This week saw a historic U.S. strike on Iran’s nuclear facilities, a symbolic retaliation by Iran against a U.S. military base in Qatar, and an abrupt but fragile ceasefire between Israel and Iran. This unprecedented string of events sent oil prices down and further pressured the dollar. It also left critical questions unanswered, most importantly, the extent of damage inflicted on Iran’s nuclear program by Israel and the U.S. during the brief conflict.

Initial assessments are highly contradictory. U.S. President Donald Trump, echoed by Israeli Prime Minister Benjamin Netanyahu, has claimed that Iran’s nuclear sites and capabilities were “obliterated” and called for a return to negotiations with the Islamic Republic’s leadership. However, European officials and even some of President Trump’s own intelligence agencies signaled that Iran’s enriched uranium stockpile was moved prior to the attacks and is largely intact.

Despite this inconclusive outcome and lingering uncertainty about the Middle East’s geopolitical outlook, markets have moved on. Counterintuitively, oil prices collapsed after Iran’s ballistic missiles were intercepted and did not cause any damage to the U.S. base in Qatar – reflecting bets that the symbolic nature of Tehran’s response marked its de-facto capitulation.

That meant oil gave back all its “escalation premium,” returning to pre-June 13th levels of around $68 per barrel for Brent and $66 for WTI – nearly 10% above the recent lows in early May. Equity markets finished the week positively, reflecting the de-escalation in the Middle East and renewed trade optimism. The “stocks higher – treasuries lower” pattern held this week, with UST yields trending 5-6bps lower, to around 4.28% and 4.84% on the 10Y and 30Y, respectively. The USD resumed its march lower, with the DXY touching 97 for the first time since 2022 and EUR/USD breaking comfortably above the 1.15 level to around 1.17. Gold also sold off slightly to near $3,275 per oz., but remains close to its recent multi-year highs.

With the Iran-Israel ceasefire in his pocket, President Trump attended the NATO Summit in the Hague, where the Alliance’s members (except for Spain and Slovakia) agreed on a historic increase in their annual defense spending target to 5.0% of GDP by 2035, from 2.0% previously. This was split between 3.50% on direct military spending and 1.50% on supporting infrastructure, technology, etc. Over the medium-term, the decision appears set to have significant impact on European and global security, as well as macroeconomic, fiscal and trade dynamics.

On the other side of the Atlantic, Fed Chair Jerome Powell gave his semiannual congressional testimony, reiterating the Fed’s “wait and see” approach in the context of a resilient labor market and overall economy, and among indications that a pickup in inflation “could show up in 3Q.” His view is at odds with the Trump Administration, which has denied the possibility that current trade and immigration policies could be inflationary. President Trump intensified pressure on Chair Powell to cuts rates, calling him “terrible,” and President Trump suggested he may name the next Fed Chair early. These unprecedented executive branch attacks on the Federal Reserve’s traditional independence and the potential appointment of a “shadow Chair” eight months ahead of customary schedule could begin to undermine Fed policy credibility and could have far-reaching market consequences.

On Capitol Hill, U.S. lawmakers continued to scramble on reconciling the House and Senate versions of the “Big Beautiful Bill”. It remains unclear if the July 4th deadline set by the White House can be met or if deliberations will drag on.

Meanwhile, U.S. Treasury Secretary Scott Bessent gave optimistic projections around signing favorable trade agreements with the majority of the main U.S. partners by early September. Despite a lack of clarity on the timeframe and the substance of those agreements, the market welcomed Secretary Bessent’s comments.

On the macro data front, PMI data released this week painted a mixed picture across the major global economies. The preliminary June readings in the U.S. came in stronger than expected (52.8 vs. 52.2 on the composite) but slightly lower than the 53 reported in May. The Euro area composite PMI moderately missed expectations (50.2 vs. 50.4) but remained stable from May, while Germany’s national one outperformed and France’s underperformed. The UK’s 50.7 reading improved from last month’s 50.3 and was slightly above expectations.

Other U.S. economic data had a weakening tone, with the June Conference Board’s consumer confidence index falling to 93, from a revised 98.4 in May and consensus expecting an improvement to 99.8. Purchases of new homes fell 13.7% (vs. -6.7% expected) to a 623,000 annualized rate in May, a seven-month low, due to affordability constraints despite sales incentives. The merchandise-trade deficit widened 11.1% to $96.6 billion in May, exceeding economists’ estimates, due to a 5.2% drop in exports and little change in imports. Despite a decline in exports, orders for durable goods jumped 16.4% in May (vs. 8.5% expected and a decline of 6.6% in April), driven by a surge in commercial aircraft orders, and core capital goods shipments climbed 0.5%.

In terms of closely watched labor market dynamics, initial jobless claims surprised to the downside this week (236,000 vs. 243,000). However, continuing claims jumped to the highest level since November 2021 (1,974,000 vs. 1,950,000 consensus), suggesting that work-seekers are having an increasingly hard time finding jobs. Meanwhile, the third estimate of 1Q 2025 annualized GDP was revised sharply lower to -0.5% quarter-over-quarter, from -0.2% previously, mainly on the back of significantly lower consumer spending on services.

The May personal income and outlays report showed a stagflationary picture, with core inflation rising more than expected and incomes falling due to lower transfer payments. Consumers appear to be becoming more discerning in their spending, pulling back on discretionary services and interest-sensitive categories, with personal spending declining 0.1% (vs. +0.1 expected) and real consumer spending declining 0.3% (vs. flat expectations), the most since the start of the year.

The Core PCE Price Index, the Federal Reserve’s favorite inflation measure, rose more than expected in May: 0.2% month-over-month (vs. 0.1%) and 2.7% year-over-year (vs. 2.6%) and accelerated vs. April’s readings of 0.1% and 2.6%, respectively. To close the week, the final June reading of the University of Michigan’s Index of Consumer Sentiment was revised higher to 60.7, from 60.5 in the preliminary reading, marking an improvement from 52.2 in May.

Elsewhere, Central Banks in Hungary and Thailand held rates unchanged at 6.50% and 1.75%, respectively, in line with market expectations. Banxico, Mexico’s Central Bank, cut its benchmark rate by 50bps to 8.0%, but removed guidance on the magnitude of subsequent cuts.

The Israel-Iran attacks dominated headlines this week, continuing to escalate as the two sides exchanged heavy air strikes, while the U.S. considered entering the conflict. The Israeli Air Force claimed “complete control” of Iranian skies and issued evacuation orders for parts of Tehran, but it remains unclear if Israel could fully eliminate the Islamic Republic’s uranium enrichment capabilities without direct U.S. military support. President Donald Trump left the G7 summit in Canada abruptly under the pretext of the Middle East crisis and called for Iran’s “unconditional surrender” amid ongoing relocation of significant U.S. military assets to the region and troops put on high alert. Iran’s political leadership has remained defiant, with supreme leader Ali Khamenei rejecting President Trump’s demands and threatening “irreparable damage” if the U.S. joins Isreal in attacking Iran. Russian President Vladimir Putin, who is a key supporter of Iran’s regime but also maintains a strong relationship with Israeli Prime Minister Benjamin Netanyahu, has offered to intervene.

As the week came to a close, President Trump said he would decide “within two weeks” if the U.S. will join Israeli military action against Iran in order to “give diplomacy a chance.” Meanwhile, European foreign ministers met senior Iranian officials in Geneva to seek a diplomatic solution to the crisis.

As widely expected, amid “unusually elevated uncertainty” as emphasized by Federal Reserve Chair Jerome Powell, the FOMC left the fed-funds target range unchanged at 4.50% (upper bound) and kept its median projections of two rate cuts this year. The Fed revised its median inflation projection at year-end 2025 higher to 3.0% from 2.7%, while marking economic growth down to 1.4% from 1.7%, suggesting expectations of stagflation.

The Bank of England (BoE) held rates unchanged at 4.25% as expected, against the backdrop of a sharp increase in UK unemployment claims and weakening, but still relatively elevated, wage growth. Meanwhile, inflation came in at 3.4% year-over-year in May, down from 3.5% in April, but slightly above market expectations (3.3%) and remains well above BoE’s 2% target. May retail sales were significantly below expectations (-2.7% month-over-month vs. -0.5%) and decelerated sharply from a revised +1.3% in April.

The Bank of Japan (BoJ) kept its main policy rate at 0.50%, as widely expected. It appeared to lower the bar for a potential rate hike if the global trade war shock turns out to have less of an impact on Japan’s economy than feared and amid headline CPI remaining at 3.5% year-on-year in May.

Against renewed hopes of a diplomatic solution to the Middle East crisis, markets closed the week mixed. Oil gave back a bit of its recent gains, but Brent and WTI prices remain in the mid-$70s per barrel, from as low as $60 in early May. Equity markets staged a modest recovery, but still ended the week in the red, with the Dow Jones around 1.5% lower on the week. U.S. Treasury yields finished the week 2-3bps tighter and the USD gained marginally to around 99 on the DXY. EURUSD remained stable at 1.15. Gold trended lower this week, but remains close to its recent multi-year peak of around $3400 per oz.

In the meantime, May “hard data” for the U.S. economy came in weaker than expected across the board, reminding markets that the effects of unprecedented global economic uncertainty may only be starting to creep into macro data. Headline retail sales fell 0.9% month-over-month vs. -0.6% expected and a downwardly revised -0.1% in April, mainly driven by a pullback in spending on motor vehicles and parts (-3.5%) that surged in April amid President Trump’s Liberation Day announcement. Industrial production, capacity utilization, housing starts, and building permits all underperformed consensus expectations. Initial jobless claims came in flat, continuing to trend at around 250,000 weekly. Soft data published at the end of the week pointed to more weakness ahead: The Philadelphia Fed business outlook remained flat at -4.0 in June (vs. expectations of -1.5) and the May Leading Index fell 0.1%, following a downwardly revised April reading, to -1.4%.

In China, May retail sales surged significantly more than expected (+6.4% year-over-year vs. +4.9%), driven mainly by an early online shopping festival and government subsidies for home appliances, but amid still weak consumer sentiment the uptick might be short-lived. May industrial production reflected persistent weakness, decelerating to 5.8% year-over-year from 6.1% in April and below consensus expectations of 6.0%.  The 1-year and 5-year loan prime rates were kept unchanged at 3.0% and 3.5%, respectively.

Beyond the systemic central banks, policymakers delivered rate decisions across a number of developed and emerging economies: The Swiss National Bank (SNB) delivered a 25bps cut to 0% in line with expectations and hinted at the possibility of a negative interest rate amid record CHF strength. Norway’s Central Bank surprised with a 25bps cut to 4.25%, citing “sufficiently tamed” inflation and signaled further cuts ahead. Next door in Sweden, the authorities also cut 25bps to 2.0%, as expected. The Philippines Central Bank cut by 25bps to 5.25%, also as expected. On the other side of the world and going in the opposite direction, Brazil’s Central Bank hiked the SELIC rate by 25bps to 15.00% and signaled that rates will remain high as long as needed to re-anchor medium-term inflation expectations. Pakistan (11.0%), Chile (5.0%), Indonesia (5.50%), Taiwan (2.0%) and Türkiye (46.0%) all held rates unchanged.  These divergent monetary policy trends continue to be driven by regional and country idiosyncratic factors.

May CPI prints showed headline inflation slowing down in Israel, Saudi Arabia, Italy, Nigeria, and Poland, while in the eurozone and South Africa it was unchanged from April.

In the eurozone, the preliminary consumer confidence reading for June showed more deterioration than expected (-15.3 vs. -14.9 consensus and -15.1 in May). However, German investor expectations jumped sharply to 47.5 in June from 25.2 in May, comfortably outperforming consensus expectations of 35 as the forthcoming surge in public spending outweighed concerns about U.S. tariff uncertainty.

In geopolitics more broadly, President Trump floated the idea of Russia’s readmission to the G7, arguing that the ongoing conflict in Ukraine would not have occurred if Russia had not been expelled in 2014 following the annexation of Crimea. Meanwhile, Moscow has intensified its military actions in Ukraine, launching air strikes focused on Kyiv with hundreds of drones and rockets.

As expected, the White House has granted TikTok a third, 90-day extension to continue its operations in the United States, pending its Chinese owner divesture from the app.

This week ended with an escalation in geopolitical tensions after Israel initiated attacks on Iran, shifting the spotlight away from economic data and trade developments. Markets reacted with caution. Yet, away from the surge in oil prices, the overall response was relatively measured given the significance of the strikes. Gold rose amid “safe haven” flows that, in an historically unusual development, did not benefit yields on U.S. Treasuries. Indeed, yields ended higher as traders and investors were reminded of the geopolitical tail risks in the global macro landscape.

Earlier in the week, attention centered on the “trade framework” agreement between U.S. and Chinese negotiators in London. Initially viewed as a breakthrough – particularly in relation to China’s export restrictions on critical rare earth minerals – the lack of detail and continued absence of tariff rollbacks suggest this is a tactical pause rather than a strategic reset in the bilateral relationship. The economic significance of the agreement will hinge on implementation and the official positions of Presidents Donald Trump and Xi Jinping in the weeks ahead.

Focus also turned to the U.S. economy, with May’s inflation data coming in softer than expected across both consumer and producer levels. This suggests that for now, higher tariffs have not translated into price pressures, raising questions about the strength of demand and the pass-through of cost increases. Markets responded with a meaningful repricing of rate expectations; Fed funds futures currently reflect two full 25bps cuts in 2025, up from under one cut just a week ago. The week ended with the University of Michigan consumer sentiment survey showing the first consumer sentiment improvement this year: sentiment rose 8.3 points to 60.5 in June, exceeding expectations, as concerns about the economy and expectations of short-term inflation eased.

Equity markets finished the week in the red amid the Middle East military escalation but remain near record highs after posting some gains during the week on better economic data. U.S. Treasury yields trended lower across the curve but gave up some gains at the end of the week, closing at around 4.45% for the 10-year and 4.90% for the 30-year maturity.

After weakening notably during the week, the U.S. dollar staged a very modest recovery amid global geopolitical turmoil on Friday. It’s continued weakness raises significant questions about the validity of the “Dollar Smile” in the current global macro context. The DXY remained wrapped around its 98 three-year low, while EUR/USD broke through 1.15 for the first time since 2021. Commodities reflected this shifting mix of geopolitics and policy expectations. Gold gained further, to trade above $3,400/oz, while oil prices soared in tandem with tensions in the Middle East. Brent and WTI closed at around $75 and $73 per barrel, respectively, about 25% higher than a month ago.

Several other U.S. data releases this week attracted limited market attention. Wholesale inventories rose 0.2% month-over-month (vs. 0.0% expected), while initial jobless claims came in at 248,000 – slightly above expectations and flat to the prior week. The May federal budget deficit totalled $316 billion (vs. $347 billion last year), bringing the fiscal year-to-date shortfall to $1.365 trillion, up from $1.202 trillion a year ago and underscoring the steady drift in U.S. fiscal imbalances.

Internationally, China’s May CPI fell for the fourth consecutive month (-0.1% year-over-year), underscoring the persistent weakness in domestic demand. Producer prices declined 3.3% year-over-year, slightly more than forecast, as firms continue to cut prices to attract cautious consumers. Similar disinflationary trends were seen in Colombia, Brazil, and India, while inflation surprised to the upside in Mexico and Ukraine, reminders of the uneven post-pandemic normalization process across emerging markets.

In the UK, the economy contracted by 0.3% in April, the sharpest monthly decline since 2023. This was driven by weakness in industrial output and exports, as well as a notable rise in jobless claims. Japan offered a modest upside surprise, with final Q1 GDP revised to -0.2% quarter-over-quarter from -0.7%, while Saudi Arabia reported steady year-over-year growth of 3.4% in Q1, driven largely by non-oil sectors.

This week, politics shaped the macro landscape across key emerging markets. In Poland, Prime Minister Donald Tusk survived a confidence vote following a setback in the presidential election which reinforced, at least for now, the continuity of his pro-EU agenda. Pakistan unveiled an ambitious fiscal consolidation plan in its 2025-26 budget, featuring a 20% increase in defence spending offset by broad spending cuts. Markets will look for signs of credibility and execution. Meanwhile, Argentina’s Supreme Court upheld a corruption conviction against former President Cristina Fernández de Kirchner, barring her from politics for life, a move likely to be viewed by markets as strengthening President Javier Milei’s reform agenda. In Colombia, the shooting of presidential candidate Miguel Uribe and a series of explosions in the southwest have drawn renewed attention to the country’s internal dynamics, with authorities attributing both incidents to a FARC-dissident leader.

Lastly, the Russia–Ukraine conflict continued to escalate. Following last week’s deep strikes into Russian territory by Ukrainian forces, Moscow launched its largest aerial assault since the war began, another reminder of geopolitical fragilities.

Markets ended the week upbeat amid softening but resilient U.S. macro data and a call between Presidents Donald Trump and Xi Jinping aimed at easing trade tensions. The conversation, which included the possibility of a future Trump visit to Beijing, reversed the deterioration in tone earlier in the week, when both sides accused each other of breaching the May Geneva trade truce—raising fears of trade re-escalation. Separately, the Trump Administration announced a sharp increase in steel and aluminum tariffs, doubling them to 50% on competitiveness and national security grounds.

The end of the week was also overshadowed by a high-profile dispute between President Trump and Elon Musk over Trump’s tax bill. Mr. Musk publicly criticized the legislation, while the Administration responded with threats to cancel federal contracts and subsidies tied to Musk’s companies. Tesla shares declined more than 15%.

While the bill narrowly passed the House, it faces a more challenging path in the Senate. In the background, the White House continued to ramp up pressure on the Fed, with President Trump urging Fed Chair Jerome Powell to go for a “full point” cut.

Meanwhile, U.S. indicators remained resilient but showed tentative signs of softening. Nonfarm payrolls on Friday were better than expected by consensus (139,000 vs. 126,000), but indicated moderating jobs growth in May, while the prior months’ figures were revised lower. The unemployment rate held steady at 4.2%, but industries exposed to tariffs, such as manufacturing, saw a drop in payrolls. Earlier in the week, private sector payrolls slowed sharply to just 37,000 in May, well below the 114,000 expected. Initial jobless claims rose to 247,000, and the ISM services index pointed to contraction amid rising input costs and tariff-driven delays. The combination signals that a turning point for resilient data could be approaching.

The OECD added another note of caution, revising its global growth outlook down to 2.9% for 2025–26, from 3.3% in 2024. It cited growing protectionism and persistent uncertainty, with U.S. tariffs identified as a key drag. U.S. growth was revised to 1.6%, from 2.2%, though still slightly above market consensus of 1.4%.

Globally, activity data was mixed. In China, the manufacturing PMI slipped back into contraction at 48.3, below expectations, while services edged higher to 51.1. The eurozone’s composite PMI rose to 50.2, indicating marginal expansion. India’s composite index, while easing to 59.3 from 61.2, remained robust.

Risk sentiment reflected this cross-current of signals. U.S. equities finished higher across the board, while Treasury yields finished the week higher as resilient data cooled off expectations for Fed rate cuts, with 10- and 30-year Treasuries closing just below 4.50% and 5.00%, respectively. The dollar remained soft, with the DXY around 99 and EUR/USD wrapped around 1.14. Gold continued near $3,400/oz, while oil recovered modestly, with Brent and WTI closing around $66 and $64, respectively.

Geopolitical tensions remained elevated. Ukraine’s long-range drone strikes hit Russian military targets, prompting President Vladimir Putin to threaten a strong response in a call with Mr. Trump and to dismiss any dialogue with Ukrainian President Volodymyr Zelenskiy. Meanwhile, working-level talks in Istanbul produced no progress. Europe felt the economic spillovers of China’s export restrictions, with the EU warning that rare earth curbs are disrupting car production. The issue was raised during German Chancellor Friedrich Merz’s visit to Washington, which also revealed clear divergences with President Trump on Ukraine and broader transatlantic policy.

In the political sphere, Poland elected right-wing populist Karol Nawrocki by a narrow margin, reinforcing the EU’s nationalist shift. South Korea’s new President, Lee Jae-myung, pledged stability following last year’s political crisis. In Mexico, the ruling Morena party scored an anticipated sweeping win in the country’s first-ever judicial elections, though turnout was just 13%. Bulgaria received a positive assessment by the European Commission on its readiness to join the euro area, which is a crucial step toward becoming the common currency’s 21st member-state on January 1st, 2026. Bulgarian assets continued to strengthen, with sovereign yields now lower than those in core euro area member states such as Italy.

On the monetary policy front, the European Central Bank delivered its eighth consecutive 25bps cut, lowering rates to 2.0% and signalling that the end of the easing cycle is near. The Bank of Canada held rates at 2.75%, citing uncertainty around U.S. trade policy, while the National Bank of Poland also held rates steady at 5.25%, as expected. The Reserve Bank of India (RBoI) cut interest rates by 50bps (vs. the expected 25bps) to 5.50% and released liquidity by reducing the cash reserve ratio for banks, citing lower inflation and growth outlooks amid global uncertainty.

This week saw more trade whiplash, with a significant ruling by the U.S. Court of International Trade deeming many of the White House’s “Liberation Day” tariffs illegal.  On Friday, the ruling was temporarily stayed by the federal circuit court, and the administration has already signalled it will appeal the decision, potentially taking the issue all the way to the Supreme Court. The back and forth has added another layer of uncertainty to U.S. economic policy, and while markets initially welcomed the ruling as a check on further tariff escalation, its legal uncertainty and political friction may weigh on investor sentiment in the months ahead.

The rulings followed more trade tensions earlier in the week, when President Donald Trump threatened additional tariffs—including a 50% duty on all EU imports and a 25% levy on iPhones manufactured outside the U.S. These threats were later softened following what the President described as a constructive call with European Commission President Ursula von der Leyen, and the implementation deadline was pushed to July.

Market reaction was relatively muted. U.S. equity indexes closed the week mixed, mirroring similarly subdued performances across Asia and Europe. Treasury yields moved modestly lower, with the 10-year and 30-year notes ending just below 4.50% and 5.00%, respectively. This shift coincided with updated GDP data showing that the U.S. economy contracted at an annualized rate of 0.2% in the first quarter, slightly better than the initial -0.3% estimate, though still pointing to softening domestic demand and lower federal spending.

In currency markets, the dollar surrendered early week gains to fall below the 100 mark on the DXY, while the euro approached levels near its April high, of around 1.15 vs. the USD. Gold benefited from renewed uncertainty and regained ground, while oil prices came under pressure—Brent sliding to around $64 per barrel and WTI to roughly $60—amid speculation about a potential further increase in OPEC+ production.

On the monetary policy front, the minutes from the Federal Reserve’s early May meeting underscored a preference for caution. Officials acknowledged heightened uncertainty stemming from trade, fiscal, and regulatory developments, and highlighted the risk of both inflation and economic slowdown—an increasingly relevant combination in this tariff-influenced environment. The Fed’s emphasis on optionality reflects the complexity of current conditions, where conflicting signals make it difficult to chart a clear policy path.

Meanwhile, U.S. economic data this week painted a mixed picture. Durable goods orders declined 6.3% in April, less than the expected drop of 7.8%, following a strong upward revision for March to 7.6%. Consumer sentiment rebounded, with the Conference Board’s index rising sharply to 98 from 85.7 the previous month, offering some reassurance about household outlooks. However, initial jobless claims rose to 240,000, which is above both the prior week’s reading and consensus estimates. Real personal spending in April dropped to +0.1% month-over-month from +0.7% a month earlier, signalling that U.S. consumers slowed spending following the Liberation Day announcement. The Fed’s preferred price metric, the core personal consumption expenditure (Core PCE) index, remained tame, increasing 0.1% month-over-month and 2.5% year-over-year, down from 2.7% year-over-year in March. Data showed that prices rose modestly in categories with heavy exposure to China. The final May University of Michigan consumer sentiment index was unchanged from April at 52.2, slightly better than the preliminary reading (50.8) and median consensus expectations (51.5). However, it remains well below the January reading of 71.7. One year inflation expectations dropped to 6.6% year-over-year, from 7.3% year-over-year last month, but remain at the highest level in decades.

In Europe, relatively benign inflation readings in the largest economies could add further momentum to the case for a rate cut by the ECB in June. Inflation data from France showed headline CPI slowing more than expected, falling to 0.6% year-over-year in May—the lowest level since 2020 and well below the ECB’s 2% target. German CPI came in marginally above expectations: 0.2% vs. 0.1% month-over-month and 2.1% vs. 2.0% year-over-year in the May preliminary reading. However, it slowed down from 0.5% and 2.2%, respectively, in April.

Tensions on the geopolitical front also escalated. President Trump suggested Russia could face harsher consequences if drone strikes against Ukraine continue, although no concrete steps have followed. Meanwhile, German Chancellor Friedrich Merz lifted restrictions on Ukraine’s use of long-range missiles provided by European allies, potentially allowing Kyiv to strike deeper into Russian territory. President Volodymyr Zelenskiy, in turn, warned of a large Russian troop buildup that may signal a summer offensive.

On the corporate earnings front, Nvidia reported results that significantly beat expectations and delivered an encouraging outlook, despite continued export restrictions on its H20 chips to China. The company’s performance gave markets a modest lift and underscored the divergence between broad macroeconomic challenges and the strength of select corporate leaders.

Markets responded positively this week to the de-escalation in U.S.-China trade tensions—a 90-day truce that includes a mutual rollback of proposed new tariffs to 30% on China and 10% on the U.S. While temporary, this development eased fears of a worst-case economic outcome. U.S. equities rebounded toward pre-Liberation Day levels, with the S&P 500 turning positive for the year, and the 10-year Treasury yield rising 10bps to 4.45%. Yet the U.S. dollar remained under pressure, unable to break above the 102 level on the DXY, and ended the week below 101. Bilaterally, EUR/USD was broadly stable, trading around 1.12.

Economic data this week continued to send mixed signals. Retail sales growth slowed meaningfully in April, rising just 0.1% month-over-month—down from an upwardly revised 1.7% in March—with the pullback likely concentrated in categories heavily exposed to Chinese imports. Initial jobless claims remained steady at 229,000, slightly above expectations, while industrial production was flat after a -0.3% reading in March. More notably, factory output declined by 0.4%, marking its first contraction in six months and underscoring the vulnerability of U.S. manufacturing amid ongoing trade uncertainty. The University of Michigan consumer sentiment survey index fell to 50.8 in preliminary May results, the second lowest on record and well below expectations of 53.4; the year-ahead expected inflation climbed to 7.3%, the highest level since 1981.

On the inflation front, headline CPI came in softer than expected, rising 0.2% month-over-month and 2.3% year-over-year in April. A concurrent decline in the producer price index offered some relief to those concerned about companies preemptively passing on tariff-related cost increases. Still, many analysts expect inflationary pressures to build into the summer, as firms may find it increasingly difficult to absorb higher input costs without raising prices. Reflecting this concern, Walmart’s management cautioned on its first-quarter earnings call that even after the recent tariff reductions, import duties on Chinese goods remain “too high” and are likely to pressure margins and consumer prices.

Geopolitically, President Donald Trump’s high-profile Middle East tour yielded several headlines. In Saudi Arabia, he secured a $600 billion “strategic economic partnership” with Crown Prince Mohammed bin Salman. President Trump also met with Syria’s new President Ahmed al-Sharaa—despite Israeli objections—and announced the lifting of U.S. sanctions to provide the country with what he called “a chance at greatness.” These developments, along with tentative signs of progress toward a U.S.-Iran agreement, triggered a pullback in oil prices, which had been rallying earlier in the week and briefly approached $67 per barrel. Brent ultimately settled closer to $64.

A proposed U.S.-brokered summit between Ukraine and Russia’s Presidents failed to materialize, with lower-level delegations dispatched instead. Meanwhile, a ceasefire between India and Pakistan held, providing a rare patch of stability in another flashpoint region.

Elsewhere, UK GDP grew by 0.7% quarter-over-quarter and 1.3% year-over-year, beating expectations in the run-up to U.S. trade actions, though UK exporters still face a 10% U.S. tariff. Germany’s investor confidence rebounded sharply in May, and April inflation came in at 2.1% year-over-year, matching forecasts. In Japan, preliminary data on 1Q GDP showed that the economy contracted 0.7% on an annualized basis, driven by weaker trade activity and consumer spending, raising the specter of technical recession. Industrial production fared better, improving to 0.2% month-over-month in March, from -1.1% in the prior month.

In emerging markets, Mexico’s Central Bank cut rates by 50bps, citing external risks, while Ecuador saw an ally of President Daniel Noboa elected to head the National Assembly, potentially boosting reform prospects.

Looking ahead, markets remain vulnerable to abrupt shifts in trade, monetary, and foreign policy. The week’s developments provided some relief and helped avert a near-term spiral. Yet, with economic indicators sending mixed signals and policy still erratic, investors would be wise to remain both opportunistic and cautious, particularly as key signposts on inflation, labor markets, and Fed communication take center stage in coming weeks.

Global markets showed cautious optimism this week, reflecting a delicate balance between encouraging policy signals from the Trump Administration and deeper questions about the sustainability of growth and policy support. Investors responded positively to confidence from U.S. officials on trade negotiations with China, especially after Thursday’s announcement of a new U.S.–UK trade agreement framed by both governments as a “historic” step forward, alongside fresh momentum for fiscal initiatives in Congress.

Equities advanced this week, although the yield on the 10-year Treasury went higher by 15 to 20 bps, settling near 4.35%. Concurrently, the U.S. dollar gained ground, approaching the 101 mark on the DXY – its highest level since geopolitical dislocations began earlier this year. The euro, despite pulling back toward 1.12 against the dollar, remains close to its one-year highs. Commodities, too, reflected this fragile optimism: Brent oil managed to remain anchored above $60 per barrel. Gold gave back earlier gains, finishing flat as demand for traditional safe havens softened.

As widely anticipated, the FOMC opted to hold its policy rate steady at 4.25–4.50%, and it was Chair Jerome Powell’s messaging that drew the most attention. While acknowledging that “economic risks have risen”, Powell reiterated the Fed’s belief that the U.S. economy remains resilient enough to justify a patient, data-dependent approach. This message, which carried shades of stagflationary concern – highlighting risks of both elevated inflation and rising unemployment – nonetheless leaned heavily on the absence of firm evidence in the hard data.

Macro data offered a mixed bag this week. The ISM services index rose more than expected to 51.6, pointing to an uptick in domestic demand – possibly frontloaded by tariff fears. Meanwhile, the March trade deficit widened sharply to -$140.5 billion, its largest monthly gap in over a decade. Consumer borrowing also rose significantly, led by increases in credit card and auto-related lending, reflecting both resilient consumption and potentially higher financial strain. Jobless claims remained broadly stable at 228,000, although labor market commentary pointed to layoffs in transportation, hospitality, and the public sector – developments worth monitoring for signs of softening.

Across the Atlantic, political and economic signals were similarly complex. Friedrich Merz’s confirmation as German Chancellor required an unprecedented second-round vote, an early signal of the fragile parliamentary coalitions now shaping European governance. Meanwhile, far-right populist candidate George Simion emerged as the front-runner in Romania’s rerun presidential election, reflecting broader regional trends of political volatility.

European economic data, by contrast, offered modest upside surprises. German factory orders and industrial production significantly outpaced expectations, pointing to renewed momentum in Europe’s largest economy. These positive signals, however, are tempered by ongoing concerns over trade tensions with the U.S.

The Bank of England delivered a 25 bps rate cut to 4.25%, though the internal vote revealed deep divisions. Two members favored a larger cut, while two opted to hold -highlighting the policy uncertainty confronting many central banks as they weigh still-elevated inflation against rising signs of demand fragility.

In Asia, regional currencies, particularly the Taiwanese dollar, appreciated rapidly against the greenback, driven by exporter-led dollar selling and shifting domestic flows. Geopolitical risks re-emerged, with India launching airstrikes into Pakistani territory – an escalation that reignited fears of broader conflict in a nuclear-armed region. Both the U.S. and China urged restraint.

China’s latest data pointed to decelerating momentum in services, with the Caixin services PMI slipping to 50.7. In response, the Central Bank stepped in with measured monetary easing, including a 10 bps cut to the reverse repo rate and a 50 bps reduction in reserve requirements, intended to inject around 1 trillion yuan into the system. While supportive, these measures also reflect the mounting policy burden in an environment where cyclical headwinds are increasingly intertwined with structural challenges.

April trade data were better than expected. Export data illustrated how China’s economy is responding to new U.S. tariffs. Its exports grew 8.1% year-over-year despite a 21% year-over-year drop in exports to the U.S. The growth was driven by reroutes largely to Southeast Asia markets. Imports contracted by a moderate 0.2% year-over-year compared to consensus expectations of -6.0% year-over-year, keeping the trade balance elevated for the month.