Global markets retreat as trade and geopolitical tensions weigh
Global equities and the dollar declined as investors assessed soft US inflation data alongside rising Middle East tensions and an uncertain US-China trade truce.
Market activity
European markets opened lower as expected, with the DAX 40 falling 0.8% and the FTSE 100 declining 0.4% following weak futures indications. This follows a modest pullback on Wall Street, where the S&P 500 dropped 0.27% and the Nasdaq 100 declined 0.50% after approaching record highs.
The much-anticipated US-China trade agreement has failed to provide the market catalyst many expected. While the deal removes Chinese export restrictions on rare earths and enables student access, the lack of concrete details has left investors unconvinced. President Trump's signals of additional tariffs targeting multiple countries have further dampened optimism about lasting trade progress.
China's approval of the framework remains pending, and critical issues including US AI chip export restrictions stay unresolved. This uncertainty comes as Middle East tensions escalate sharply, with Iran threatening to target US bases and prompting embassy evacuations across the region.
Currency markets reflect shifting sentiment
The US dollar has suffered its worst performance in seven weeks, with the dollar index hitting multi-week lows and declining 9% year-to-date. The euro has strengthened to $1.1525, while the Japanese yen firmed to 143.85 per dollar as investors seek safe-haven currencies.
Commodities surge on supply concerns
Oil prices have reached two-month highs near $70.00 per barrel, driven by fears of Middle East supply disruptions. The energy sector remains highly sensitive to geopolitical developments in the region.
Gold trading activity has intensified, with the precious metal rising 0.6% to $3,372.29 as safe-haven demand increases.
Mixed inflation and economic data
US consumer price inflation rose 2.4% year-on-year (YoY) in May, slightly below consensus expectations. However, tariff-related price pressures are expected to build later in the year. Markets are pricing a 70% probability of Federal Reserve (Fed) rate cuts by September, though next week's meeting is likely to see rates held steady.
UK economic data disappointed, with gross domestic product (GDP) contracting 0.3% in April, worse than forecasts. Industrial and manufacturing output remained sluggish, highlighting ongoing challenges for the British economy.
Corporate earnings have been mixed, with shares like GameStop falling 5.3% on weak revenue and GitLab dropping 11% after disappointing results. Tech stocks including Amazon and Nvidia have pulled back from recent highs.
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