Market drivers and catalysts
Equities: US and European stocks fell as yields and oil rose, Asia weakened, with Korea’s chip rally hitting a wall.
Currencies: The US dollar rallies broadly on latest Hormuz Strait uncertainty and aggravated rise in US Treasury yields.
Commodities: Crude extends gains as energy crisis nears “tipping point”, metals pressured by inflation fears, grains rebound on China demand
Fixed Income: Global long bond yields punched aggressively higher to new cycle highs, setting the tone across markets
Macro: US May NAHB Housing Market Index
Macro headlines
China agreed to purchase at least $17 billion in US agricultural products annually through 2028, in addition to soybean commitments already agreed to, following President Trump's visit to Beijing.
The US and Iran remained far apart on a deal to end weeks of war and reopen the crucial Strait of Hormuz, with President Trump saying the clock is ticking for Iran.
A drone attack sparked a fire at a United Arab Emirates nuclear plant, underscoring the fragility of the ceasefire.
Fed minutes due this week will be watched for signs of whether prospects of an interest rate hike are building given elevated energy prices.
The Bank of Japan is likely to raise interest rates by 25 basis points twice this year to better control inflation, according to Carlyle Japan co-head.
This week, the earnings season begins to wind down, but with key updates from U.S. heavyweights Nvidia and Walmart. Inflation data will remain in focus with April CPI readings from Canada, the UK, and Japan. Preliminary May PMI data across several economies should provide additional insight into how the private sector is weathering the impact of the Iran war.
Domestic economic weakness broadened across the Chinese economy in April, highlighting an economy increasingly reliant on manufacturing and exports while continuing to struggle with weak household confidence. Fixed-asset investment declined 1.6% in the first four months from a year earlier, retail sales missed expectations with growth of just 0.2% YoY, while industrial production rose 4.1% YoY, also below the 6% forecast and slowing from 5.7% in March.
Macro calendar highlights (times in GMT)
• 0700 – Switzerland 1Q GDP
• 1400 – US May NAHB Housing Market Index
• 2350 – Japan 1Q GDP
Earnings this week
Tuesday: The Home Depot, Keysight Technologies
Wednesday: Nvidia, Analog Devices, TJX Companies, Lowe\s, Intuit, Tokio Marine Holdings, Target
Thursday: Walmart, Deere, Ross Stores
For all macro, earnings, and dividend events check Saxo’s calendar.
Equities
USA: The S&P 500 fell 1.2% on Friday, the Nasdaq 100 dropped 1.5%, and the Dow lost 1.1% as bond yields jumped and higher oil revived inflation worries. Tech led the pullback after the Philadelphia Semiconductor Index fell 4.0%, with Nvidia down 4.4%, Micron down 6.6%, and Broadcom down 3.3% as investors took profit in the AI trade. Microsoft rose 3.1% after Bill Ackman’s Pershing Square disclosed a new stake, a rare green patch on a very red screen. Markets now watch oil, yields, and upcoming earnings for direction.
Europe: The Stoxx Europe 600 fell 1.5% on Friday to 606.92, while Germany’s DAX dropped 2.1% and the FTSE 100 lost 1.7% as higher oil, rising bond yields, and UK political noise weighed on risk appetite. Banks weakened as yields rose for the wrong reason, with BNP Paribas down 3.0% and Deutsche Bank down 2.6%, while LVMH fell 1.1% after news of the Marc Jacobs sale. Stellantis dropped 3.5% on its Dongfeng deal, while TotalEnergies rose 0.5% as oil strength offset renewed French tax talk. Investors now watch whether energy prices keep feeding the inflation story.
Asia: Asian markets ended mixed-to-weaker on Friday, with Hong Kong’s Hang Seng down 1.6% to 25,962.73 and South Korea’s Kospi plunging 6.1% to 7,493.18 after its recent record run. Alibaba fell 4.1% in Hong Kong, while Samsung Electronics dropped 8.6% and SK Hynix lost 7.7% as strike risks and profit-taking hit Korea’s AI chip leaders. Japan remained the regional bright spot earlier in the week, with the Nikkei 225 rising 0.8% on Wednesday to a record 63,272.11 on strong earnings. The week ahead tests whether Asia’s AI rally has stamina or just very good running shoes.
Fixed Income
Global long-dated yields exploded higher and yield curves steepened late last week on higher crude oil prices and on the sense that leading central banks, including especially the US Federal Reserve and the Bank of Japan, will do little on the policy front to tighten policy and stem inflationary risks.
The benchmark US 10-year treasury yield rose above 4.50% for the first time in nearly a year, trading up nearly 25 basis points last week and higher still to start the week as the benchmark trade above 4.62% early Monday. The benchmark 30-year US T-bond yield rose above 5.00% and touched 5.15% in early trading Monday, just two basis points shy of the post-GFC highs in that benchmark from 2023. At the short-end of the curve, the market is reluctant to price that the Warsh Fed will raise rates, as the benchmark 2-year treasury yield rose eighteen basis points, sending the benchmark above 4.00% on a weekly close for the first time this year. Early Monday, the yield rose another three basis points to 4.10%.
Japan’s government bond yield curve steepened in almost disorderly fashion on a vicious sell-off in the country’s longest dated bonds. The benchmark 30-year JGB rose 30 basis points last week to close above 4.0% for the first time since the introduction of the 30-year bond in the late 90’s, with much of the rise coming on Thursday and Friday. A further spike Monday sent the benchmark another 18 basis points higher and above 4.20% before it retreated toward 4.10% later in the session. At the front end of the curve, the benchmark 2-year JGB yield rose about a basis point on top of Friday’s nearly two basis point jump, trading near 1.43% as the market is slow to raise expectations for BoJ tightening.
Commodities
The Bloomberg Commodity Total Return Index gained 2% last week, with an end-of-week selloff in precious metals, alongside profit-taking across grains and softs, more than offset by renewed strength in energy where crude and fuel product futures all rose by more than 6% on the week. The index’s year-to-date gain reached 30%, double the return delivered by the tech-heavy Nasdaq.
Brent trades back above USD 111, rising for a third consecutive day with no end in sight to the Middle East crisis. According to the Financial Times, nearly 80 countries have introduced emergency measures aimed at shielding their economies as the world enters a potentially more dangerous phase of the energy crisis ahead of possible tipping point with traders warning that oil prices could see another sharp leg higher unless the blockaded Strait of Hormuz opens soon. Trump told Axios: “We want to make a deal,” but added that Iran “will have to get there or they will be hit badly.”
Gold, silver and copper, continue to trade lower following last week’s sharp declines, when inflation concerns roiled markets, pushing bond yields and the dollar higher while reviving fears of additional rate hikes. In addition, concerns central banks may sell gold to support currencies and mitigate surging energy costs have also been weighing. Gold has so far found support and bounced from the USD 4,500 area, with the next key level lower being the 200-day moving average, last around USD 4,350. Silver meanwhile trades near the centre of its broad and very wide USD 60 to 90 range.
The grains sector trades higher following a two-day slump led by wheat, after China agreed to purchase at least USD 17 billion of agricultural products annually through 2028. At the same time, rising energy prices continue to add another supportive layer through the biofuel channel.
Currencies
The US dollar rallied broadly and decisively late last week on the rise in crude oil prices and on a weakening in global risk sentiment Friday as global bond yields rushed higher. EURUSD fell below the range low since early April of 1.1655 Friday, trading as low as 1.1608 early Monday.
USDJPY rallied as high as 159.07 early Monday amidst widespread USD strength and an almost disorderly sell-off in Japan’s longest-dated government bonds, with the rally likely somewhat muted due to the concern that Japan’s Ministry of Finance could step in at any time to push back against further JPY weakness after having intervened several times since USDJPY briefly traded above 160.00 in late April.
Sterling weakened broadly late last week on political uncertainty as Keir Starmer’s days as Prime Minister are seen as likely numbered and the market frets who might replace him and whether they will prioritize fiscal stability as highly as did his government. UK long Gilt yields burst to new post-GFC highs on Friday as EURGBP rose further above 0.8700 and GBPUSD fell into the low 1.3300’s after taking out the range lows near 1.3450.
