Weekly Overview 26. May – 1. Jun 2025

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The Week in Global Markets

FINANCIAL MARKETS SUMMARY:

– EUROPE: As a result of the delay of US tariffs on the EU until July, European stock markets reacted largely positively with weekly gains. Additionally, May consumer prices data clearly showed that inflation in the largest economies such as Spain, Italy and France is now slowing down to rates below the ECB’s target. In Germany, inflation was 2.1% YoY according to both the CPI and HICP methodologies, lower than in April, but not as low as expected. This supports the expectation that the ECB will keep cutting next week, likely by another 25bp. The ECB survey of consumer expectations, however, revealed that Eurozone households anticipate inflation to reach 3.1% in the next 12 months, rising compared to the previous survey and likely presenting a challenge for further cuts this year. The unemployment rate in Germany remained unchanged in May compared to April, but the number of unemployed people is on the rise, while the number of job openings is falling. Consumer confidence in the country has improved slightly, while retail sales declined MoM (still up YoY) in April. In the United Kingdom, the services sector business confidence deteriorated in May, likely due to the increase in employment taxes and a rise in expectations for price hikes, accompanied by declining investment intentions, business volumes, and hiring. Yields on UK and German 10y government bonds decreased a bit, while the euro and the pound both depreciated against the US dollar.

– UNITED STATES: On a weekly basis, US stocks were in positive territory after the US president decided on the postponement of the 50% tariff rate he had threatened on the EU so that trade deal negotiations could continue. This move was further supported by the decision of the US Court of International Trade to challenge the President’s authority to impose reciprocal tariffs on a large number of countries, raising hopes that there might be a legal basis to calm down this trade war. However, the ruling has been appealed and the administration has indicated that there are other avenues that can be used to justify the imposition of these tariffs. Later in the week, Treasury Secretary Bessent commented that the trade negotiations with China have stalled. The US President accused China of violating the truce on trade by moving too slowly on promises to issue export licenses for rare earth minerals. Beijing has responded that the US needs to cease discriminatory restrictions against China and “jointly uphold the consensus reached at the high-level talks in Geneva”. Reportedly, China had recently repeatedly raised concerns with the US over its “abuse of export control measures” with regard to semiconductors. But this was not all – Donald Trump did not take lightly the comment about being mentioned in the “TACO” meme (“Trump Always Chickens Out”). He lashed out at reporters who asked him about this reference in public questions, and his demeanor seemed to once again switch to a punitive stance, announcing on Friday that he would double tariffs on steel and aluminum imports to 50%. The tariffs are not yet visible in the inflation reading, as the core PCE measure for April showed this week, declining further compared to March. Meanwhile, JPMorgan CEO Jamie Dimon issued a warning to investors that the bond market will eventually crack if the national debt problem is not addressed. The latest fiscal package is about to add to the public debt and continue to increase the deficit for a while, and bond traders are already pricing in those risks. Dimon commented that without a change in course, “the US is headed for a reckoning and the regulators are going to panic”. He is worried that the US dollar’s reserve currency status might continue to be eroded not just by a potential debt crisis but also by a deterioration of the US military and economic power internationally.

– ASIA-PACIFIC: Benchmark Japanese stock indices recovered after last week’s losses, as reports indicated that the US President and the Japanese Prime Minister may be inching closer to a trade deal agreement. 10y JGB yields dipped a little, although they stayed relatively elevated. But the higher-than-expected core inflation figure for the Tokyo area signalled that there might be a rate hike coming. In China, stock indices declined slightly week-on-week, despite the preparations to inject further support into the economy. Bloomberg reported that the 3 government banks will invest RMB 500bn in infrastructure projects and will raise funds to acquire stakes in AI projects, the digital economy, and consumption-related infrastructure.

– BITCOIN: BTC retreated from its all-time high this week, currently hovering around the $104k mark. There were reports this week that the International Monetary Institution (IMI), China’s state-backed finance think tank, has suggested that Bitcoin can serve as a hedge for central banks in developing economies, particularly those exposed to US dollar weaponization. The IMI has stated that Bitcoin is transitioning from a speculative asset to a strategic reserve asset. Nevertheless, China has now apparently banned individual Bitcoin and crypto holdings. This updated policy expands earlier restrictions on crypto trading and mining, signaling a deeper commitment by Chinese authorities to centralize financial control and promote the adoption of the digital yuan, the country’s state-backed central bank digital currency (CBDC).