U.S. equity markets finished the shortened trading week higher, supported by easing geopolitical concerns after the United States and Iran signed a memorandum of understanding that could lead to the reopening of the Strait of Hormuz.
The prospect of improved energy supply conditions helped reduce oil prices and boosted investor sentiment. Technology stocks led gains, with the Nasdaq Composite outperforming major indexes.
The Federal Reserve kept interest rates unchanged at 3.50%–3.75%, a decision widely anticipated by markets.
However, updated economic projections indicated that policymakers now expect inflation to remain elevated for longer, reducing expectations for near-term rate cuts. Several officials even signalled the possibility of further rate increases in the coming year. The Fed reiterated its commitment to controlling inflation, suggesting monetary policy may remain restrictive for some time.
Economic data painted a mixed but generally resilient picture. Retail sales increased more than expected in May, reflecting continued consumer spending strength across most sectors. Housing, however, remains under pressure. Higher borrowing costs and affordability challenges weighed on construction activity, with housing starts declining significantly. While some indicators, such as pending home sales, showed improvement, the sector continues to face headwinds.
Bond markets reacted to the Fed’s outlook, with short-term Treasury yields rising as investors adjusted expectations for future interest rate movements. Overall, the week highlighted the resilience of the U.S. economy despite ongoing inflation concerns and tighter financial conditions.
Europe: Economic Confidence Improves Amid Policy Stability
European markets recorded modest gains during the week as investors responded positively to easing geopolitical tensions and signs of improving economic sentiment. Major stock indexes in Germany, France, and Italy advanced, while the UK market slightly underperformed.
Economic data across the region presented a mixed picture. The eurozone unexpectedly recorded a trade deficit in April, largely driven by higher energy import costs and weaker performance in machinery and vehicle exports. While this reflects ongoing challenges for European industry, other indicators suggested improving business confidence.
In Germany, wholesale inflation eased slightly, providing some relief after months of elevated pricing pressures. At the same time, the closely watched ZEW Economic Sentiment Indicator returned to positive territory for the first time since the outbreak of conflict in the Middle East, reflecting growing optimism among investors and analysts about future economic conditions.
Central banks across Europe largely maintained a cautious approach. The Bank of England left interest rates unchanged, citing uncertainty around inflation and global geopolitical developments. Although UK inflation remains above target, it has stabilized at its lowest level in more than a year. Similarly, the Swiss National Bank
kept rates unchanged, while Norway’s central bank signaled that additional tightening may still be necessary to address persistent inflation pressures.
Overall, European markets continue to balance slowing inflation with economic uncertainty, while policymakers remain focused on maintaining stability and supporting sustainable growth.
Asia: Japan and China Follow Different Economic Paths
Asian markets delivered a mixed performance, with Japan standing out as one of the strongest-performing regions globally. Japanese equities surged to new highs, driven by continued enthusiasm surrounding artificial intelligence, semiconductor technology, and global digital infrastructure investment.
A major development came from the Bank of Japan, which raised its benchmark interest rate to 1%, marking its highest level since 1995. The decision reflects growing concerns about inflation and the weakness of the Japanese yen. Policymakers also continued reducing bond purchases, signaling a gradual shift away from the ultra-loose monetary policies that have defined Japan’s economy for decades.
Economic indicators remained encouraging. Exports grew strongly, supported by demand for technology products, automobiles, and industrial materials, while machinery orders rebounded sharply, suggesting improving business investment activity.
China’s economic picture was more mixed. Industrial production remained resilient, benefiting from manufacturing and export activity, but consumer spending weakened, with retail sales declining year over year. The property sector also continued to struggle, as falling home prices and declining investment weighed on broader economic confidence.
In response, Chinese authorities introduced several financial market initiatives aimed at improving liquidity, strengthening cross-border financial services, and supporting the international use of the renminbi. While these measures are intended to enhance financial market efficiency, they stop short of a large-scale economic stimulus program.
Together, developments across Asia highlight diverging economic trends, with Japan benefiting from strong investment momentum while China continues to navigate a slower and uneven recovery.
Looking ahead
As global markets continue to navigate shifting monetary policy, geopolitical developments, and evolving economic conditions, investors remain focused on identifying opportunities while managing uncertainty in an increasingly dynamic environment.
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