U.S. equities ended the week lower, with the S&P 500 closing down 0.39% on Friday. Despite escalating geopolitical tensions, US Dollar and US Treasuries did not benefit from the typical flight-to-safety trade. Week on week, USD had a mixed performance where most G10 strengthened against the US dollar such as Norwegian and Danish Krone, Euro, Swiss Franc among others, while emerging market (EM) currencies such as Philippine Peso, Indian Rupee and South Korean Won weakened.
In the US Treasury market, the 10-year yield initially declined to around 4.30% following weaker-than-expected Consumer Price Index (CPI) and Producer Price Index (PPI) releases midweek. However, yields reversed course by Friday, climbing back to approximately 4.4% as investors reassessed the geopolitical landscape and in anticipation of FOMC meeting in the coming week.
Adding to the policy backdrop, Scott Bessent, U.S. Treasury Secretary, stated last week that with just over 20 days remaining before the 9 July tariff deadline, there is a high likelihood that the US will extend the current tariff pause. He noted that several countries, including the European Union, are negotiating in good faith, and even if a final agreement is not reached by the deadline, the existing terms may be rolled forward. Bessent added that ongoing trade discussions with key partners are expected to continue under the current framework in the interim.
Looking ahead, markets will be focused on the upcoming Federal Open Market Committee (FOMC) meeting on 17–18 June. Investors are keen to see whether the US Federal Reserve (Fed) will revise its economic projections, particularly in light of recent tariff announcements and potential cost passthrough. While economic activity has shown signs of softening, many Fed officials have continued to sound cautious due to inflation concern.
The Fed’s last economic projection was released in March and did not fully account for the potential inflationary effects of tariffs. As such, the market expects potential tweaks to the dot plot in the upcoming meeting. Current market pricing still anticipates two 25 basis point (bps) rate cuts by December 2025, though this remains highly data-dependent.
In Europe, following 25bps rate cut by the European Central Bank (ECB), bringing total cuts to 200 bps from the peak, ECB members have struck a more cautious tone in recent remarks, signalling that further cuts would require stronger justification. Supporting this view, ECB Chief Economist Philip Lane and other officials reiterated last week that the rate path ahead would remain data-dependent. Consequently, eurozone markets have revised their expectations lower, now anticipating only one more rate cut by year-end.
Asia
Markets were closely watching the outcome of the U.S.–China trade talks held in London. Both sides agreed to a framework aimed at de-escalating tensions. China announced it would remove some export restrictions on rare earth minerals for civilian use, though military-grade exports remain tightly controlled. President Trump also clarified that U.S. duties on Chinese imports would total 55%—a combination of the existing 25% tariffs on select goods and a new 30% across broader categories. Despite the progress on trade, investors remained cautious amid ongoing global uncertainties. Cash levels are around 1–2%.