2025 Weekly Update

Market update

The S&P 500 closed the week at 5,911.69, +1.88% higher. The Dow Jones closed at 42,270.07, +1.60%, with the Nasdaq higher by +2.01%. The volatility index VIX closed the week at 18.57, down from 22.29. The Euro Stoxx 600 rose +0.65%.

The 10-year UST closed at 4.40%, down from 4.51% a week before. The yield curve is upward sloping with the yield spread between the 3-month and 10-year UST at 5bps. US Corporate Bond spreads: Investment Grade spreads narrowed -4bps at 174bps and High Yield spreads narrowed -7bps at 362bps. German 10-year Bunds yield closed at 2.50% down from 2.57% a week before. In Europe, Corporate Investment Grade spreads narrowed -2bps at 109bps and High Yield narrowed -1bp at 360bps.

The US Dollar Index (DXY) appreciated +0.22% last week and closed at 99.33. The Euro closed at 1.1347 (-0.13%); the Yen depreciated -1.02%, closing at 144.02 and the Swiss Franc depreciated -0.16%, closing at 0.8224. Gold closed at $3,289.25, depreciating -2.03%. Oil was lower, Brent closed at $63.9 (-1.36%) and WTI at $60.79 (-1.20%).

Macroeconomy

Tariffs

Late on Friday night, President Trump doubled tariffs on imported steel and aluminum to 50%, starting this Wednesday. Before that, President Trump claimed that China had violated its trade agreement with the US from May 12, following comments by US Treasury Secretary Bessent the previous day that trade talks with China had stalled. Reports from Bloomberg and the WSJ say that tensions arose from the pace of Beijing lifting its rare earth export licenses. With US Trade Representative Jamieson Greer saying that there are still ongoing efforts to arrange a call between the two presidents, it looks like we may be back in the “waiting for the call” scenario that we were in originally during April and the early weeks of May. China responded by also accusing the US of violating the agreement. We also heard about the tariff court case. The US Court of International Trade ruled that the Trump administration didn’t have the authority to impose most of the announced tariffs that were implemented using emergency powers. So that would block tariffs including the 10% baseline, the 25% on Canadian and Mexican products, the extra 20% on China, and the paused reciprocal tariffs. There are other avenues the administration can use instead. The problem is these would take longer to implement while the incentive for other countries to strike a deal with the US is low due to the uncertainty. Then, the Court of Appeal allowed the tariffs to temporarily stay in place, giving a June 9 deadline for briefs on the administration’s request for a longer-term stay on the trade court’s tariff suspension. The exact timing of the appeal is unclear, and with further appeals to the Supreme Court appearing likely, the uncertainty may well linger beyond the current July 9 deadline on the reciprocal tariff pause. President Trump broke his initial silence on the ruling in a lengthy post, saying “Hopefully, the Supreme Court will reverse this horrible, Country threatening decision, QUICKLY and DECISIVELY”, adding that the decision “would completely destroy Presidential Power”.

US data

Core PCE inflation for Q1 was revised down a tenth, to +3.4%. The growth picture also looked a bit less robust, as even though the GDP contraction was revised up a tenth to an annualized -0.2% rate, there was a half-point downward revision to real final sales to domestic private purchasers, to 2.5%. The Conference Board’s latest consumer confidence indicator for May rose for the first time in six months, rebounding by more than expected to 98.0 (vs. 87.1 expected). That included a particularly large jump in the expectations component, which surged 17.4pts on the month to 72.8, which is the biggest monthly rise since May 2009, as the US economy was still emerging from the aftershocks of the global financial crisis. Initial jobless claims rose to 240k in the week ending May 24 (vs. 230k expected), while continuing claims moved up to 1.919m (vs. 1.893m expected) for the week before that. The updated Q1 GDP release saw the annualized pace of personal consumption growth revised to its lowest in seven quarters (+1.2% vs +1.7% initial), while pending home sales for April saw their biggest monthly fall since September 2022.

Fedspeak

The latest FOMC meeting minutes re-iterated that “the committee was well positioned to wait for more clarity on the outlooks for inflation and economic activity” and saw an increased focus on the risk of inflation expectations drifting upward. On the downside, the Fed “staff viewed the possibility that the economy would enter a recession to be almost as likely as the baseline forecast”, though one should note that the meeting was on May 7, shortly before the delay in US-China tariffs. Also, there was the first in-person meeting between Trump and Fed Chair Powell since the president’s inauguration. According to the White House, Trump told Powell he is making a mistake by not cutting rates. Meanwhile, in a short statement from the Fed, it was emphasized that the FOMC will make policy decisions “based solely on careful, objective, and non-political analysis”.

ECB meeting

The European Central Bank is expected to meet on Thursday this week. Markets are still pricing in a 25bps cut as a near-certainty for June, with a pause considered more likely at the meeting in July. Last week we heard from several ECB speakers. Austria’s Holzmann endorsed keeping rates unchanged at the next couple of meetings, saying that moving rates “further south would be more risky than staying where we are and waiting until September”. He’s one of the most hawkish on the Governing Council and had already called for a pause at the last meeting in April. Germany’s Nagel, another typically hawkish voice, said it was too early to say if the ECB will cut rates in June. Meanwhile, ECB Chief Economist Lane said that the ECB can respond with further cuts “If we see signs of further falling inflation” but suggested that the terminal rate in the easing cycle was unlikely to be below 1.5%.

Asia data

In Japan, the Tokyo CPI for May beat Bloomberg consensus on both the core measure (3.6% vs 3.5% expected) as well as core-core (3.3% vs 3.2%). April retail sales and industrial production for the economy also beat. In Australia, headline inflation remained stable at 2.4% y-o-y to April, a bit higher than the projected 2.3%. The slight increase was driven by rising health and holiday expenses, which counteracted the effect of falling petrol prices. The RBA's preferred inflation gauge, the trimmed mean, climbed to 2.8%. The final estimate of the S&P Global Australia Manufacturing PMI indicated a weakening to 51 in May, a decrease from 51.7 in April and the lowest level since February. This marks the second consecutive month of decline, driven by a deceleration in the growth of new orders, which offset a rebound in export demand. In New Zealand, the RBNZ reduced its key interest rate by 25bps as expected to 3.25% and signaled a larger-than-anticipated future easing cycle. This decision was driven by growing concerns about the impact of evolving US trade policies on economic growth, with the bank now forecasting rates of 2.92% and 2.85% for late 2025 and early 2026, respectively. In China, the official manufacturing PMI came in at 49.5, up from 49 in April and in line with expectations. The non-manufacturing PMI dipped a tenth of a point to 50.3, two-tenths below expectations. The composite PMI edged up to 50.4 from 50.2.

Highlights

On rates

In the US, investors returned to Treasuries amidst the latest legal developments on President Donald Trump’s tariffs. The 10yr US Treasury ended the week at 4.40%, -11bps lower. The bond rally was also supported by a solid 7-year Treasury auction that saw $44bn of notes issued -2.2bps below the pre-sale yield. Fed expectations moved in a dovish direction. The market is pricing in 55bps of incremental cuts this year, up from 47bps the previous week. In May, US Treasuries delivered their first monthly loss this year, driven by renewed tariff uncertainty and growing anxiety over mounting levels of government debt. The 30yr yield rose for a third consecutive month, its longest losing streak since 2023, as Trump wrestles with Congress over a bill that promised tax cuts. Over in Europe, sovereign rates saw a sizeable curve flattening. 10yr bund yields ended the week -6.7bps lower at 2.50%, but the 2yr yield rose +1.2bps, in part due to Germany’s inflation data for the month of May, which came slightly above expectations. Investors are fully pricing in a 25bps rate cut at this week’s ECB meeting, and only a little over one further cut for the rest of the year. It was also a volatile week in Asia where the 30yr JGB yield fell by more than -19bps during a session. That was the biggest daily decline since the regional banking turmoil of March 2023, and marked a sharp reversal from recent weeks, when yields had hit their highest level since that maturity was first issued. The move followed speculation that Japan’s finance ministry would be cutting long-dated issuance, leading to a huge rally among those bonds. Since then, JGB yields have reversed some of their rally after demand at a 40yr auction fell to its lowest since July, pushing yields up.

What to watch

• Monday: Japan Q1 MoF corporate survey; Switzerland Q1 GDP; Canada May manufacturing PMI; US May ISM manufacturing index, April construction spending
• Tuesday: China May Caixin manufacturing PMI; Japan May monetary base; Switzerland May CPI; Eurozone May CPI, April unemployment rate; US April factory orders, JOLTS report, May total vehicle sales
• Wednesday: UK May official reserves changes; Canada Q1 labor productivity; US May ADP report, ISM services
• Thursday: China May Caixin services PMI; Japan April labor cash earnings; UK May new car registrations, construction PMI; Germany April factory orders, May construction PMI; Eurozone April PPI; Canada April international merchandise trade; US April trade balance, initial jobless claims
• Friday: Japan April household spending; Germany April industrial production, trade balance; France April trade balance, current account balance, industrial production; Eurozone April retail sales, Canada May jobs report; US May jobs report, April consumer credit