Early in the week US President Trump announced that he had brokered a truce between Israel and Iran, halting over a week of conflict. It wasn’t long before the deal was broken, drawing sharp criticism from Trump, however after this it appeared that the fragile ceasefire agreement remained in place, helping to lift market sentiment. One asset that did not benefit from the ceasefire was oil, with Brent crude down 12.1% for the week. While prices tried to stabilise on Friday following a report that OPEC+ was planning to increase production in August, this was not enough to offset earlier losses.
Wall Street ended higher, with the S&P 500 adding 3.4% for the week, the Dow Jones Industrial Average was up 3.8% and the tech-heavy Nasdaq Composite rose 4.3%. On Friday the S&P 500 and Nasdaq both managed to hit fresh all-time highs, also helped by trade deal hopes. The personal consumption expenditures price index rose 2.3% year-on-year in May, up from 2.1% in the prior month, in line with expectations. While the Federal Reserve is not expected to cut rates in July, there were some dovish comments from policymakers during the week with markets currently expecting a cut in September. The yield on the 10-year Treasury note dropped, also weighed down by softer-than-expected data.
European markets notched weekly gains, buoyed by the Israel-Iran ceasefire as well as a cooling of trade tensions. The STOXX 600 index gained 1.3% overall, snapping two weeks of losses, with Germany’s DAX adding 2.9% and France’s CAC 40 up 1.3%. Defence names managed to find support from NATO countries pledging to spend 3.5% of GDP on core defence and 1.5% on broader defence-related measures. Automakers rallied on Friday on the improved trade backdrop, while one notable decliner was the energy sector amid the oil price declines.
While the US and EU are yet to agree upon a trade deal, markets welcomed the US and China finalising the trade truce that they had set out in Geneva back in May. As part of this, the sides had reached an agreement over how to expedite rare earth shipments to the US. For the week the Shanghai Composite advanced 1.9% while the Hong Kong Hang Seng rallied 3.2%. Japanese markets also exhibited strength over the week, with the Nikkei 225 rising 4.6% while the yen strengthened against the US dollar. The latest Tokyo inflation reading cooled more than expected in June, although with it remaining above the central bank’s target, this will likely add to the case for interest rate hikes.