2025 Weekly Update

Market update

The S&P 500 closed the week at 5,976.97, -0.39% lower. The Dow Jones closed at 42,197.79, -1.32%, with the Nasdaq lower by -0.63%. The volatility index VIX closed the week at 20.82, up from 16.77. The Euro Stoxx 600 fell -1.57%.

The 10-year UST closed at 4.40%, down from 4.51% a week before. The yield curve is slightly upward sloping with the yield spread between the 3-month and 10-year UST at 3bps. US Corporate Bond spreads: Investment Grade spreads narrowed -70bps at 89bps and High Yield spreads narrowed -4bps at 353bps. German 10-year Bunds yield closed at 2.53% down from 2.57% a week before. In Europe, Corporate Investment Grade spreads narrowed -2bps at 105bps and High Yield remained at 330bps.

The US Dollar Index (DXY) depreciated -1.01% last week and closed at 98.18. The Euro closed at 1.1549 (+1.33%); the Yen appreciated +0.54%, closing at 144.07 and the Swiss Franc appreciated +1.33%, closing at 0.8114. Gold closed at $3,432.34, appreciating +3.68%. Oil was higher, Brent closed at $74.23 (+11.67%) and WTI at $72.98 (+13.01%).

Macroeconomy

US prices

US monthly headline CPI was up by just +0.08% in May (vs. +0.2% expected), whilst core CPI was up +0.13% (vs. +0.3% expected). In fact, the core CPI print was beneath Bloomberg estimates. Investors were reassured by the lack of an obvious tariff impact, with core goods prices falling -0.04% in May. Regarding the subcomponents, there were a few initial signs of the tariffs, as toys (+1.35%) posted their strongest monthly jump in over 4 years, whilst major appliances (+4.31%) saw their biggest jump in almost 5 years. Looking at the last 3 months, the annualized rate of headline CPI fell to just +1.0%, the weakest since July. Similarly for core CPI, the 3-month annualized rate was also down to +1.7%. In terms of producer prices, monthly headline PPI was up just +0.1% in May (vs. +0.2% expected), whilst core PPI only rose +0.1% as well (vs. +0.3% expected). Other data showed similar trends. The New York Fed’s Survey of Consumer Expectations showed 1yr expectations coming down four-tenths to 3.2%, whilst 5yr expectations were down to a 14-month low of 2.6%. So that was a far more benign assessment of inflation relative to other measures, as the University of Michigan’s reading had shown 1yr expectations surging up to 6.6% in May. The NFIB’s small business optimism index showed that a net 31% said they were planning to raise average selling prices, the highest share in over a year. But there was some brighter news, as the headline index showed that for the first time in 2025, small business had grown more optimistic, with the headline gauge up to 98.8 in May (vs. 96.0 expected), and up from 95.8 the previous month.

Tariffs

US and China concluded the London meeting with an “agreement framework”. So far, details are still missing. According to Trump’s social media post, both countries have reached an agreement on China resuming rare earth supply to the US. In exchange US will remove some recently imposed restrictions on China, for example, student visas. According to rumors circulating on Chinese social media, US will also remove restrictions on commercial jet engine exports to China. Whether US will relax export controls on advanced chips or chip-making tools is still unknown. What’s more certain is that the US tariff on Chinese goods will stay at the current level of 30% (plus the ~25% from Trump’s first term) and Chinese tariff will stay at 10%. So the level of tariff uncertainty is still significantly lower than before the Geneva meeting. In other trade news, the US Court of Appeals extended its temporary reprieve for the administration’s tariffs that had been blocked by the US Court of International Trade in late May, as it scheduled arguments in the case for July 31. So that leaves wide-ranging tariffs imposed under the International Emergency Economic Powers Act in place, while confirming that the legal uncertainty over their use will remain unresolved until well after the July 9 deadline for the reciprocal tariff delay. Separately, Bloomberg reported that the US and Mexico are close to a deal that would remove 50% of steel imports from Mexico up to a certain quota.

US data

Weekly jobless claims came in higher-than-expected. Jobless claims moved up to their highest level since late-2021, at 1.956m in the week ending May 31 (vs. 1.910m expected). The initial claims have also been moving higher in recent weeks, and the 4-week average now stands at 240.25k for the week ending June 7, highest since August 2023. The Univ. of Michigan's survey showed sentiment index rising to 60.5 (beating the estimate of 53.6). Inflation expectations also eased, with the 1-year outlook declining to 5.1% and the 5-to-10-year horizon falling to 4.1%.

Central banks

On Wednesday, the Fed will announce its rate decision and will update their Summary of Economic Projections (SEP). Investors expect the Fed to be on hold and leave the Fed funds rate at 4.50%. In line with the existing biases from previous statements, the SEP will likely show weaker growth, higher inflation, and could show a softer labor market. The recent spike in oil will just add to all of this even if recent inflation data has been better than expected. Future price increases from tariffs loom in the background even if their initial impact has taken a bit longer to show up than expected. On Tuesday, the Bank of Japan is expected to announce their rate decision. Market expects the target for the short-term policy rate to be maintained at 0.50%. There’s also the interim assessment of the JGB purchase plan to look forward to. The next hike rate is expected by the market in October with only a 30% probability. On Thursday, the Bank of England will meet and is expected to hold the reference rate at 4.25%. They might open the door to an 25bps August rate cut which is priced at 76%. Sweden's Riksbank and Norway's Norges bank will meet on Wednesday. Also on Thursday, Switzerland's SNB will meet. The SNB is expected to cut rates back down to zero which will be a landmark moment after three years of positive rates following 7-8 years of negative rates. There is some risk that they cut into negative rate territory.

Chinese data

Chinese retail sales grew at their fastest rate since late 2023, jumping +6.4% y-o-y in May, beating estimates for +4.9% growth and accelerating from the +5.1% growth the previous month in part helped by the extended Labor Day and Dragon Boat holidays. On the other hand, growth in industrial output slowed to +5.8% y-o-y in May (vs. +6.0% expected) from +6.1% the prior month. Additionally, Fixed-asset investment has expanded +3.7% this year as of May from a year earlier, undershooting the market forecast for a +4.0% increase and slowing from +4.0% growth in the first four months. China’s new home prices fell in May, extending a two-year long stagnation. Prices fell -0.22% m-o-m, the most in seven months in May after sliding -0.12% the previous month, suggesting that the nation’s property sector remains stagnant.

Highlights

On rates

Sovereign yields ended the week mostly down. In the US, Treasuries posted solid gains midweek, helped by softer than expected inflation data and solid Treasury auctions. The 10yr auction saw $39bn of notes issued -0.7bps below the pre-sale yield, while the 30yr auction went smoothly despite recent concerns over demand for long-end bonds. Following that auction, the 30yr yield dropped -7.6bps, hitting a one-month low of 4.84%. Over the week, the 10yr Treasury yield dropped by -10.7bps to 4.40%, and the 2yr Treasury yield fell by 9bps to 3.95% despite rising on Friday as the impact of higher oil prices outweighed initial safe-haven flows. Fed expectations moved in a dovish direction, with the market now pricing in 50bps of cuts by the December meeting, up +6.2bps over the week despite having been as high as 58bps on Friday morning. Sovereign bonds saw similar moves in Europe. The 10yr Bund yield came down -4.0bps to 2.53%, the 10yr OAT yield rose slightly by +1.2bps to 3.25%, and the 10yr BTP yield was -0.4bps lower at 3.48%. In the UK, the 10-year gilt yield closed at 4.55%, after the latest GDP numbers reported a larger than expected monthly contraction.

What to watch

• Monday: G7 Summit; China Macro for May; Eurozone Labor Cost; US Empire Manufacturing
• Tuesday: G7 Summit; BOJ Rate Decision; Singapore Exports; Germany ZEW Survey; US Retail Sales
• Wednesday: Indonesia Rate Decision; UK CPI; Sweden Rate Decision; US FOMC Rate Decision, Jobless Claims, Housing Starts
• Thursday: Rate Decisions from Taiwan and Philippines; Australia Employment; Rate Decisions from Switzerland, UK and Norway
• Friday: Japan CPI; China Loan Prime Rate; Taiwan Export Orders; UK Retail Sales