U.S. equity markets ended the holiday-shortened week on a strong note, with several major indexes reaching record highs as investor sentiment improved following optimism surrounding a potential U.S.-Iran agreement.
Hopes for easing geopolitical tensions in the Middle East helped lower oil prices and supported broader market confidence.
Technology stocks, particularly companies linked to artificial intelligence (AI), continued to lead the rally, pushing the Nasdaq Composite significantly higher. The S&P 500, Russell 2000, and MidCap indexes also posted healthy gains, while the Dow Jones Industrial Average recorded more modest growth.
Investor focus also remained on inflation and monetary policy. Data released by the Bureau of Economic Analysis showed that inflation remains elevated despite some moderation in monthly price increases.
The Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred inflation measure, rose on an annual basis to its highest level since mid-2023. Core inflation, which excludes food and energy prices, also remained above the Fed’s long-term target.
Several Federal Reserve officials maintained a cautious stance, indicating that interest rates could remain higher for longer if inflation pressures persist. Concerns continue to center around energy costs, supply chain disruptions, and the long-term impact of AI-related productivity gains on the economy.
Economic data during the week presented a mixed picture. U.S. GDP growth for the first quarter was revised lower, reflecting softer consumer spending and investment activity. However, durable goods orders showed strong improvement, driven largely by transportation equipment demand. Treasury markets also strengthened as falling oil prices and improving geopolitical sentiment pushed bond yields lower, supporting investor appetite for fixed income assets.
European markets
European markets delivered modest gains during the week as investors monitored developments surrounding the Middle East and their potential impact on global energy supplies. The pan-European STOXX Europe 600 Index closed slightly higher, while Germany, France, and Italy all recorded positive performances. The UK market, however, ended the week lower amid ongoing inflation concerns.
Investor sentiment in Europe was shaped largely by expectations surrounding monetary policy. Minutes from the European Central Bank’s latest meeting revealed that policymakers remain concerned about persistent inflationary pressures, particularly those linked to energy prices. The ECB noted that the ongoing conflict in the Middle East continues to create uncertainty around economic growth and inflation stability. Several ECB officials also signalled that another interest rate increase in June remains a strong possibility.
Germany’s labour market provided a small positive surprise, with unemployment falling slightly in May. However, officials cautioned that economic weakness may still lead to rising unemployment in the coming months. In Italy, revised GDP figures showed that the economy expanded more than initially expected during the first quarter, supported by exports and domestic spending.
Consumer demand across Europe also remained resilient. New passenger car registrations in the European Union increased for a third consecutive month, supported by continued demand for electric vehicles and government incentive programs. At the same time, inflation pressures remain visible within the retail sector. In the UK, shop price inflation rose more than expected, driven partly by higher shipping and raw material costs linked to geopolitical instability.
Asia and global markets
Asian markets experienced mixed performance during the week, with Japan emerging as one of the strongest-performing regions globally. Japanese equities surged to record highs as easing geopolitical tensions and declining oil prices supported investor confidence. Technology and semiconductor companies led gains, benefiting from continued global enthusiasm surrounding AI-related investments and reduced concerns around supply chain disruptions.
Inflation data in Japan, however, added uncertainty to expectations for future monetary policy decisions. Tokyo’s core inflation slowed further and remained below the Bank of Japan’s target, complicating discussions around potential interest rate hikes. Lower inflation and reduced geopolitical risks also contributed to falling Japanese government bond yields during the week.
China’s markets delivered mixed results as investors balanced improving industrial profits against renewed regulatory pressure on offshore brokerage firms. Industrial profit growth accelerated strongly in April, supported by stronger energy, raw materials, and technology-related exports. However, weakness in consumer-focused sectors and property-linked industries highlighted the uneven nature of China’s economic recovery.
Meanwhile, Chinese regulators intensified oversight of offshore online brokerages operating without proper licenses, triggering declines in several Hong Kong-listed financial stocks. The development renewed investor concerns around regulatory risks within China’s financial sector.
Looking ahead
As global markets continue to navigate inflation pressures, geopolitical developments, and shifting monetary policy expectations, investors remain focused on resilience, innovation, and long-term growth opportunities across major economies.
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