As June begins, investors are reflecting on an unexpectedly strong May. The S&P 500 posted a 6% gain last month, defying the seasonal trend suggested by the adage “Sell in May and go away.” Yet this rally belies deeper concerns surrounding U.S. debt stability and intensifying global trade tensions.
Debt Concerns Resurface Despite Equity Gains
Moody’s recent downgrade of the U.S. credit outlook has reignited fears over fiscal sustainability, especially as former President Donald Trump promotes a new “perfect” stimulus package. With interest rates still elevated, long-term fiscal risks remain front of mind. The yield on 30-year U.S. Treasuries briefly climbed above 5% before easing later in May.
A concurrent sell-off in Japanese government bonds added to investor anxiety, suggesting waning confidence in the ability of some Western governments to manage rising debt loads. In contrast, Europe’s more disciplined fiscal stance has attracted inflows. German bunds remain a favored option for sovereign debt diversification, while other investors continue to rotate into traditional safe havens like gold and Bitcoin.
U.S.-China Trade Tensions Flare Up Again
Tensions between Washington and Beijing have intensified. Trump dismissed mounting legal challenges to his tariffs and accused China of breaching a trade truce agreed earlier this month in Geneva. In response, the U.S. revoked visas for Chinese students and imposed fresh restrictions on chip design firms operating in China. Beijing condemned the measures as “discriminatory.”
In a further escalation, the U.S. doubled tariffs on steel and aluminum imports—from 25% to 50%—likely to bolster domestic producers following a deal with Nippon Steel. This move triggered a 3% drop in Singapore iron ore futures last week, with prices remaining under pressure.
WisdomTree’s industrial metals ETF also slumped, extending losses from May. The renewed trade friction could complicate ongoing EU-U.S. trade talks. While EU metal exports to the U.S. represent only around 1% of total exports, the tariff hike could still inflict damage on Europe’s already fragile industrial sector.
Currency Markets Swayed by Data and Tensions
The U.S. dollar opened the week lower, despite mixed inflation data released Friday. While core PCE—closely watched by the Federal Reserve—met expectations, headline inflation came in below forecast, fueling dovish sentiment. The greenback initially found support but quickly reversed as debt and trade worries re-emerged.
Speculators and asset managers remain broadly short on the dollar, anticipating further weakness against most G7 currencies. The euro strengthened in early Monday trading after soft CPI flash estimates from major Eurozone economies suggested inflation is drifting toward the ECB’s 2% target. Full Eurozone CPI data is due Tuesday, and markets widely expect a 25-basis-point rate cut from the European Central Bank on Thursday.
The Bank of Canada is also forecast to lower interest rates by 25 basis points on Wednesday, as it seeks to mitigate the economic impact of falling oil prices and heightened trade frictions with the U.S.
Crude Prices Climb on Rising Geopolitical Risks
Oil prices rose Monday following reports that Ukraine had launched drone attacks deep into Russian territory, stoking geopolitical tensions. The move offset the impact of an OPEC announcement over the weekend to raise output by 411,000 barrels per day beginning in July.
The market’s response to the OPEC decision was muted, as the increase had largely been anticipated. The bigger question remains whether political instability can keep prices elevated.
Technically, crude may face resistance around $65.35 per barrel, aligning with the 38.2% Fibonacci retracement level. A break below the 50-day moving average, currently near $62.90, could trigger further selling—particularly absent any major escalation.
Asia Markets Slide Amid Property Sector Fears
Asian markets began June on a weak note. The Hang Seng Index fell nearly 2% amid renewed jitters over China’s real estate sector. Shares of New World Development dropped sharply following reports of delayed bond interest payments, highlighting the persistent structural risks that continue to lurk beneath broader optimism around artificial intelligence.
Equity markets in Japan and mainland China also posted declines, while Australia’s ASX 200 came under pressure due to losses in industrial metals. Gold mining stocks, however, outperformed as investors gravitated toward safe-haven assets.
Futures for European and U.S. equities suggest a bearish start to the month, with the exception of the UK’s FTSE, which found modest support from early gains in oil prices.
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