Stocks Surge as Geopolitical, Trade Tensions Recede 

For the week ending 27 June 2025

As of midday Friday, global equities were in record territory amid relief over a cease fire in the Middle East, progress toward trade deals with the US and hopes for easier Fed policy later this year. The yield on the US 10-year Treasury note fell 0.15% from a week ago to 4.26% as the price of a barrel of West Texas Intermediate crude tumbled nearly $10 to $65.60 as the near-term threat of disruption to Mideast oil supplies receded. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 18.7 from 20.7 last Friday.

MACRO NEWS

Trump says Mideast war over

Israel ended its state of emergency on Tuesday as a ceasefire with Iran took hold. US President Donald Trump declared the war “over” on Wednesday and announced talks between the US and Iran next week. Over the weekend, the US helped bring the conflict to an end after US forces attacked three Iranian nuclear sites, damaging them heavily. Iran retaliated against the US in calibrated fashion on Monday by launching missiles toward a US base in Qatar but inflicted no casualties. Oil prices fell over 18% from Monday’s highs to Tuesday’s lows before stabilizing in the mid-$60s.

US, China acknowledge trade progress but details scant

President Trump said Thursday that the US and China signed a trade deal earlier in the week. The White House said the countries agreed to a framework to implement the agreement reached in Geneva in May. China’s Commerce Ministry issued a statement on Friday, saying that it is reviewing and approving export licenses for rare earth elements, referencing the Geneva agreement, and further confirmed the details of the framework reached in June in London. Separately, China recently added two fentanyl precursors to a list of controlled chemicals, a major issue in US–China relations that has resulted in the blanket 20% US tariff on Chinese imports, to combat the flow of narcotics into the US. US Treasury Secretary Scott Bessent said Friday that President Trump’s trade push could be wrapped up by Labor Day.

Second Fed governor puts July cut in play

US Federal Reserve Governor Christopher Waller was the first to broach the subject of a rate cut as soon as the July meeting if inflation remains subdued. Vice Chair for Supervision Michelle Bowman became the second to express that view on Monday. Speaking on Capitol Hill on Tuesday, Fed Chair Jerome Powell steered clear of targeting a specific date for a cut but said that the majority of the FOMC is forecasting rate cuts later this year and that an early rate cut could be brought forward by a continued decline in inflation or a weakening labor market. Before Powell’s testimony, Trump fired another broadside at the Fed, pressuring the central bank to lower rates. On Wednesday, Trump said he had three or four candidates in mind to replace Powell, sparking speculation that a replacement may be named in September or October, though the White House said no decision is imminent. The conjecture over an early appointment helped push the dollar to its lowest level against the euro in nearly four years.

European powers pledge to increase defense spending

Members of the North Atlantic Treaty Organization held a summit at The Hague this week where NATO Secretary General Mark Rutte announced that all member states will reach their 2% of GDP target for defense spending, and they agreed to spend 5% of GDP on security annually by 2035. Germany said it plans to increase security spending by two-thirds by 2029. Just ahead of the summit, the EU and Canada signed a security pact, deepening their defense partnership. At the close of the summit, after members agreed to dramatically increase their defense budgets, Trump reiterated US support for Article 5 of the NATO Treaty which says that an attack on one member is an attack on all.

Bessent asks Congress to pull Section 899

Treasury Secretary Bessent said Thursday that he’s asked Congress to remove Section 899, the so-called “revenge tax” after reaching agreement with G7 partners to exempt US companies from global corporate minimum taxes. Investors had feared that Section 899 would negatively impact capital flows to the US.

QUICK HITS

Global PMIs improved at the margins in May, S&P Global data show.

The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation measure, rose more than expected in May, increasing to 2.3% year over year from an upwardly revised 2.2% in April. The core measure rose to 2.7% from an upwardly revised 2.6%. Personal income fell 0.4% last month, and spending fell 0.1%.

The White House said Thursday afternoon that the July 9 trade deadline is “not critical.”

The NASDAQ 100 closed at a record high on Thursday.

Director of the White House National Economic Council Kevin Hassett says that several trade deals are close to being complete but the Trump administration will wait until the reconciliation bill is completed before making announcements. He expects them to begin around the Fourth of July.

The Wall Street Journal reported Thursday that the European Union is considering lowering tariffs on a range of US imports in a bid to clinch a speedy trade deal with President Trump, but it’s ready to retaliate if talks fail. European Commission President Ursula von der Leyen said, “we are ready for a deal.”

Q1 US GDP was revised lower on Thursday to -0.5% from an earlier -0.2%. Consumption was revised down to a gain of just 0.5% from an earlier 1.2% rise. May durable goods orders jumped 16.4% amid a rebound in aircraft orders. Core orders rose a solid 1.7%.

The Fed plans to roll back the enhanced supplementary leverage ratio, which applies to the largest US banks, to reduce their capital requirement from 5% to 3.5%–4.5% and from 6% to 3.5%–4.5% for their banking subsidiaries. The proposal aims to help build resilience in US Treasury markets.

While the US is currently focused on the tax bill, the EU has signaled flexibility in digital regulation in trade talks with the US. Talks with India and Japan continue ahead of the expiration of the 90-day suspension for US reciprocal tariffs on July 9.

Irish Finance Minister Paschal Donohoe said that impending US pharma tariffs may cost Ireland 75,000 jobs.

A parliamentary setback could slow the momentum of passing President Trump’s tax bill before the self-imposed July 4 deadline. Senators have been forced to refashion $250 billion in Medicaid savings to conform with reconciliation rules. The White House reportedly continues to push wrapping up the legislation before Independence Day.

European Central Bank President Christine Lagarde said this week that the central bank sees weaker near-term growth prospects and that it expects inflation to stabilize sustainably near 2%.

US existing home sales rose 0.8% in May from April. The median sales price was $422,800. However, new home sales fell 13.7% month over month in May. The Case-Shiller home price index rose 2.7% year over year in April, slower than the 3.4% pace in March.

Japan will shift the mix of government bond issuance, increasing short-dated debt sales by the equivalent of $21.7 billion while reducing sales of bonds at the long end of the curve.

The ifo Business Climate Index rose to 88.4 in June from 87.5 in May, showing that business confidence in the German economy is slowly improving.

Trump says China will now be allowed to buy Iranian oil, suggesting output caps on Iran may be raised as part of a peace deal.

The EU said Tuesday that a baseline US tariff would spur retaliation on the part of the EU.

Conference Board Consumer confidence index dropped to 93 in June from 98.4 in May. Economists had expected a rise to 99.8.

A summary of the recent Bank of Japan meeting showed that members showed a preference for holding rates steady amid elevated uncertainties.

The White House Council of Economic Advisers projects that Trump economic policies will reduce US budget deficits by $8.5 trillion to $11 trillion over the next decade.

Canadian CPI held steady, rising 1.7% year over year in May.

THE WEEK AHEAD

Monday: UK Q1 final GDP

Tuesday: Global manufacturing PMIs, eurozone preliminary CPI, US JOLTS

Wednesday: Eurozone unemployment

Thursday: Global services PMI, US nonfarm payrolls

Friday: Eurozone PPI, US closed for Independence Day

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Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.