releases resulted in fragile investor sentiment and market underperformance in China.
Key Economic Events & Data to Watch This Week (June 2–6)
Stay ahead of market-moving news with these key releases:
United States:
Wednesday, June 4: ISM Services PMI (with focus on employment and prices paid components)
Thursday, June 5: Weekly Jobless Claims
Friday, June 6: Non-Farm Payrolls (NFP) (Consensus: +130k), Unemployment Rate (Forecast: 4.2%), Average Hourly Earnings
Europe (Eurozone):
Tuesday, June 3: Eurozone Flash CPI (key inflation indicator)
Wednesday, June 4: Final HCOB Composite/Services PMI
Thursday, June 5: ECB Rate Decision & President Lagarde Press Conference
Friday, June 6: Final Q1 GDP figures
United Kingdom:
Wednesday, June 4: S&P Global Services PMI
Friday, June 6: Halifax House Price Index
Japan:
Wednesday, June 4: Final Services/Composite PMI
Friday, June 6: Household Spending, Leading/Coincident Economic Indices
China:
Tuesday, June 3: Caixin Manufacturing PMI
Top 5 Market Risks to Monitor (June 2–6)
Be aware of these potential catalysts for market volatility:
U.S. Labor Market Surprise (NFP): The Non-Farm Payrolls report could significantly shift Fed policy expectations. Stronger-than-expected job growth or wage inflation might delay rate cuts, while weakness could accelerate them.
ECB Forward Guidance: While a rate cut is priced in, a less dovish tone from ECB President Lagarde regarding future policy could disappoint markets anticipating further easing.
Sticky Eurozone Inflation: If the flash CPI or core inflation figures remain stubbornly high, the ECB might signal hesitation on future cuts, even if they proceed with the expected June reduction.
China PMI Disappointment: Weak Caixin Manufacturing PMI data from China could reignite concerns about global demand and economic slowdown.
BoJ Policy Pivot Pressure: Persistently hot inflation data from Japan may increase pressure on the Bank of Japan to accelerate its monetary policy normalization, potentially sooner than markets currently anticipate.
Frequently Asked Questions (FAQs) – Market Insights
Q: What was the main driver for the recent global market rally?
A: The rally was primarily fueled by optimism over potential de-escalation in trade disputes, signs of softening inflation in key economies, and indications of more accommodative (dovish) signals from central banks.
Q: Why did China’s stock market underperform last week?
A: Investors in Chinese markets were largely unimpressed by announced stimulus plans that lacked concrete execution details, coupled with ongoing concerns about weak economic data and consumer sentiment.
Q: Is the European Central Bank (ECB) likely to cut interest rates in June?
A: Yes, a 25 basis point (bps) rate cut by the ECB is widely anticipated by the market. However, the ECB's forward guidance on future policy will be crucial for the market's subsequent reaction.
Q: What is the significance of the U.S. Non-Farm Payrolls (NFP) data?
A: The NFP report is one of the most closely watched U.S. economic indicators as it provides a snapshot of the labor market's health. It heavily influences the Federal Reserve's monetary policy decisions, meaning any surprise in job growth or wage inflation can significantly shift interest rate expectations.
Q: Why is Japan’s recent inflation data so important?
A: The unexpected acceleration in Japan's inflation challenges the Bank of Japan's long-standing ultra-loose monetary policy. Persistently higher inflation could force the BoJ to consider a faster pivot towards policy normalization (i.e., raising interest rates or reducing stimulus).
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