Investor sentiment was shaped by Middle East developments, particularly President Trump’s suggestion of potential talks with Iran, which briefly boosted markets. The Nasdaq posted gains, while the Dow remained flat, and the S&P 500 edged slightly lower. The Juneteenth holiday shortened the trading week. Meanwhile, the Federal Reserve (Fed) kept interest rates unchanged for the fourth consecutive meeting, acknowledging lingering uncertainty but maintaining a positive view of the economy. The Fed’s projections indicated two rate cuts later this year, while inflation and unemployment forecasts rose.
US economic data for the week was mostly disappointing. Retail sales declined 0.9% in May, driven by falling auto sales, although the control group component rebounded modestly. Housing indicators also weakened, the National Association of Home Builders Housing Market Index dropped to 32, its lowest since 2022, reflecting negative builder sentiment amid high mortgage rates and economic uncertainty. New home construction plummeted nearly 10% to its lowest level since 2020. US Treasury yields fell, boosting bond prices as investors sought safety amid geopolitical risks. Investment-grade corporate bonds performed well, while high-yield bond sentiment was more cautious due to macroeconomic volatility and market uncertainty ahead of the holiday.
European markets fell over the week, with the European STOXX 600 Index down 1.5% amid Middle East tensions and cautious central bank signals. The Bank of England held rates at 4.25%, with inflation easing slightly and services inflation aligning with forecasts. The Swiss and Norwegian central banks both cut rates as inflation pressures eased. German investor sentiment surged on the back of a new tax relief package, while French manufacturing confidence weakened further, with flat output expected. The eurozone’s current account surplus dropped sharply in April, reflecting a slowdown after a March surge driven by pre-tariff purchases from the US.
Japanese stocks rose over the week, with the Nikkei 225 gaining 1.5%, as markets focused on the Bank of Japan’s (BOJ) decision to keep rates steady at 0.5% and signal a cautious tapering of bond purchases starting in 2026. The yen weakened, and 10-year government bond yields edged higher. Investors speculated the BOJ might raise rates again this year. Meanwhile, Japan and the US failed to reach a tariff deal at the G7 summit, raising risks for Japan’s auto sector. In China, markets declined as mixed data dampened sentiment; retail sales surged, but industrial output and investment lagged, and property prices continued to fall.