Weekly Market Recap

GDP in the UK declined by 0.1% MoM in April, following growth of 0.3% in March. Services were a major contributing factor to the contraction, while the information and communication sector remained in expansionary territory. The data have raised expectations that the Bank of England will keep interest rates on hold when it meets on 18 June. The UK’s trade deficit declined in April to GBP 8.44 billion, led by higher goods exports.

As widely expected, the European Central Bank (ECB) raised three of its key interest rates on Thursday, the first hike since September 2023. It noted that the outlook remains “uncertain,” with upside risks for inflation and downside risks for economic growth. What remains unknown is the intensity and duration of the energy price shock, as well as the scale of its indirect effects. The central bank also updated its inflation forecasts; it now expects headline inflation in the eurozone to average 3.0% in 2026, 2.3% in 2027, and 2.0% in 2028. It also revised downward its forecasts for gross domestic product (GDP) growth to 0.8% in 2026 and 1.2% in 2027.

German industrial production was up 0.4% MoM in April. This was in line with expectations and an improvement on the 0.1% decline registered in March. Construction, chemicals, and fabricated metal activity were particularly strong, while the automotive industry saw a 4.7% fall in production.

Consumer prices in the Netherlands rose by 3.5% YoY in May, according to data released this week by Statistics Netherlands. This was higher than the wider eurozone rate of 3.2% and up significantly from the 2.8% recorded in April; the May figure reflected a sharp increase in air travel prices.

Turning to France, the annual inflation rate rose to 2.4% in May, in line with expectations and higher than April’s figure of 2.2%. Elevated energy prices helped inflation reach its highest level since February 2024.

China’s exports rose 19.4% YoY in May, exceeding market expectations and accelerating from 14.1% growth in April. Imports increased 27.4% YoY, while the trade surplus widened to USD 105.4 billion from USD 84.8 billion in April, according to data released by the General Administration of Customs. Strong overseas demand for semiconductors, electric vehicles, computing equipment, and other AI-related products continued to drive export growth, reinforcing the view that exports remain a key pillar of the economy amid a still-fragile domestic recovery. Export growth was further supported by the global AI investment cycle, with semiconductor exports rising more than 100% from a year earlier.

While trade data pointed to resilient external demand, inflation data highlighted the uneven nature of China's recovery. China’s PPI, a measure of factory-gate prices, rose 3.9% YoY in May, accelerating from 2.8% growth in April and marking the third consecutive month of producer price increases. The PPI rise in May was the highest since July 2022. By contrast, consumer price inflation remained considerably weaker, with the CPI rising 1.2% YoY, unchanged from April.

The widening gap between producer and consumer inflation suggests that upstream, and export-oriented industries are benefiting from stronger industrial demand and higher commodity prices, while household demand remains comparatively subdued.

Beyond economic data, the US Department of Defense expanded its list of Chinese companies it says have ties to China’s military, adding several high-profile firms, including Alibaba Group, Baidu, BYD, WuXi AppTec, Unitree Robotics, Yangtze Memory Technologies, and ChangXin Memory Technologies. While the designation does not impose broad sanctions, it restricts US defence procurement involving the named companies and may increase regulatory and reputational scrutiny.

Several companies, including Alibaba, Baidu, and WuXi AppTec, disputed the designation. For investors, the move underscored the continued expansion of US-China strategic competition into sectors viewed as critical to China’s long-term technology ambitions, including AI, semiconductors, electric vehicles, robotics, and biotechnology.

On the domestic monetary policy front, with investors bracing for the Bank of Japan’s (BoJ) 15 to 16 June meeting, the yield on the 10-year Japanese government bond fell to 2.62% from 2.66% at the end of the previous week. The BoJ is widely expected to raise the policy interest rate by 25bps to 1%, marking the first increase since December 2025, as policymakers seek to contend with mounting inflationary pressures fuelled by the war in the Middle East and persistent yen weakness. News that BoJ Governor Kazuo Ueda had been hospitalised and would miss the upcoming monetary policy meeting had a limited impact on investors’ conviction that the central bank would raise rates. Deputy Governor Ryozo Himino will act as chair, and Deputy Governor Shinichi Uchida will host the closely watched post-meeting press conference.

Among the week’s economic releases, the latest data showed a rapid strengthening in producer prices. Japan’s corporate goods price index rose 6.3% YoY in May, ahead of consensus expectations of a 5.6% increase and April’s revised 5.3%. The petroleum and coal products, utilities, chemicals, and nonferrous metals segments led the gains. Import prices surged 25.5% YoY in yen terms, up from a revised 21.0% in the prior month, largely due to the impact of the war in the Middle East. Export prices also ticked up strongly.

In a separate release, Japan’s first-quarter GDP growth was revised down, with the economy expanding at an annualised rate of 1.8%, down from a preliminary estimate of 2.1%. Growth over the three months was still ahead of expectations of 1.3%.

Australian consumer sentiment decreased 2.9% MoM in June to 80.6, around 20% below its historical average. Perceptions of family finances and sub-components, as well as long-term economic conditions, deteriorated during the month. This is the third consecutive month of very weak sentiment as surveyed. Business conditions remained steady at +3 in May, slightly below their long-run average.

Canada entered a technical recession after GDP contracted for a second consecutive quarter, though Prime Minister Mark Carney cautioned that data would remain "uneven" during the economy's broader transformation, and Bank of Canada Senior Deputy Governor Carolyn Rogers warned against reading too much into the technical definition. The May Services PMI rose to 50.6 and the Composite PMI to 50.8, both the highest since November 2024, signalling a tentative return to expansion. May employment data released delivered a major upside surprise—87,800 jobs were added versus a consensus estimate of 10,000, pushing the unemployment rate down to 6.6% from 6.9%—triggering a sell-off in Canadian government bonds.

Last week, the MSCI All Country World Index (MSCI ACWI) gained 0.6% (10.6% YTD).

The S&P 500 Index finished a volatile week 0.7% higher (9.1% YTD) as cautious optimism around a possible US-Iran agreement, declining oil prices, and continued broadening beyond large-cap technology shares helped offset mixed inflation data and volatility in artificial intelligence (AI)-related stocks.

Large-cap growth stocks underperformed their value counterparts for the second week in a row, while small caps outperformed large caps. The Russell 1000 Growth Index returned -0.8% (3.0% YTD), the Russell Value Index 2.5% (15.7% YTD) and the Russell 2000 Index 3.9% (19.3% YTD). The technology-heavy Nasdaq Composite added 0.7% (11.7% YTD). The highly anticipated initial public offering (IPO) of rocket and satellite company SpaceX was also a major focus during the week, with the company completing the largest IPO on record on Friday.

In Europe, the MSCI Europe ex-UK Index ended the week with a 1.9% gain (8.9% YTD). European markets were mixed ahead of the ECB’s interest rate decision on Thursday, and geopolitical tensions continued to weigh as the US and Iran conducted military strikes. Sentiment improved at the end of the week on rising hopes that a peace agreement would be reached. Most major stock indices advanced. Germany’s DAX Index lost -0.5% (0.6% YTD), France’s CAC 40 Index climbed 1.7% (5.0% YTD), and Italy’s FTSE MIB Index jumped 3.2% (17.5% YTD). Switzerland’s SMI increased by 2.4% (6.4% YTD). The euro strengthened against the US dollar, closing the week at USD 1.16 for EUR, up from 1.15.

The FTSE 100 Index in the UK rose 1.0% (7.2% YTD), while the FTSE 250 Index was up 1.2% (5.5% YTD). The British pound appreciated against the US dollar, closing at USD 1.34 for GBP, up from 1.33.

Japan’s stock markets declined over a highly volatile week. The TOPIX Index retreated -1.7% (15.1% YTD), and the TOPIX Small Index declined -1.6% (12.3% YTD). The losses were partly offset by a sharp rally on the final day of the week, as US President Donald Trump pulled back threatened military strikes against Iran and invigorated hopes that the US and Iran could be closer to signing a peace deal, which could pave the way for shipping in the Strait of Hormuz to restart. Against this backdrop, the yen was broadly range-bound at around JPY 160 against the US dollar, although it benefited temporarily from the greenback’s sharp retreat on Trump’s comments that a peace deal could be signed within days.

In Australia, the S&P/ASX 200 Index rallied 2.1% (3.0% YTD) as President Trump claimed a possible peace deal with Iran in the coming days. Australian government bond yields moved notably lower after the news, with the curve modestly steepening. The Australian dollar weakened against the US dollar by 0.2%.

In Canada, the S&P/TSX Composite was up 1.6% (11.3% YTD).

The MSCI Emerging Markets Index was little changed (23.3% YTD). The Indian and Brazilian markets contributed positively, while the Chinese, Taiwanese and South Korean markets contributed negatively.

China equities were mixed during the week as stronger-than-expected trade data contrasted with continued signs of subdued consumer demand. The onshore CSI 300 Index, the main onshore benchmark, lost -0.6% (3.9% YTD), while the Shanghai Composite Index moved 0.2% higher (2.2% YTD). Hong Kong's benchmark Hang Seng Index declined by -0.7% (-2.1% YTD), underperforming mainland markets amid weaker offshore risk sentiment and ongoing geopolitical uncertainties. The MSCI China Index, which primarily comprises offshore-listed stocks, lost -0.7% (-8.2% YTD).

Elsewhere, Indonesia faced a volatile week as policy uncertainty and external pressure weighed on local assets. Investor sentiment remained cautious amid concerns about a more interventionist economic agenda, including plans for a centralised commodity export framework. While the government later clarified that the new export agency would focus on price monitoring rather than direct trading, uncertainty around implementation continued to weigh on confidence. At the same time, the rupiah remained under pressure after weakening to record lows earlier in the month, reflecting capital outflows, a narrower trade surplus, and higher energy import costs linked to the Middle East conflict.

In response, Bank Indonesia delivered an unexpected off-cycle rate hike, raising its policy rate by 25bps to 5.5% to help stabilise the currency and attract foreign portfolio inflows. Authorities also signalled a willingness to tolerate higher bond yields and take further steps to support local assets, underscoring the priority placed on currency stability. Market reaction was mixed: Bonds sold off as yields rose, equities remained volatile amid foreign outflows and policy concerns, and the rupiah saw only limited stabilisation despite the rate hike. However, short-term relief rallies in equities suggested that some investors welcomed the policy response, even as broader confidence remained fragile.

Argentina’s macro backdrop improved over the period as inflation surprised to the downside, reinforcing confidence in President Javier Milei’s stabilisation program following earlier energy-related disruptions. May headline CPI slowed to 2.1% MoM, below expectations, while core inflation decelerated to 1.9%, the lowest monthly inflation reading in eight months and a positive signal after a prior reacceleration in prices. Despite this progress, annual inflation remains elevated at 33.2%, and domestic conditions continue to reflect weak real wage dynamics, layoffs, and softness in labour-intensive sectors. Still, the disinflation trend has strengthened expectations that inflation could slow meaningfully into year-end, even if base effects and administered price adjustments remain an offset.

Markets responded constructively, particularly in hard-currency sovereign credit, as improved inflation data and a more supportive macro narrative led to tighter spreads and stronger performance. The upgrade by S&P Global Ratings to B- with a stable outlook further supported sentiment, signalling incremental progress in sovereign creditworthiness. Beyond near-term price action, secondary developments—including potential privatisation of state-run freight operator Belgrano Cargas and a more favourable agricultural outlook tied to evolving weather patterns—reinforced a gradually improving medium-term story, although risks tied to inflation persistence and domestic economic weakness remain relevant.

Last week, the Bloomberg Global Aggregate Index (hedged to USD) returned 0.4% (0.7% YTD), the Bloomberg Global High Yield Index (hedged to USD) 0.5% (2.5% YTD), and the Bloomberg Emerging Markets Hard Currency Aggregate Index 0.5% (1.5% YTD).

US Treasuries generated positive returns, with yields declining across most maturities, particularly on Thursday, as reports that the US had cancelled planned strikes on Iran led to a broader improvement in sentiment. Over the week, the 10-year Treasury yield decreased by -5bps to 4.48% from 4.53% (up 31bps YTD). The 2-year Treasury yield declined by -7bps, ending the week at 4.08% from 4.15% (up 61bps YTD).

Over the week, the 10-year German Bund yield decreased by -5bps, ending at 2.99% from 3.04% (up 14bps YTD). The 10-year UK gilt yield declined by -6bps, ending the week at 4.84% from 4.90% (up 36bps YTD).