Global markets weekly update

Most major U.S. stock indexes closed the holiday-shortened week higher, with sentiment broadly supported by news that the U.S. and Iran had signed a memorandum of understanding, clearing the path toward reopening the Strait of Hormuz and helping push oil prices lower. Of the major indexes, the Nasdaq Composite performed best, advancing 2.43%, followed by the Russell 2000 and S&P 500 Indexes, which added 1.21% and 0.93%, respectively. U.S. markets were closed on Friday in observance of the Juneteenth holiday.

The Federal Reserve left the federal funds rate target range unchanged at 3.50% to 3.75% on Wednesday, as widely expected. However, the central bank’s updated Summary of Economic Projections and Chair Kevin Warsh’s first post-meeting press conference were largely interpreted as leaning hawkish, triggering a sell-off in stocks and a rise in short-term Treasury yields on Wednesday afternoon.

The updated projections showed the median policymaker expecting modest tightening by year-end, a notable shift from the March projections, which had pointed to rate cuts. Nine of 18 officials penciled in at least one rate hike in 2026, while only one projected a cut. Policymakers also raised their inflation forecasts, with headline personal consumption expenditures (PCE) inflation now expected to reach 3.6% in 2026 and core PCE inflation projected at 3.3%. Warsh did not submit projections.

The Fed’s statement was meaningfully shorter than in recent meetings and offered little forward guidance. During his press conference, Warsh said forward guidance is no longer well suited to the current policy environment and reiterated the Fed’s commitment to price stability.

On Wednesday, the Census Bureau reported that U.S. retail sales increased 0.9% in May, ahead of expectations for a roughly 0.6% gain and up from April’s revised 0.4% increase. Excluding autos, sales rose 0.8%, while control group sales—which feed into gross domestic product calculations—advanced 0.7%, also topping expectations. The month-over-month increase was broad-based, with declines seen only at electronic and appliance stores and restaurants.

Housing-related data were more mixed but continued to point to pressure from affordability constraints and elevated financing costs. The National Association of Home Builders reported that its housing market index unexpectedly declined two points to 35 in June amid rising material costs, elevated mortgage rates, and ongoing affordability challenges. Data from the Census Bureau also showed that housing starts dropped 15.4% to a seasonally adjusted annual rate of 1.177 million in May, well below estimates for around 1.445 million. However, pending home sales offered a brighter signal, rising 4.8% year over year, the fastest annual pace since November 2024.

U.S. Treasuries generated negative returns through much of the week, with short-term yields rising sharply following Wednesday’s Fed meeting and the yield on the two-year U.S. Treasury note hitting its highest level in over a year. (Bond prices and yields move in opposite directions.) Investment-grade corporate bonds also generated negative returns, modestly underperforming Treasuries, while high yield bonds outperformed amid the week’s broader risk-on sentiment.

Over the four days ended Thursday, June 18, the pan-European STOXX Europe 600 Index finished up 0.62% in local currency terms. European investors were generally encouraged by the news that the U.S. and Iran had reached an agreement and signed a memorandum of understanding. Macroeconomic data were mixed. Among major stock indexes, Germany’s DAX closed 1.59% higher, and France’s CAC 40 Index rose 1.40%, while Italy’s FTSE MIB gained 2.31%. The UK’s FTSE 100 Index bucked the upward trend, slipping 0.69%.

Data released on Monday showed that the eurozone swung to a EUR 1 billion trade deficit in April in contrast to the trade surplus of EUR 7.8 billion that had been expected. This was attributed primarily to a growing energy trade deficit and a smaller surplus in the machinery and vehicles category.

German wholesale prices rose 5.9% year over year in May, down from the 6.3% rate recorded in April. The greatest increases were in petroleum products as well as nonferrous ores, metals, and related semi-finished products. The prices of several food items, including coffee, tea, and milk, fell.

The ZEW Indicator of Economic Sentiment rose sharply in June 2026 to its first positive reading since the start of the war in the Middle East.

As expected, the Bank of England kept its base rate steady at 3.75% at the meeting of its Monetary Policy Committee on Thursday. The central bank acknowledged that it was “hard to predict” what will happen to prices as a result of the Iran war. Annual inflation in the UK was unchanged at 2.8% in May versus the previous month and remains at its lowest level since March 2025. Inflation slowed in housing and household services while transport inflation (which reflects higher fuel prices and air fares) accelerated.

Elsewhere on the monetary policy front, the Swiss National Bank left its key rate at 0%, with little shift in its forecasts for growth and inflation. Norges Bank also kept its policy rate unchanged at 4.25% but signaled a future hike is likely, as inflation in Norway remains too high.

Japan’s stock markets surged in the week through Thursday, June 18, with the Nikkei 225 Index gaining 7.62% and the broader TOPIX Index up 4.80%. The Nikkei extended all-time highs, with semiconductor equipment and technology stocks among the strongest contributors as investors continued to favor beneficiaries of global artificial intelligence-related capital spending. In geopolitical developments, President Donald Trump signed an agreement with Iran that paves the way for the reopening of the Strait of Hormuz, a move welcomed by Japanese Prime Minister Sanae Takaichi, who described it as a major step toward bringing the situation to a close and expressed hope that free and secure navigation through the vital shipping route will be effectively secured.

On the monetary policy front, in a widely expected move, the Bank of Japan (BoJ) raised its short-term policy rate by 25 basis points to 1%, taking the cost of borrowing to its highest level since 1995. The move seeks to address inflation risks linked to the war in the Middle East as well as persistent yen weakness. The central bank also announced that it would reduce its monthly purchases of Japanese government bonds (JGBs), continuing its gradual move away from ultra-accommodative monetary policy.

With BoJ Governor Kazuo Ueda absent from the meeting due to a recent hospitalization, the post-meeting press conference was presented by Deputy Governor Shinichi Uchida. His remarks were perceived as relatively hawkish, highlighting the risk that underlying inflation could exceed the BoJ's 2% target and reinforcing expectations that the bank will continue to normalize monetary policy through further rate increases.

As investors assessed the implications of the BoJ’s decision amid ongoing geopolitical developments in the Middle East, the yield on the 10-year JGB fell to 2.61% from 2.63% at the end of the previous week. The yen weakened to around JPY 160.8 against the U.S. dollar, from JPY 160.2 at the end of the prior week, heightening speculation that authorities could once again intervene in the foreign exchange markets to prop up the Japanese currency. The government said that it is ready to respond appropriately to currency moves as needed at any time.

Among the week’s economic releases, trade data showed Japan’s customs exports rose 17.0% year over year in May, ahead of estimates for 16.2% and 14.8% in April. The main drivers were technology components, autos, and nonferrous metals. Import growth also picked up and was broadly in line with consensus estimates. A separate release indicated that core machinery orders rebounded 8.7% month over month in April, exceeding the consensus of 0.9% and following a decline of 9.4% in the prior month, with the recovery broad-based across the manufacturing and nonmanufacturing segments.

China equities were mixed during the holiday-shortened week as investors weighed resilient industrial activity against continued weakness in domestic demand and the property sector. Mainland China and Hong Kong markets were closed on Friday for the Dragon Boat Festival. Through Thursday, the onshore benchmark CSI 300 Index rose 3.44% while the Shanghai Composite Index advanced 1.46% in local currency terms, according to FactSet. By contrast, the Hang Seng Index fell 3.21%, suggesting weaker offshore sentiment toward China-related assets. Sentiment may also have been supported by lower oil prices after reports of a U.S.-Iran agreement eased concerns about Middle East supply disruptions and energy-related inflation pressures.

China’s May activity data suggested continued resilience in industrial and export-oriented sectors but ongoing weakness in domestic demand. Industrial production rose 4.5% year over year in May, supported by manufacturing activity and external demand, while retail sales fell 0.6%, marking the first year-over-year decline since late 2022. Fixed asset investment contracted 4.1% in the January-to-May period compared with a 1.6% decline in the first four months of the year. Meanwhile, the surveyed urban unemployment rate edged down to 5.1% in May from 5.2% in April. Taken together, the data suggest that export-linked sectors are still helping to support growth but that momentum has not yet translated into a broader recovery in consumption or private sector investment.

China’s property sector continued to weigh on economic activity, with property investment falling 16.2% year over year in the first five months of 2026. National home prices remained under pressure in May, with new-home prices declining at a faster pace than in April and weakness still evident across many cities. However, conditions continued to diverge across regions, pointing to a property recovery that remains uneven rather than broad-based. New-home prices in China’s first-tier cities rose for the third consecutive month, suggesting that policy support measures may be gaining some traction in the country’s largest housing markets.

Meanwhile, People’s Bank of China (PBOC) Governor Pan Gongsheng announced a series of financial sector measures, including steps to increase the use of overnight reverse repo operations, narrow the short-term interest rate corridor, and support the offshore use of the renminbi. Authorities also introduced initiatives aimed at facilitating cross-border financial services and strengthening Shanghai’s role in yuan-denominated asset allocation and risk management.

The announcements appear to be part of a broader effort to strengthen China’s financial market infrastructure, improve monetary policy transmission, and support the renminbi’s internationalization. However, the measures did not appear to represent a major broad-based monetary stimulus package. For investors, the package may underscore policymakers’ continued focus on financial market development and liquidity management rather than signaling a more aggressive easing cycle at this stage.

Brazil’s central bank cut its benchmark Selic rate by 25 basis points (0.25 percentage points) to 14.25%, marking a third straight rate reduction, but the decision came with a more cautious message. Policymakers said that the cut was appropriate “at this moment,” while leaving the total size of the easing cycle dependent on incoming data. The statement acknowledged that both economic activity and inflation have accelerated, and it added concern that stimulus measures could further support demand and add to price pressures.

Markets reacted cautiously, suggesting investors were uneasy with the central bank’s case for additional easing while inflation remains above target. May inflation had already surprised to the upside, reaching 4.72% year over year, and the central bank raised its fourth-quarter 2027 inflation estimate to 3.7% from 3.5%. At the same time, fiscal and quasi-fiscal stimulus, including debt renegotiation programs and subsidized credit, continues to support growth but complicates the inflation outlook.

Bank Indonesia (BI) raised its key interest rate by 25 basis points to 5.75% at its June policy meeting, its third increase in about a month, following a surprise June 9 hike and a larger-than-expected 50-basis-point increase in May. The move brought total tightening this year to 100 basis points and underscored BI’s effort to stabilize the rupiah, prevent currency weakness from feeding into inflation, and attract foreign portfolio inflows. Governor Perry Warjiyo said the bank would continue to go “all out” to support the currency, using a mix of tools including foreign-exchange intervention, attractive rupiah securities yields, lower hedging costs for foreign investors, repo windows to preserve liquidity, and tighter rules on foreign currency transactions.

The backdrop remained fragile despite some recovery in the rupiah from recent lows. Indonesia’s inflation is still expected to stay within BI’s 1.5% to 3.5% target this year and next, but higher food and energy costs, El Niño risks, and the lagged impact of rupiah weakness on imports could add pressure; meanwhile, firmly positive real rates give BI some policy space.