There had been some caution amid an ongoing exchange of strikes between the US and Iran, with President Trump threatening further attacks should no peace deal be secured. However no sooner did tensions appear to be escalating than Trump decided to cancel planned strikes against Iran. He also indicated that a peace deal would be coming soon, enabling the Strait of Hormuz to reopen, and prompting a rally in equity markets. Another major event of the week was SpaceX’s market debut on Friday. Its shares closed up 19%, giving it a market capitalisation of around $2.1tn following on from its record $75bn initial public offering.
For the week the major equity indices logged modest gains. The S&P 500 added 0.6%, the Dow Jones Industrial Average rose 0.7% and the Nasdaq Composite was also up 0.7%. Meanwhile small caps outperformed with the Russell 2000 adding 3.9% to end the week at a record high. On the economic data front, both the consumer and producer price indexes saw annualised upticks, pressuring stocks. The Federal Reserve will meet this week and is expected to remain on hold, but investors will likely pay close attention to the communication from new Fed Chair Kevin Warsh. Treasury yields declined on the signs of Middle East de-escalation hopes. The 10-year note closed down around 4.48%.
European markets had a subdued start to the week as events in the Middle East were assessed. On Thursday the pan-European STOXX 600 index managed to snap a four-session losing streak as the geopolitical concerns eased. In addition, investors welcomed the widely expected rate hike from the European Central Bank, although it cut its growth outlook and raised inflation forecasts. For the week, the STOXX 600 added 1.7%, with most regional indices higher. Spain’s IBEX 35 was amongst the best gainers and hit a fresh high. Banks had a strong week, with the STOXX 600 banks index closing out Friday with over a 4% session gain. Earlier there had been focus on Italy’s Monte dei Paschi di Siena receiving buyout proposals.
In the Asia Pacific region, the mood was more mixed. The Shanghai Composite index eked out just a 0.1% gain for the week, on mixed economic data. While May exports exceeded expectations, consumer price inflation was unchanged from April and remained weaker than factory gate prices. Meanwhile the Hang Seng was down around 1% on weaker offshore risk sentiment. In Japan, while indices experienced a strong rally on Friday on hopes of a US-Iran deal this was not enough to offset weekly losses. The Nikkei 225 fell 0.9%.