Global markets enter the final week of June following a hawkish shift from the Federal Reserve and a temporary easing of geopolitical tensions in the Middle East. U.S. equities closed higher despite heightened volatility, with the S&P 500 gaining 0.93% and the Nasdaq advancing 2.43%. Market sentiment improved late in the week after an interim U.S.–Iran agreement supported risk appetite and eased pressure on energy prices.

The macro backdrop remains challenging. U.S. CPI rose 4.2% year-over-year in May, while PPI accelerated to 6.5%, reinforcing concerns that inflation remains elevated. At the same time, resilient retail sales and a more hawkish Fed have pushed real yields higher and supported the U.S. dollar.

Key Points to Watch

U.S. PCE Inflation
Friday’s PCE report is the week’s most important release and a key test of inflation expectations following recent upside surprises in CPI and PPI.

Flash PMI Surveys
PMI data from the U.S., euro area, and UK will provide fresh insight into growth momentum, business activity, and pricing pressures.

Fed Communication
Markets will monitor comments from Federal Reserve officials following last week’s hawkish shift in policy expectations.

Middle East and Oil Markets
The durability of the U.S.–Iran agreement remains a key variable for energy prices, inflation expectations, and broader market sentiment.

Americas: Higher-for-Longer Takes Hold

Last week’s Fed meeting reinforced a significant shift in market expectations. The updated dot plot removed the previously projected 2026 rate cut, while nine of eighteen policymakers projected at least one rate hike before year-end. Treasury yields moved higher as markets reassessed the policy outlook, with the two-year yield ending the week near 4.18%.

Despite the hawkish tone, equities recovered following the mid-week selloff as easing geopolitical concerns and strength in the technology sector improved sentiment. Intel surged more than 10% after announcing a chipmaking agreement with Apple, helping lift semiconductor stocks across the board.

Friday’s PCE report will be a critical test. A stronger-than-expected reading could renew pressure on bonds and risk assets, while a softer result may provide relief for rate-sensitive sectors.

Europe & FX: PMIs in Focus

European markets enter the week balancing inflation concerns against signs of slowing growth. Flash PMI surveys will provide important insight into the strength of business activity across the euro area and the UK, particularly within the services sector, where price pressures remain elevated.

Germany remains a key focus, with manufacturing activity continuing to struggle. Further weakness could increase the challenge facing the ECB as it balances persistent inflation against a deteriorating growth outlook.

In currency markets, EUR/USD continues to trade between a stronger U.S. dollar supported by higher Treasury yields and an ECB that remains reluctant to signal a more accommodative stance.

Asia & Commodities: Relief for Energy Markets

The reopening of the Strait of Hormuz eased concerns over global energy supply disruptions, contributing to lower oil prices and reducing near-term inflation pressures. Lower energy costs provide support for many Asian economies, although the stronger U.S. dollar continues to weigh on regional currencies.

The Japanese yen remains vulnerable as rising U.S. yields support USD/JPY, while the Bank of Japan continues to balance policy normalisation against a fragile growth backdrop. Gold may also remain under pressure as higher real yields reduce the appeal of non-yielding assets, although renewed geopolitical tensions could quickly revive safe-haven demand.

Conclusion

Markets enter the week focused on inflation, growth, and monetary policy. U.S. PCE data and global PMI releases are likely to shape expectations for interest rates and economic activity, while developments in the Middle East remain a key variable for energy markets and inflation expectations.

Although U.S. equities ended last week with positive returns, the broader macro environment remains challenging. Inflation is still elevated, central banks remain cautious, and real yields continue to trend higher. Against this backdrop, incoming economic data and policy communication are likely to remain the primary drivers of market sentiment across equities, bonds, currencies, and commodities.