Markets hold steady as resilient data and trade developments shape outlook

Markets have opened the week on a steady footing following a run of economic data and geopolitical developments that have improved the macroeconomic outlook. Last week’s US jobs report and renewed trade headlines between the US and China are supporting market sentiment but critical uncertainties remain.

US labour market shows ongoing resilience

The US labour market continued to show signs of underlying strength, with the May non-farm payrolls report revealing a net jobs gain of 139,000 and an unchanged unemployment rate of 4.2%. While the pace of hiring has moderated compared to previous months, the data suggests that the jobs market remains solid—neither strong enough to fuel fears of overheating, nor weak enough to justify an imminent pivot from the Federal Reserve.

Labour market resilience comes despite signs of softness in other economic indicators. Business activity data, including the ISM surveys, have softened in recent weeks, in part reflecting concerns about the economic impact of ongoing US tariffs. However, stable employment reduces the urgency to lower interest rates further, even as inflation concerns remain front of mind.

Inflation data in focus as the Fed waits for clarity

Attention now turns to US inflation figures due this week. Headline CPI is expected to rise modestly to 2.5%, with core CPI anticipated to increase from 2.8% to 2.9%. These moves are partly attributed to short-term inflationary pressures arising from tariffs and generally sticky price pressures.

The Federal Reserve has previously warned that tariffs may temporarily push up prices, creating noise in inflation data and complicating its mandate to achieve price stability. While markets still price in at least one rate cut by the end of the year, expectations have been pared back amid resilient labour market conditions and signs of sticky inflation, particularly in services.

ECB cuts rates, signals potential pause

The European Central Bank (ECB) delivered a widely anticipated 25 basis point rate cut last week, taking the total reduction to 200 basis points over the past year. However, forward guidance suggests the ECB may now pause. President Christine Lagarde repeatedly emphasised that the ECB is “well positioned at the current rate,” as it approaches neutral policy settings, leading markets to increase the probability of a July pause to over 80%.

Adding weight to the ECB’s cautious stance, the eurozone economy showed unexpected strength in the first quarter. The final reading of Q1 GDP was revised upward to 0.6%, marking the strongest quarterly expansion since mid-2022. This suggests that while growth remains vulnerable to external shocks—particularly trade disruptions—the eurozone may not require further immediate policy easing.

Tesla sell-off reflects political risk

Markets were briefly shaken by a sharp sell-off in Tesla shares, which fell approximately 14% on Thursday following a public spat between Elon Musk and former President Donald Trump. The dispute centred around US fiscal policy and US President Trump’s so-called “Big Beautiful Bill”, with concerns emerging that Tesla could lose access to key government support.

Although the sell-off reversed modestly on Friday, the episode underscored the political sensitivity of high-profile stocks and the outsized role personalities can play in market sentiment. Tesla’s sheer size and frequent appearance in retail portfolios amplified the volatility across broader indices.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)

US-China trade talks back in the spotlight

Looking ahead, trade negotiations between the US and China have returned to focus, with high-level talks scheduled in London this week. President Trump has indicated that the two countries are “very far advanced” in reaching a broader trade agreement, though details remain scarce.

Copper prices, often seen as a barometer for global economic health, could benefit from any reduction in trade tensions. Markets will also be watching for clarity on whether the talks focus narrowly on critical minerals such as rare earths or cover broader commercial issues. Even limited progress could lift investor sentiment, particularly in commodity and cyclical sectors, with the S&P 500 within touching distance of record highs.

(Source: Trading View)
(Past performance is not a reliable indicator of future results)

Markets face crosscurrents but optimism persists

Taken together, the current environment is defined by mixed signals. Economic data remains broadly stable, but the presence of tariff-related distortions and political volatility adds a layer of complexity for policymakers and investors alike.

The upcoming US CPI print is likely to be the key data point of the week. A downside surprise could offer the clearest signal yet that inflation is cooling despite trade-related pressures, potentially opening the door to greater policy flexibility from the Federal Reserve. Conversely, persistent inflation may keep rate cuts on hold and introduce further headwinds for rate-sensitive assets.

In the meantime, markets continue to navigate a delicate balance—supported by resilient data, but constrained by policy uncertainty and geopolitical risk.