Global markets weekly update

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.

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.

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%.

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.

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%.

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.

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%.

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.

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’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.

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.

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%.

China equities were mixed during the week as stronger-than-expected trade data contrasted with continued signs of subdued consumer demand. The onshore benchmark CSI 300 Index fell 0.82% while the Shanghai Composite Index rose 0.09% in local currency terms, according to FactSet. In Hong Kong, the Hang Seng Index declined 0.98%, underperforming mainland markets amid weaker offshore risk sentiment and ongoing geopolitical uncertainties.

China’s exports rose 19.4% year over year in May, exceeding market expectations and accelerating from 14.1% growth in April. Imports increased 27.4% year over year, 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 remained a major driver of 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% year over year 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% year over year, unchanged from April.

The widening gap between producer and consumer inflation suggests 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 U.S. Department of Defense expanded its list of Chinese companies that 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 U.S. defense 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 U.S.-China strategic competition into sectors viewed as critical to China’s long-term technology ambitions, including AI, semiconductors, electric vehicles, robotics, and biotechnology.

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 centralized 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 25 basis points (0.25 percentage points) to 5.5% to help stabilize the currency and attract foreign portfolio inflows. Authorities also signaled 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 stabilization 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 stabilization program following earlier energy-related disruptions. May headline CPI slowed to 2.1% month over month, 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 labor-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 fed into tighter spreads and stronger performance. The upgrade by S&P Global Ratings to B- with a stable outlook further supported sentiment, signaling incremental progress in sovereign creditworthiness. Beyond near-term price action, secondary developments—including potential privatization of state-run freight operator Belgrano Cargas and a more favorable 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.