Decode Weekly Markets Recap: Highlight and Insights on second week of June

Oil Advances as Middle East Tensions Intensify

United State

Equity markets in the U.S. ended the week lower, reversing initial gains as tensions escalated in the Middle East. Small- and mid-cap stocks underperformed: the S&P MidCap 400 and Russell 2000 dropped by 1.46% and 1.49%, respectively. The Dow Jones Industrial Average slipped by 1.32%, pushing it back into negative territory for 2025. The broader S&P 500 and Nasdaq Composite also retreated but maintained positive year-to-date performance.

Up until Thursday, optimism prevailed on the back of upbeat economic indicators and reports of progress in trade negotiations between the U.S. and China, including hints that the Trump administration might prolong its tariff suspension for countries engaging sincerely in discussions. Positive remarks by Treasury Secretary Scott Bessent reinforced this view.

However, investor sentiment shifted sharply on Friday when Israel conducted airstrikes on Iran’s nuclear and military sites, vowing further action. Iran retaliated the same day, triggering a spike in oil prices that benefited energy shares but caused broad equity indexes to surrender earlier gains.

Moderate Inflation in May

In addition to trade optimism, market buoyancy earlier in the week was partly due to softer-than-forecast inflation figures. The Bureau of Labor Statistics (BLS) reported a 0.1% rise in the consumer price index (CPI) for May, easing from April’s 0.2% and falling short of the 0.3% consensus estimate. Year-on-year, the CPI climbed by 2.4%—slightly higher than April’s four-year low of 2.3% but below the projected 2.5%. Core CPI (excluding food and energy) stayed at 2.8% annually, a touch below the expected 2.9%.

At the wholesale level, producer prices also grew less than forecast, with the producer price index increasing by 0.1% for May—up from a marginal dip in April but under the expected 0.2%. This suggests limited pass-through from tariffs to wholesale inflation so far.

Improved Business and Consumer Confidence

Small business sentiment rebounded after four months of decline, with the NFIB’s optimism index climbing to 98.8 in May—three points higher than April and surpassing the long-term average of 98. NFIB Chief Economist Bill Dunkelberg noted better business outlooks and sales expectations, although uncertainty remains elevated.

Consumer confidence strengthened too: the University of Michigan’s early June reading rose to 60.5 from May’s 52.2, ending a six-month slide. According to Joanne Hsu, Director of Surveys of Consumers, households have adjusted somewhat to recent tariff shocks and policy swings. Near-term inflation expectations dropped markedly to 5.1% from 6.6% the previous month.

Treasuries Rally, Then Trim Gains

Treasuries benefited through Thursday as yields fell on lighter inflation data, though part of these gains reversed on Friday following the Middle East developments. Traders at T. Rowe Price observed that a robust 10-year Treasury auction on Wednesday added support to demand for government bonds, easing worries about waning appetite.

Source: Reuters, Yahoo! Finance, Bloomberg. Data as of 4 p.m. ET.

Europa

Measured in local currency, the STOXX Europe 600 fell 1.57% amid lingering trade uncertainties and heightened Middle East risks. Major national indexes lost ground too: Germany’s DAX declined 3.24%, Italy’s FTSE MIB shed 2.86%, and France’s CAC 40 eased by 1.54%. The UK’s FTSE 100 was largely flat.

UK Economic Weakness; Labor Market Eases

UK GDP contracted 0.3% in April after expanding 0.2% in March—the steepest monthly drop since October 2023. This was driven by a slide in services and industrial output. However, output rose 0.7% over the three months to April. Goods exports to the U.S. tumbled by GBP 2 billion, marking the largest monthly drop since records began in 1997.

Labor market conditions softened further, with unemployment rising to a four-year high of 4.6% for the February–April period. Wage growth excluding bonuses moderated to 5.2%, its slowest pace since Q3 2024.

Eurozone Industry and Trade Data Disappoint

Euro area industrial production shrank by 2.4% in April—worse than the expected 1.8% fall. The region’s trade surplus narrowed dramatically to EUR 9.9 billion in April, down from EUR 37.3 billion in March.

ECB May Pause Easing Cycle

Recent statements by ECB President Christine Lagarde and Chief Economist Philip Lane have raised the possibility of a pause in monetary easing, with officials highlighting that current policy is well-aligned with inflation goals. T. Rowe Price’s Tomasz Wieladek noted a shift in the ECB’s stance, implying that further rate cuts are now less likely without significant negative surprises.

Japón

Japanese equities posted mixed returns: the Nikkei 225 gained 0.25%, while the TOPIX dipped 0.46%. Heightened geopolitical tensions boosted the yen to near JPY 143 per USD, weighing on the earnings outlook for exporters.

Focus on G7 for Trade Progress

Amid fresh tariff threats by the U.S., Japan’s 10-year government bond yield fell to 1.40% from 1.46% the week before. Investors hoped the upcoming G7 summit would revive U.S.–Japan trade talks. Prime Minister Shigeru Ishiba reaffirmed that Japan would pursue a fair, mutually beneficial deal rather than rush negotiations.

Revised data showed flat GDP growth in Q1 2025, an improvement from the initial estimate of a slight contraction. Private consumption was stronger than expected. Separately, April industrial output fell 1.1% month-over-month, more than the preliminary 0.9% decline.

China

Mainland Chinese equities declined as deflation concerns persisted: both the CSI 300 and Shanghai Composite dipped 0.25%, according to FactSet. Hong Kong’s Hang Seng Index edged up 0.42%.

China’s CPI dropped year-over-year for a fourth month in May, while factory gate prices fell for the 32nd consecutive month, marking the steepest drop in nearly two years (Bloomberg). Although a temporary U.S.–China tariff reprieve lifted short-term optimism, deflation remains a structural challenge amid the property market’s prolonged weakness.

Stocks briefly rose midweek following news of a preliminary trade deal between China and the U.S. after talks in London, but details remain pending approval by both nations’ leaders.

Other Notable Markets

Poland

Prime Minister Donald Tusk retained his mandate through a confidence vote (243–210) following a tight presidential election where nationalist Karol Nawrocki defeated liberal challenger Rafal Trzaskowski.

Colombia

Political and fiscal instability deepened as the government reportedly abandoned its fiscal rule and widened its deficit target amid rising unrest and attacks in the southwest. T. Rowe Price’s Aaron Gifford expects persistent uncertainty despite the possibility of regime change next year.