Global Markets Weekly Update

U.S.

Stocks climb for second consecutive week 

Major U.S. stock indexes closed higher for the second week in a row. Small-cap stocks led the way, with the Russell 2000 Index gaining 3.19%, while the Nasdaq Composite (up 2.18%) and Dow Jones Industrial Average (up 1.17%) both advanced to join the S&P 500 Index in positive territory for the year. 

At the sector level, information technology stocks outperformed, due in part to upbeat sentiment around artificial intelligence (AI)-related stocks in the wake of several positive corporate earnings reports. News that Facebook parent Meta Platforms is entering a 20-year contract with Constellation Energy to power its AI operations also appeared to help boost sentiment in the space. 

Trade also remained a notable talking point during the week, with tensions between the U.S. and China continuing to re-escalate following social media comments from President Donald Trump at the end of the prior week. However, on Thursday, Trump and President Xi Jinping held a phone call that “resulted in a very positive conclusion for both countries,” according to a social media post from Trump, which gave investors some hope that the issues could be resolved.

Job growth slows in May but holds up better than expected

The highlight of the week’s economic calendar arguably came from Friday’s closely watched nonfarm payrolls report, which seemed to indicate the labor market is cooling but at a slower pace than many were anticipating. The Labor Department reported that the economy added 139,000 jobs in May, down from April’s downwardly revised reading of 147,000 but ahead of consensus estimates of 130,000. The unemployment rate held steady at 4.2%, remaining in the 4.0% to 4.2% range that it has been in since May 2024. Stocks and Treasury yields rose on Friday following the release.

The better-than-feared jobs data were an especially welcome surprise following several lackluster labor market-related reports during the week, including a report from payroll processing firm ADP that indicated private payrolls increased by only 37,000 in May, the lowest reading since March 2023. Initial jobless claims for the week ended May 31, 2025, also missed the mark, rising by 8,000 to 247,000, the highest reading since October. 

Elsewhere, the Labor Department reported on Tuesday that both job openings and hiring picked up in April, indicating demand for workers remained resilient through the first month of the Trump administration’s wide-ranging global tariffs.

Manufacturing activity contracts for third month in a row; services activity contracts for first time in 11 months 

U.S. manufacturing activity contracted for a third consecutive month in May, according to a report from the Institute for Supply Management (ISM). The May purchasing managers’ index (PMI) reading of 48.5% fell short of estimates for 49.5% and was the lowest reading since November (readings below 50% signal a contraction). The prices index remained in expansion territory (indicating rising prices) and near the highest levels since June 2022. Imports plunged 7.2 percentage points to 39.9%, “as demand has reduced the need to maintain import levels from previous months, as well as due to the impact of tariff pricing,” according to Susan Spence, the chair of the ISM Manufacturing Business Survey Committee. 

Activity in the services sector also surprised to the downside in May, registering a PMI of 49.9%, the first reading in contraction territory since June 2024. Similar to the manufacturing sector, the prices index remained solidly in expansion territory and hit its highest level since November 2022, while new orders fell 5.9 percentage points, from 52.3% to 46.4%. Employment was a bright spot, however, with the index returning to expansion after two months of contraction. 

Jobs report sends Treasury yields higher

U.S. Treasuries were little changed heading into Friday morning amid the slew of economic data releases during the week, but yields increased across most maturities following Friday’s better-than-expected jobs report. Municipal bonds weakened slightly amid heavy new issuance, and T. Rowe Price traders noted that new deals were generally well absorbed. Meanwhile, investment-grade corporate bonds outperformed, with issuance in line with expectations and most new issues oversubscribed.

Europe

In local currency terms, the pan-European STOXX Europe 600 Index ended 0.90% higher as inflation slowed, and the European Central Bank (ECB) eased monetary policy. Strong U.S. jobs data also appeared to allay fears of a recession. Major stock indexes rose as well. Germany’s DAX increased 1.28%, Italy’s FTSE MIB put on 1.28%, and France’s CAC 40 Index gained 0.68%. The UK’s FTSE 100 Index added 0.75%.

ECB cuts rates; Lagarde says policy “nearly concluded”

As expected, the European Central Bank trimmed its deposit rate by a quarter point to 2%, the lowest level since 2022. Only one policymaker dissented. President Christine Lagarde said that the ECB had “nearly concluded” the latest policy cycle, which has entailed eight rate cuts since July 2024. She said the current policy stance was in a “good place” and that rate setters were not on any “pre-set path” and would continue to be led by economic data. Financial markets appear to expect one more rate reduction, probably in September, as the central bank assesses the risk to growth and inflation posed by trade policy uncertainty.

Eurozone GDP revised higher; inflation below 2% target; jobless rate at record low

The eurozone economy expanded much faster than initially estimated in the first quarter, according to a final reading of the data. Gross domestic product (GDP) expanded 0.6%, double Eurostat’s initial estimate. The result marked the fastest expansion since the third quarter of 2022. Strong growth in Ireland and a higher German estimate drove the increase. 

Headline annual inflation in the eurozone slowed in May to 1.9% from 2.2% in April, as energy and services prices receded. Underlying pressures also abated, with the core rate—which excludes volatile energy and food prices—falling to 2.3% from 2.7%.

German, French industry output shrinks

Industrial production in Germany and France contracted by more than forecast in April. German industrial output contracted by 1.4%, after rising 2.3% the previous month, as exports weakened. Manufacturing orders, however, increased 0.6% instead of falling 2.2% as predicted, due to strong domestic demand. In France, industrial output declined by 1.4%, down from a 0.1% increase in March, driven mainly by a 0.6% drop in manufacturing. 

BoE’s Bailey sees lower rates but path even more uncertain

In comments to a parliamentary committee, Bank of England (BoE) Governor Andrew Bailey, who voted for a quarter-point rate reduction in May, stressed that the path for interest rates “remains downwards” but added that “how far and how quickly (rates are lowered) is now shrouded in a lot more uncertainty, frankly.”

Japan

Japan’s stock markets fell over the week, with the Nikkei 225 Index down 0.59% and the broader TOPIX Index losing 1.15%. There was no apparent agreement in the bilateral trade talks between the U.S. and Japan, although the talks reinforced preparation for an agreement to potentially be announced in June at the Group of Seven (G7) summit. The yen ended broadly unchanged from the prior week at around the JPY 144 level against the U.S. dollar. 

The yield on the 10-year Japanese government bond (JGB) fell to 1.46% from 1.50% at the end of the previous week. This followed a sharp rise in JGB yields in late May, driven by Japan’s worsening public finances and some concerns that the Bank of Japan (BoJ) may be tapering its bond purchases too aggressively. Ahead of the central bank’s upcoming interim assessment for JGB purchase reductions, BoJ Governor Kazuo Ueda noted that most market views were supportive of continued tapering. Some reports suggested that the central bank may consider slowing the pace of bond tapering next year. 

On the economic data front, household spending fell 0.1% year on year in April, down from a 2.1% rise in March and short of consensus estimates for a 1.4% gain. Real (inflation-adjusted) wages declined by 1.8% year on year in April, weaker than consensus estimates, as inflation continued to outpace the wage hikes granted by employers. The BoJ emphasized that, despite some pockets of weakness, Japan’s economy is undergoing a moderate recovery. The central bank also reiterated its readiness to raise interest rates again if its economic and price projections continue to materialize. This reinforced expectations of a gradual monetary policy tightening cycle.

China

Mainland Chinese stock markets advanced as a batch of weaker-than-expected economic indicators raised hopes that the government would roll out more stimulus. The onshore benchmark CSI 300 Index added 0.88% and the Shanghai Composite Index rose 1.13% in local currency terms, according to FactSet. In Hong Kong, the benchmark Hang Seng Index gained 2.16%.   

A private survey showed that China’s manufacturing sector suffered its biggest decline since September 2022, reflecting the impact of U.S. tariffs on smaller exporters. The Caixin manufacturing PMI fell to 48.3 in May from April’s 50.4 reading, trailing economists’ forecasts and falling below the 50 mark that separates growth from contraction. The Caixin services PMI rose to 51.1 in May from 50.7 in April. 

The Caixin data were far weaker than official indicators released the prior weekend. China’s official PMI ticked up to 49.5 in May from 49.0 in April, likely reflecting the temporary reprieve on U.S. tariffs. China and the U.S. reached an agreement on May 12 to reduce tariffs for 90 days to allow for further talks on a lasting deal. The official nonmanufacturing PMI, which includes services and construction, fell to 50.3 from 50.4.

The contraction in manufacturing revealed in the Caixin survey supported the view that Beijing needs to roll out more incentives to boost consumption as it tries to offset the impact of U.S. tariff hikes. Last month, China’s central bank announced a slew of easing measures, including cutting the seven-day reverse repurchase rate, a key policy rate, and the reserve requirement ratio for banks. Expectations that a spiraling trade war with the U.S. would spur Beijing to deploy more stimulus have driven Chinese stocks in recent weeks, though hopes for more support have been tempered as both countries work toward a broader agreement.

Other Key Markets

Czech Republic

Inflation uptick could delay additional central bank rate cuts

Earlier in the week, the Czech government reported that inflation in May was measured at a year-over-year rate of 2.4%. This was higher than expected and higher than the 1.8% year-over-year rate measured in April. T. Rowe Price associate portfolio manager and credit analyst Ivan Morozov estimates that core inflation probably increased to about 2.8% from 2.6%. 

When considering the underlying data, Morozov believes that the overall report sends a less hawkish signal than the 2.4% headline number, as the inflation increase was driven by food and rents to a large extent. He also believes the general inflation trend in the Czech Republic is still down. However, central bank officials—who authorized a “very cautious” interest rate cut in early May—could respond to the data by delaying additional rate cuts.

Poland 

Elevated inflation prompts policymakers to hold interest rates steady

On Tuesday and Wednesday, Poland’s central bank held its two-day monetary policy meeting, and policymakers decided to keep the key interest rate, the reference rate, at 5.25%. Other interest rates controlled by the central bank were also unchanged. 

According to the post-meeting statement, policymakers once again characterized the global backdrop for economic activity and inflation as “subject to uncertainty” due to trade policies and other factors. Turning to the Polish economy, central bank officials noted that first-quarter GDP grew at a year-over-year rate of 3.2% versus 3.4% in the fourth quarter of 2024, thanks in part to “a rise in domestic demand, including consumption and investment.” Inflation in May was measured at a rate of 4.1%, slipping from a rate of 4.3% in April, driven by the “further decline in fuel prices amid lower global oil prices.”

However, policymakers considered inflation to still be “elevated” due to factors such as services price growth, “earlier increases” in administered energy prices, and “continuously heightened annual growth in prices of food and non-alcoholic beverages.” As a result, they decided to leave interest rates unchanged, as they felt that rates at current levels were “conducive” to meeting the central bank’s inflation target in the medium term.