Global Markets Weekly Update 

U.S.

Stocks close higher as trade policy continues to dominate sentiment

U.S. stocks rebounded during the holiday-shortened week, although major indexes faced some selling pressure late in the week and finished below their best levels. The Nasdaq Composite led the way, gaining 2.01%, followed by the S&P 500 Index (1.88%) and Dow Jones Industrial Average (1.60%). Smaller-cap indexes lagged but still posted positive returns. 

Equity markets opened the week with strong gains following a weekend announcement from President Donald Trump that he would delay the introduction of a new 50% tariff on imports from the European Union—announced two days prior—until July 9, and that negotiations between the trading partners would be “fast-tracked.” 

Later in the week, the U.S. Court of International Trade ruled that President Trump did not have the authority to impose the vast majority of the global tariffs that have been implemented since the start of his second term, sending stocks sharply higher on Thursday morning; however, the administration quickly appealed the ruling, and a federal appeals court put a temporary hold on the ruling Thursday evening, which led to stocks giving back some gains by the end of the week. Comments from Treasury Secretary Scott Bessent about U.S.-China trade talks being “a bit stalled,” as well as unsubstantiated social media comments from President Trump suggesting that China had “violated” its preliminary agreement with the U.S., also seemed to dampen investor sentiment late in the week. 

Inflation eases to slowest annual pace in four years 

In other news, the Bureau of Economic Analysis (BEA) reported that its core personal consumption expenditures (PCE) index—the Federal Reserve’s preferred measure of inflation—rose 2.5% year over year in April, down from 2.7% in March and the lowest annual reading since 2021. While the April data appeared to show a promising trend, the reading remained solidly above the Fed’s long-term target of 2%, and many market participants do not expect to see the full impact from tariffs until later this summer. 

Additionally, according to minutes from the Fed’s May 6–7 meeting, released Wednesday, policymakers “continued to view the risks around the inflation forecast as skewed to the upside,” largely due to “uncertainty surrounding trade policy and other economic policies."

Consumer confidence rebounds following trade tension de-escalation

Elsewhere, The Conference Board reported that its Consumer Confidence Index saw a sharp improvement in May after five consecutive months of declines, jumping 12.3 points to 98. According to Stephanie Guichard, Senior Economist, Global Indicators at The Conference Board, “The rebound was already visible before the May 12 U.S.-China trade deal but gained momentum afterwards. The monthly improvement was largely driven by consumer expectations as all three components of the Expectations Index...rose from their April lows.”

The University of Michigan also reported that the final reading of its May Index of Consumer Sentiment was unchanged from April, ending four consecutive months of steep declines. Similar to The Conference Board’s survey, sentiment took a notably positive turn in the second half of the month after the temporary pause in tariffs between the U.S. and China, an indication that trade policy uncertainty continues to be a driving factor in consumers’ outlook on the economy. Inflation expectations in both surveys remained elevated.

Treasuries gain on court ruling against tariffs

U.S. Treasuries rallied through Thursday, benefiting from the Court of International Trade’s ruling against the legality of the Trump administration’s sweeping global tariffs. Following the prior week’s disappointing auction of 20-year U.S. Treasury bonds—which sent stocks and Treasuries sharply lower—Thursday’s auction of 7-year notes was well received and saw strong non-dealer demand, spurring the lowest dealer award on record for a 7-year auction. 

Meanwhile, high yield bonds outperformed Treasuries, boosted by equity gains, positive tariff-related headlines, and improved consumer confidence. T. Rowe Price traders noted that positive flows and modest issuance provided technical support for the asset class. Investment-grade corporate bonds also outperformed through Thursday, with issues oversubscribed on average.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.65% higher, after U.S. President Trump said he would give the European Union more time to negotiate a trade deal before 50% tariffs take effect. Slowing inflation in some major European economies also reinforced expectations that the European Central Bank (ECB) would cut interest rates. Germany’s DAX gained 1.56%, Italy’s FTSE MIB advanced 1.55%, and France’s CAC 40 Index added 0.23%. The UK’s FTSE 100 Index tacked on 0.62%.

Inflation slows in France, Spain, Italy; Wieladek sees June rate cut

Preliminary headline inflation in Spain and Italy slowed to 1.9% in May, just below the ECB’s 2% target. France’s consumer price index increased 0.6% year over year, easing from the 0.9% inflation rate registered in April. In Germany, the annual rate of consumer price increases came in at 2.1%, down from the 2.2% recorded a month earlier but above the consensus estimate from a Bloomberg survey. Given the slowdown in inflation, T. Rowe Price Chief European Economist Tomasz Wieladek believes the ECB could cut its key deposit rate by another quarter of a percentage point at its June 5 meeting.

Still, the ECB’s Consumer Expectations Survey for April showed households in the euro area saw inflation at 3.1% over the next year, up from 2.9% in March. The reading runs counter to the central bank’s projections for further deceleration in inflation this year. 

German unemployment rises faster than forecast

The number of unemployed people in Germany rose by 34,000 in seasonally adjusted terms to 2.96 million in May, more than the 10,000 forecast by analysts in a FactSet poll and just shy of the psychologically sensitive 3 million mark. Job openings declined by 67,000 from year-ago levels to 634,000, indicating weaker demand for labor.

Business sentiment weakens in UK services sector

Business confidence in the UK services sector—the largest part of the economy—fell to a two-and-a-half-year low in the three months through May after a hike in employment tax took effect and expectations for price increases grew, according to the Confederation of British Industry. Investment intentions, business volumes, and hiring cooled as well. Separately, the Society of Motor Manufacturers and Traders said that total car and commercial vehicle production in April fell 15.8% from a year earlier to 59,203 units—the lowest for that month since 1952, excluding the decline during the coronavirus pandemic. 

Japan

Japan’s stock markets rebounded over the week, with the Nikkei 225 Index gaining 2.17% and the broader TOPIX Index up 2.41%, amid rising hopes of a trade agreement between the U.S. and Japan. Prime Minister Shigeru Ishiba and President Donald Trump reportedly held a constructive telephone call on Thursday ahead of the fourth round of talks in Washington. This, together with Trump’s backing for Nippon Steel’s bid for U.S. Steel, fueled speculation that both sides are paving the way for an accord by the time of the G7 meeting in mid-June, when both leaders plan to meet.

The yield on the 10-year Japanese government bond (JGB) fell to around 1.51% from 1.55% at the end of the previous week, although the yield remains around 2008 highs, as renewed trade tensions fueled demand for haven assets. JGB yields declined along with those of U.S. Treasuries after the reinstatement of Trump’s “reciprocal” tariffs. Stronger-than-forecast Tokyo core inflation data also boosted interest rate hike hopes. Even so, Bank of Japan (BoJ) Governor Kazuo Ueda appeared to reaffirm the central bank’s core policy stance. He noted that the recent downward revision to the inflation forecast was driven by risks to global growth posed by trade uncertainty, slowing cost-push inflation, and falling oil prices. He added that the inflation outlook would not alter the BoJ’s near-term policy, which would be adjusted as needed to achieve its 2% inflation target. The stronger inflation data and reversal of the illegal tariff ruling also pushed up the Japanese yen past JPY 144 versus the U.S. dollar.

Tokyo inflation accelerates; jobless rate holds steady; industry output falls

The core consumer price index for the Ku-area of Tokyo in Japan rose 3.6% year over year in May from an increase of 3.4% in April—the highest inflation rate in more than two years. Markets had expected an increase of 3.5%. Official data also showed the unemployment rate held at 2.5% in April, as anticipated. Meanwhile, industrial production fell 0.9% sequentially, less than the consensus forecast.

China

Mainland Chinese stock markets retreated as a light economic calendar and a pause in the U.S.-sparked trade war dampened buying sentiment. The onshore benchmark CSI 300 Index fell 1.08% and the Shanghai Composite Index shed 0.03% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index declined 1.32%.  

After the pause in the tariff war that the U.S. and China negotiated earlier in May, Beijing has stepped up efforts to help shield its economy ahead of the expiration of the 90-day negotiation window in August. China plans to allocate RMB 500 billion, or roughly USD 70 billion, of capital to invest in new infrastructure projects, Bloomberg reported, citing unnamed sources. Under the so-called new financing policy tool, China’s three state-run policy banks will raise funds and buy stakes in projects such as artificial intelligence, the digital economy, and consumption-related infrastructure. 

Separately, officials who are preparing Beijing’s next Five-Year Plan starting in 2026 are studying whether to maintain the share of manufacturing in gross domestic product at a stable level over the longer term, Bloomberg reported, citing unnamed officials. Though officials are still hashing out the next Five-Year Plan—which serves as an economic blueprint for the country—the reports suggest that Beijing plans to stick with its manufacturing-driven economic strategy, which the U.S. and Europe have criticized for fueling trade imbalances

Other Key Markets

Hungary 

Central bank holds rates steady as inflation expectations remain high

On Tuesday, May 27, the National Bank of Hungary (NBH) held its regularly scheduled policy meeting and kept its main policy rate, the base rate, at 6.50%. The NBH also held the overnight collateralized lending rate—the upper limit of an interest rate “corridor” for the base rate—at 7.50%. In addition, the central bank left the overnight deposit rate, which is the lower limit of that corridor, unchanged at 5.50%.

According to the central bank’s post-meeting statement, policymakers observed that global economic uncertainty has increased due to “rapidly changing trade policy plans.” In the U.S., they noted that higher tariffs are increasing inflation expectations; in contrast, the impact on prices in Europe “is expected to be more muted for the time being.” 

Regarding the Hungarian economy, central bank officials stated that first-quarter economic growth “stagnated” versus one year ago. While consumer confidence remained “subdued,” they expect domestic consumption “to grow further” this year. As for inflation, policymakers noted that headline inflation in April fell to 4.2%, while core inflation was measured at 5.0%. Although price expectations have generally decreased, policymakers asserted that they have “remained at high levels.”

While meeting participants believe that lower global commodity prices “point to decreasing inflation in the short term,” they cautioned that “permanent increases in tariff rates and the effect of uncertainty in international markets on risk aversion towards Hungarian assets could intensify upside risks to inflation in the medium term.” As a result, policymakers decided to maintain a restrictive monetary policy and leave short-term interest rates at current levels. They believe that moderating inflation expectations “is key to achieving” the central bank’s inflation target.

South Korea

Policymakers reduce rates amid expectations for slowing growth 

On Thursday, the Bank of Korea’s Monetary Policy Board (MPB) held its scheduled policy meeting and decided to reduce its key interest rate, the Base Rate, from 2.75% to 2.50%. Policymakers justified their decision, which was widely anticipated, by noting that the “economic growth rate is forecast to decline considerably, while the inflation rate remains broadly stable.”

Central bank officials characterized the domestic economy as continuing its “sluggish pace” in April following a first-quarter contraction; they expect domestic demand to “recover modestly, but at a slower pace,” while U.S. tariffs are expected to slow exports further. Regarding inflation, policymakers noted that both headline and core consumer price index inflation were 2.1% in April. Going forward, they anticipate that inflation will remain around 2%, as “price increases in processed food products and services” should be offset by “declining global oil prices and subdued demand pressure.”

As for possible future rate cuts, MPB officials stated that their intention is “to conduct monetary policy in such a way as to stabilize consumer price inflation…as it monitors economic growth while paying attention to financial stability.” While they indicated that the Board will “maintain its rate cut stance to mitigate downside risks to economic growth,” they also asserted that they must “remain cautious” about a possible acceleration of household debt growth “under continued accommodative monetary conditions,” as well as “heightened volatility in the foreign exchange market.”