Overview of the Markets
Equity markets began the week supported by expectations of steady central bank policy and solid economic data, but midweek sentiment turned cautious as escalating Middle East tensions dampened risk appetite and flattened returns. The week was marked by mixed signals from various economies, influencing investor sentiments and market performances.
U.S. Market Performance
In the U.S., early optimism from strong retail sales control group data – a measure used for GDP tracking purposes – and a Fed hold gave way to caution as Chair Powell’s hawkish tone and geopolitical tensions weighed on risk appetite. The U.S. markets returned -1.24% as the Fed struck a hawkish tone, signaling fewer rate cuts ahead.
Canadian Market Performance
Canadian equities tracked global sentiment, with attention on the G7+ summit and mixed retail and housing data offering little directional clarity. Canadian markets returned 0.02% with the index rangebound as investors split their attention between the G7+ summit in Alberta and mixed domestic data.
European Market Performance
In Europe, markets were pressured by persistent inflation in the U.K. and dovish surprises from the BoE and other central banks, which signalled concern over deflationary risks and U.S. trade policy. European markets declined -1.44% amid these concerns.
Emerging Markets
In China and broader emerging markets, upbeat industrial and retail figures pointed to policy-supported momentum, but persistent weakness in real estate and subdued private-sector confidence underscored the fragility of the recovery. Emerging markets closed -1.68% higher, supported by strong industrial and retail data.
Bond Markets
Bond markets continue to benefit from haven flows. U.S. fixed income markets were steady early in the week as investors awaited the Fed’s decision, with rates drifting lower on soft retail sales and industrial production data. However, yields rose midweek after Chair Powell struck a hawkish tone, signaling fewer cuts ahead.
Highlights of Bond Markets
- The 2- and 10-year U.S. Treasury yields both rose 3 basis points (bps).
- In Canada, the 2-year yield was down 1 bp while the 10-year was flat.
- Markets now expect just one rate cut from the Federal Reserve in 2025, down from two previously.
Weekly Dashboard
Canadian Home Sales
Canadian home sales rose in May for the first time since November, climbing 3.6% in the first increase since November. However, the real estate industry cautions it is too early to say the country’s housing market is rebounding after a two-year slump.
U.S. Federal Reserve Decision
The U.S. Federal Reserve held interest rates steady and policymakers signalled borrowing costs are still likely to fall this year but slowed the overall pace of expected future rate cuts in the face of estimated higher inflation.
Japan’s Exports
Japan’s exports fell for the first time in eight months in May, bolstering views that the impact of U.S. President Trump’s tariffs could tie the Bank of Japan’s hands on rate hikes. Exports declined 1.7% in May from a year earlier.
Conclusion
The week in the markets was characterized by cautious investor sentiment, influenced by geopolitical tensions, mixed economic data, and central bank policy decisions. While there were signs of resilience in certain sectors, notably in industrial and retail data in emerging markets, the overall picture points to a complex and potentially fragile global economic landscape. As investors and policymakers navigate these challenges, the path forward for interest rates, trade policies, and economic growth remains uncertain.
