Global Markets Weekly Update

U.S.

Major U.S. stock indexes ended the volatile week higher as cautious optimism around a possible U.S.-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. Small-cap equities led the advance, with the Russell 2000 Index rising 3.9%, while the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all added over 0.65%. The Russell 1000 Value Index outpaced its growth counterpart for the second week in a row. 

Middle East developments remained a major driver of sentiment throughout the week, with investors initially looking past weekend missile exchanges between Iran and Israel before reports of additional U.S.-Iran hostilities raised escalation concerns. Risk appetite improved late in the week, however, following reports of progress toward a U.S.-Iran agreement and President Donald Trump’s cancellation of planned strikes. 

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.

Headline inflation lifted by surging energy prices

Consumer prices rose at the fastest annual rate in over three years in May, according to data from the Bureau of Labor Statistics. The agency reported that its consumer price index (CPI) increased 4.2% year over year, the highest reading since April 2023, driven by a sharp rise in energy prices. However, the CPI rose 0.5% on a month-over-month basis, down from April’s 0.6% increase and marking the second consecutive month of decelerating price growth. Core CPI—which excludes food and energy costs—also moderated, rising 0.2% compared with 0.4% in April. 

Meanwhile, headline producer price growth accelerated in May, with the producer price index (PPI) rising 6.5% year over year, up from 5.7% in April and the highest reading since November 2022. On a month-over-month basis, the PPI rose 1.1%, above estimates for around a 0.7% increase, with the goods component lifted by a 10.7% rise in energy prices. Core PPI rose 0.4%, down from a 0.7% increase in April.

Jobless claims rise; consumer sentiment sees modest improvement

In labor market news, initial claims for unemployment benefits for the week ended June 6 came in at 229,000, up from 225,000 in the prior week and the highest since early February. Initial claims have now increased for three consecutive weeks. Continuing claims rose to 1.795 million, an increase of 24,000 from the prior week’s revised level. 

Elsewhere, the University of Michigan reported that its Index of Consumer Sentiment rose to 48.9 in June, a 4.1-point improvement from May that was partially driven by easing gas prices early in the month. The report noted that consumers’ views on personal finances and business conditions improved, but that overall, “views of the economy are still relatively dour,” largely due to inflation worries. Consumers’ expectations for inflation in the year ahead declined modestly but remained elevated at 4.6%.

Treasury yields slide amid Middle East de-escalation hopes 

U.S. Treasuries generated positive returns, with yields declining across most maturities, particularly on Thursday as reports that the U.S. had canceled planned strikes on Iran led to a broader improvement in sentiment. (Bond prices and yields move in opposite directions.) After ending the prior week at 4.52%, the yield on the benchmark 10-year U.S. Treasury note had dropped to about 4.48% by Friday afternoon.

Europe

The pan-European STOXX Europe 600 Index ended the week up 1.69% in local currency terms. European markets were mixed ahead of the European Central Bank’s (ECB) interest rate decision on Thursday, and geopolitical tensions continued to weigh as the U.S. and Iran conducted military strikes. Sentiment improved at the end of the week on rising hopes that a peace agreement would be reached. Among major stock indexes, Germany’s DAX closed 0.50% lower, France’s CAC 40 Index rose 1.61%, and Italy’s FTSE MIB gained 3.22%. The UK’s FTSE 100 Index climbed 1.00%. 

ECB hikes interest rates for first time since 2023

As widely expected, the 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 and 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.

Industrial output in Germany rises

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

Inflation hits 3.5% in the Netherlands

Consumer prices rose by 3.5% year over year 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.

UK GDP contracts in April

GDP in the UK declined by 0.1% month over month in April, following growth of 0.3% in March. Services was 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 June 18. The UK’s trade deficit declined in April to GBP 8.44 billion, led by higher goods exports.

Japan

Japan’s stock markets declined over a highly volatile week, with the Nikkei 225 index falling 0.85% and the broader TOPIX Index down 1.70%. The losses were partly offset by a sharp rally on the final day of the week, as U.S. President Donald Trump pulled back threatened military strikes against Iran and invigorated hopes that the U.S. 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 U.S. dollar, although it benefited temporarily from the greenback’s sharp retreat on Trump’s comments that a peace deal could be signed within days.

Investors brace for upcoming BoJ meeting; bank widely expected to raise policy interest rate

On the domestic monetary policy front, with investors bracing for the Bank of Japan’s (BoJ) June 15 to 16 meeting, the yield on the 10-year Japanese government bond fell to 2.63% from 2.66% at the end of the previous week. The BoJ is widely expected to raise the policy interest rate by 25 basis points to 1%, which would be the first increase since December 2025, as policymakers seek to contend with mounting inflationary pressures stoked by the war in the Middle East and persistent yen weakness. News that BoJ Governor Kazuo Ueda had been hospitalized and will miss the upcoming monetary policy meeting had 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. 

Producer prices strengthen rapidly; GDP revised down but still ahead of expectations

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% year over year 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% year over year 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 annualized rate of 1.8% versus a preliminary estimate of 2.1%. Growth over the three months was still ahead of expectations of 1.3%.

Yen weakness persists despite recent currency interventions

The yen weakened to around JPY 160 against the U.S. dollar from JPY 159.2 at the end of the previous week, falling to the closely watched level where authorities have previously intervened. This prompted fresh verbal warnings from authorities, with Finance Minister Satsuki Katayama warning of decisive action to defend the yen, using the same rhetoric that preceded Japanese authorities’ most recent interventions to support the country’s currency. Ministry of Finance data confirmed that foreign exchange interventions totaling JPY 11.735 trillion (USD 73.6 billion) were conducted between April 28 and May 27.

China

China equities ended the week lower as investors weighed signs of uneven economic recovery amid continued resilience in parts of the private and technology sectors. The CSI 300 Index fell 1.54%, while the Shanghai Composite Index declined 1.00% in local currency terms, according to FactSet. Hong Kong equities also weakened, with the Hang Seng Index falling 0.88%, although technology-related gains helped limit losses. Investor attention centered on May PMI data, which highlighted an uneven recovery, while developments in China's AI sector provided a bright spot for technology sentiment.

May PMI surveys point to uneven economic momentum 

On the economic front, China's official manufacturing PMI eased to 50.0 in May from 50.3 in April, indicating that factory activity lost momentum and remained at the threshold between expansion and contraction. However, the softer official survey contrasted with the private sector RatingDog China General Manufacturing PMI, compiled by S&P Global, which remained in expansion territory at 51.8, highlighting greater resilience among smaller and privately owned firms. The divergence may reflect differences in the composition of the two surveys, with the official PMI more heavily weighted toward larger and state-owned enterprises, while the RatingDog survey captures a greater share of smaller private sector companies. For investors, the mixed readings supported the view that policymakers could continue to rely on targeted measures to support domestic demand rather than broad-based stimulus.

Tencent and DeepSeek underscore AI commercialization trend

Meanwhile, investors also remained focused on China's AI sector as companies increasingly shift from model development toward commercial deployment. Tencent Holdings is testing an embedded AI agent for WeChat, China's largest social media and payments platform, and could begin the regulatory approval process as early as this month, according to the Financial Times. Tencent's Hong Kong-listed shares rose following the news. Separately, media reports indicated that China’s popular AI startup DeepSeek is exploring a potential fundraising round that could value the company at roughly USD 52 billion, although neither the company nor prospective investors have publicly confirmed any fundraising plans. The developments added to positive AI-related news flow and highlighted the growing focus on commercialization.

Other key markets

Colombia

Colombia rally reflects improved sentiment ahead of presidential runoff

Colombian markets rallied this week after the first round of the presidential election delivered a stronger-than-expected result for right-wing candidate Abelardo de la Espriella. He finished ahead of left-wing candidate Iván Cepeda, and the two will face each other in a June 21 runoff. Markets appeared to view the result as increasing the likelihood of a more market-friendly policy direction, including greater fiscal discipline and a less confrontational stance toward the private sector.

However, the outcome remains uncertain. Cepeda still received a large share of the vote, and the runoff is expected to be competitive. As a result, markets could remain sensitive to polling, endorsements, turnout expectations, and the candidates’ economic proposals, according to T. Rowe Price Sovereign Analyst Christopher Mejia.

The market reaction was broad-based: Equities rose, the peso strengthened against the U.S. dollar, and local government bonds gained as yields fell. Colombia also benefited from higher oil prices, which can support government revenues because oil is a key export and source of tax and royalty income. However, the fiscal benefit will depend on production levels and spending discipline.

Indonesia

Rupiah pressure and policy uncertainty drive Indonesia market sell-off

Indonesia was one of the weaker markets in Asia this week, as investors focused on a combination of currency pressure, higher oil prices, and rising uncertainty around economic policy. Higher oil prices raised concerns about inflation, subsidy costs, and pressure on the country’s external balances. At the same time, investors were assessing recent policy changes, including revisions to the financial-sector law that broadened Bank Indonesia’s mandate to include support for economic growth and give parliament a larger oversight role.

Indonesian equities fell over the week, including a sharp decline on Wednesday following fresh U.S.-Iran military exchanges, and ended the week at a four-year low. The rupiah also weakened to record lows, increasing concerns about the cost of imports and energy, which can affect inflation, company margins, and the ability of borrowers to manage U.S. dollar-denominated debt. Market pricing suggested investors were waiting for clearer evidence of currency stability, fiscal discipline, and policy consistency before taking a more constructive view on Indonesian assets.