ORLANDO, Florida (Reuters) – – TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
A week that started with investors in a reasonably optimistic mood, betting that the U.S. and China would strike a deal in their trade talks in London, ended on a sour note as Israel’s strike on Iran sparked a sharp rise in oil prices and a selloff in world stocks.
Washington and Beijing did reach a ‘framework’ deal, and although there is some ambiguity around the details and it has yet to be ratified, it helped ease global tariff tensions.
Investor sentiment was also boosted by signs that global inflation pressures are cooling. Consumer and producer price inflation figures from the U.S., Japan, India and China were all weaker than expected, although the big caveat is the impact of tariffs has yet to be properly felt.
Strong demand for long-dated U.S. Treasuries at auction this week also soothed concerns over U.S. debt sustainability. President Donald Trump’s ‘big, beautiful bill’, the budget deficit and federal debt still loom over the market, but there was a temporary reprieve this week.
Not so for the dollar. It slumped to its weakest level against a basket of currencies in more than three years and failed to draw any discernible ‘safe haven’ demand from the flaring geopolitical risk and tensions in the Middle East.
Non-U.S. investors continue to reassess their exposure to dollar-denominated assets. Those wanting to cut their exposure will either sell assets outright, buy less, or hedge more. Many long-term investors in Europe are increasing their hedge ratios, which effectively equates to selling dollars on a large scale.
The other big move of the week was oil, which surged nearly 10% at one point on Friday. It cooled a bit, but the specter of high energy prices is suddenly back. If so, what does that do for the inflation outlook?
We may get an insight into what policymakers think about that next week. The G7 leaders’ summit in Canada gets underway on Sunday, and three of the world’s most important central banks deliver their latest policy decisions – the Federal Reserve, Bank of Japan and Bank of England.
I’d love to hear from you, so please reach out to me with comments at . You can also follow me at @ReutersJamie and @reutersjamie.bsky.social.
This Week’s Key Market Moves
Chart of the Week
My generosity knows no bounds, so two charts for you again this week. Both highlight current relative market price dynamics that have not been seen for around half a century.
The first from Bank of America shows that, in dollar terms, emerging market stocks are the weakest relative to U.S. stocks in 50 years. BofA analysts are in no doubt what investors should do: “long EM… easy allocation decision.” I wrote about this last month.
The second chart is from veteran strategist Jim Paulsen, who calculates that the market cap value of U.S. fixed income assets as a share of total U.S. equity market cap is the smallest in over 50 years. Along with a historically low equity risk premium, it raises the question of how much further the gap between stocks and bonds can widen.
Emerging markets and bonds, your time is … now?
Here are some of the best things I read this week:
What could move markets on Monday?
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
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(Writing by Jamie McGeever; Editing by Bill Berkrot)
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