9th June 2025

U.S.

Stocks

• Major U.S. stock indexes rose for the second consecutive week, with gains across small-cap and large-cap segments.

• The Russell 2000 Index led the way with a 3.19% gain, signalling strong performance among small-cap stocks.

• The Nasdaq Composite gained 2.18%, and the Dow Jones Industrial Average rose 1.17%, both contributing to a broad market rally.

• The S&P 500 Index remained in positive territory for the year, reflecting overall strength in equities.

• Technology stocks outperformed other sectors, driven by enthusiasm for AI-related companies.

• Meta Platforms announced a 20-year agreement with Constellation Energy to power AI operations, boosting sentiment in the tech sector.

Trade and Geopolitics

• Trade tensions with China flared again after social media comments by President Donald Trump raised concerns.

• However, a follow-up phone call between Trump and Chinese President Xi Jinping ended on a positive note, with Trump suggesting in a post that the discussion yielded a good outcome for both countries.

Labour Market

• The key economic highlight was the May nonfarm payrolls report, which showed 139,000 jobs added.

• This was below April’s downwardly revised total of 147,000 but above the consensus forecast of 130,000.

• The unemployment rate remained steady at 4.2%, maintaining the recent range of 4.0% to 4.2% since May 2024.

• Stocks and Treasury yields rose following the report, reflecting investor relief that the labour market was holding up.

• Earlier in the week, the ADP report showed private-sector job growth of only 37,000 in May, the lowest level since March 2023.

• Weekly initial jobless claims for the week ending May 31 increased by 8,000 to 247,000, the highest since October 2024.

• Job openings and hiring picked up in April, suggesting that demand for workers remained solid despite new U.S. trade tariffs.

Manufacturing and Services

• Manufacturing activity contracted for the third month in a row in May, with the ISM manufacturing PMI falling to 48.5%.

• This was below expectations of 49.5% and marked the lowest level since November.

• The prices index remained elevated, indicating rising input costs, while imports declined sharply due to reduced demand and the impact of tariffs.

• Services activity also declined unexpectedly, with the ISM services PMI registering 49.9% in May.

• This marked the first contraction in 11 months, mainly due to a sharp drop in new orders.

• However, the employment component of the index improved, returning to expansion territory.

Fixed Income Markets

• Treasury yields were relatively stable early in the week but moved higher on Friday following the stronger-than-expected jobs report.

• Municipal bonds weakened slightly due to heavy new issuance, although most new deals were absorbed well.

• Investment-grade corporate bonds performed better, with issuance volumes in line with expectations and strong demand for new offerings.

Europe

Markets

• The STOXX Europe 600 Index rose 0.90% in local currency terms, supported by easing inflation and a rate cut from the ECB.

• Strong U.S. employment data helped alleviate investor fears of a global recession.

• National stock indexes also posted gains:

• Germany’s DAX climbed 1.28%.

• Italy’s FTSE MIB advanced 1.28%.

• France’s CAC 40 Index gained 0.68%.

• The UK’s FTSE 100 Index added 0.75%.

Monetary Policy

• The European Central Bank reduced its deposit rate by 0.25 percentage points to 2%, the first cut since 2022.

• Only one member of the ECB Governing Council dissented.

• ECB President Christine Lagarde said the rate-cutting cycle was “nearly concluded” and emphasised that future moves would depend on incoming data.

• Financial markets are pricing in the possibility of one more rate cut, potentially in September.

Economic Data

• Eurozone GDP for Q1 2025 was revised upward to 0.6%, double the initial estimate of 0.3%.

• Strong growth in Ireland and upward revisions in Germany contributed to the improvement.

• Headline inflation in May slowed to 1.9% from 2.2% in April.

• Core inflation, which excludes energy and food prices, also declined from 2.7% to 2.3%.

• The eurozone unemployment rate remained at record lows, signalling a still-resilient labour market.

• In Germany, industrial production declined 1.4% in April following a 2.3% rise in March.

• Export weakness drove the decline, although domestic demand supported a surprise 0.6% increase in manufacturing orders.

• In France, industrial production also fell by 1.4%, with manufacturing output down 0.6%.

UK Policy Outlook

• Bank of England Governor Andrew Bailey stated that interest rates are on a downward path.

• However, he cautioned that the timing and extent of future cuts are highly uncertain due to complex economic conditions.

Japan

Markets and Currency

• Japanese equities fell, with the Nikkei 225 Index down 0.59% and the broader TOPIX Index losing 1.15%.

• The yen was little changed, ending the week near JPY 144 per U.S. dollar.

Trade and Bonds

• U.S.-Japan trade talks continued without a resolution, but discussions may pave the way for an announcement at the June G7 summit.

• The 10-year Japanese government bond yield declined to 1.46%, down from 1.50%, as markets reacted to concerns over fiscal sustainability and central bank policy.

Monetary Policy and Economic Data

• Some analysts speculated that the Bank of Japan may moderate its bond purchase tapering due to rising yields.

• Governor Kazuo Ueda acknowledged that most market participants still support continued tapering.

• Economic indicators were mixed:

• Household spending fell 0.1% year over year in April, down from a 2.1% increase in March.

• Real wages dropped 1.8% year over year, suggesting inflation continues to outpace wage growth.

• The BoJ reiterated its view that Japan is experiencing a moderate economic recovery and signalled its willingness to raise interest rates again if economic conditions justify it.

China

Markets

• Mainland Chinese stock markets rose, with the CSI 300 Index up 0.88% and the Shanghai Composite rising 1.13%.

• In Hong Kong, the Hang Seng Index advanced 2.16%, supported by expectations for more government stimulus.

Economic Data

• The Caixin manufacturing PMI fell to 48.3 in May, its weakest since September 2022, due to U.S. tariffs impacting smaller exporters.

• Caixin services PMI rose to 51.1, indicating modest expansion.

• Official manufacturing PMI improved slightly to 49.5, while the nonmanufacturing PMI edged down to 50.3.

Policy Developments

• Weak private-sector data fuelled hopes for further stimulus from Beijing.

• China and the U.S. agreed on May 12 to suspend certain tariffs for 90 days to allow for further negotiations.

• The People’s Bank of China recently implemented several easing measures, including:

• Cutting the seven-day reverse repo rate.

• Lowering the reserve requirement ratio for banks.

• While markets anticipate more policy support, optimism is tempered by ongoing trade uncertainty.

Other Key Markets

Czech Republic

• Inflation in May rose to 2.4% year over year, up from 1.8% in April and above expectations.

• Core inflation is estimated to have increased from 2.6% to 2.8%.

• Food and rent were the main drivers of the higher inflation.

• Despite the increase, analysts believe the overall inflation trend is still downward.

• The central bank may delay additional rate cuts, having already implemented a cautious cut in early May.

Poland

• The Polish central bank held its key interest rate steady at 5.25% during its two-day policy meeting.

• Q1 GDP grew 3.2% year over year, slightly lower than 3.4% in Q4 2024.

• Growth was supported by strong domestic demand, particularly consumption and investment.

• Inflation fell to 4.1% in May from 4.3% in April, helped by lower fuel prices.

• However, inflation remains elevated due to rising service prices and energy costs.

• Policymakers judged current rates to be appropriate for achieving medium-term inflation targets.

PLEASE NOTE:

This content is for informational purposes only and should not be construed as investment advice or a specific recommendation to act on any investment. It is importnat to assess your own circumstances before making investment decisions. The views expressed are as of the date indicated and whilst we believe the information is from reliable sources, we do not guarantee it’s accuracy. Past performance is not indicative of future results, and all investments carry market risks, including the potential loss of the principal.