Global equity markets moved higher last week, supported by signs of easing tensions between the United States and Iran.
Investors also digested a more hawkish Federal Reserve, which held rates steady but signalled a firmer stance on inflation and future policy.
Key Insights
- Nasdaq gains 2.43% and S&P 500 rises 0.93% following progress on US-Iran relations.
- The Fed removes its projected 2026 rate cut, with half of policymakers now expecting at least one rate hike this year.
- 2026 inflation forecasts increase to 3.6% for headline PCE and 3.3% for core PCE.
- US retail sales climb 0.9% in May, while housing starts fall to an annualised 1.177 million.
- Japan’s Nikkei surges 7.62% to record highs as the Bank of Japan raises rates to 1%, its highest level since 1995.
Equities Gain as US-Iran Tensions Ease
The Nasdaq rose 2.43% and the S&P 500 added 0.93% in a holiday-shortened week, lifted by news of a signed US-Iran memorandum of understanding.
The Fed held rates steady but removed its projected 2026 rate cut entirely, with half of officials now pencilling in at least one hike this year.
Warsh’s Debut Signals a Shift in Fed Communication
Chair Kevin Warsh declined to submit a personal forecast, shortened the policy statement, and stated that forward guidance is no longer well suited to current conditions.
He announced a broad internal review of the Fed’s communications and operating frameworks, signalling intent to reshape how the central bank functions.
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Inflation Outlook Worsens While Labour Market Remains Resilient
The Fed’s updated projections lifted 2026 headline PCE inflation to 3.6% and core PCE to 3.3%. Unemployment remains contained at 4.3% with job openings still exceeding unemployed workers, while wage growth holds steady at 3.4% — giving the Fed room to prioritise inflation risk without immediate labour-market concern.
Consumer Spending Holds Up Despite Housing Weakness
US retail sales rose 0.9% in May, beating expectations and reflecting durable household demand despite elevated energy costs.
Housing was the soft spot: starts fell to an annualised 1.177 million, sharply below forecasts, even as pending home sales hit their fastest pace since 2024.
Japan Leads Global Markets as Bank of Japan Tightens Policy
The Nikkei jumped 7.62% to fresh record highs, led by AI and semiconductor names, as the Bank of Japan raised rates to 1% — the highest since 1995 — addressing both inflation risk and yen weakness.
In Europe, the STOXX 600 rose 0.62% and German business confidence turned positive for the first time since the conflict began, even as the eurozone posted a surprise trade deficit.
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