War fears crush risk confidence

By rahmat hidayat

Saturday, June 14, 2025

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Trading Day

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

A week that started with investors in optimistic mood betting that the US and China would strike a deal in their trade talks in London ended on a sour note, as Israel's strike on Iran twigged a sharp rise in oil prices and a selloff in world stocks.

Washington and Beijing did reach a 'framework' deal, and although there is some ambiguity around the details and it has yet to be ratified, it helped ease global tariff tensions.

Investor sentiment was also boosted by signs that global inflation pressures are cooling. Consumer and producer price inflation figures from the US, Japan, India and China were all weaker than expected, although the big caveat is the impact of tariffs has yet to be properly felt.

Strong demand for long-dated U.S. Treasuries at auction this week also soothed concerns over U.S. debt sustainability. President Donald Trump's 'big, beautiful bill', the budget deficit and federal debt still loom over the market, but there was a temporary reprieve this week.

Not so for the dollar. It slumped to it weakest level against a basket of currencies in more than three years and failed to draw any discernible 'safe haven' demand from the flaring geopolitical risk and tensions in the Middle East.

Non-U.S. investors continue to reassess their exposure to dollar-denominated assets. Those wanting to cut their exposure will either sell assets outright, buy less, or hedge more. Many long-term investors in Europe are increasing their hedge ratios, which effectively equates to selling dollars on a large scale.

The other big move of the week was oil, which surged nearly 10% at one point on Friday. It cooled a bit, but the specter of high energy prices is suddenly back. If so, what does that do for the inflation outlook?

We may get an insight into what policymakers think about that next week. The G7 leaders' summit in Canada gets underway on Sunday, and three of the world's most important central banks deliver their latest policy decisions - the Federal Reserve, Bank of Japan and Bank of England.

I'd love to hear from you, so please reach out to me with comments at jamie.mcgeever@thomsonreuters.com. You can also follow me at @ReutersJamie and @reutersjamie.bsky.social.

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This Week's Key Market Moves

Oil. Brent crude rose 12% this week and WTI rose 13.5% - at one point they were up nearly 10% on Friday alone - marking the biggest weekly rise since February and October, 2022, respectively.
Gold ends the week 3.5% higher, within $50 of April's record high $3,500/oz.
The dollar weakens 1%, ending the week near three year lows, while the euro rises 1.3%, having traded above $1.16 earlier this week for the first time since 2021.
U.S. Treasury yields fall after weak economic data, strong auctions. But weekly declines at the long end of the curve are virtually halved by Friday's spike.
World stocks and Wall Street end slightly lower. The MSCI World hits new record highs earlier in the week but Friday's weakness bites. The S&P 500 falls 0.5% on the week, MSCI World sheds 0.3%.

Weekend Reads

Here are some of the best things I read this week:

Chart of the Week

My generosity knows no bounds, so two charts for you again this week. Both highlight current relative market price dynamics that have not been seen for around half a century.

The first from Bank of America shows that, in dollar terms, emerging market stocks are the weakest relative to U.S. stocks in 50 years. BofA analysts are in no doubt what investors should do: "long EM ... easy allocation decision." I wrote about this last month.

The second chart is from veteran strategist Jim Paulsen, who calculates that the market cap value of U.S. fixed income assets as a share of total U.S. equity market cap is the smallest in over 50 years. Along with a historically low equity risk premium, it raises the question of how much further the gap between stocks and bonds can widen.

Emerging markets and bonds, your time is ... now?

What could move markets on Monday?

China's monthly "data dump" - house prices, industrial production, retail sales, investment, unemployment (May)
India wholesale price inflation (May)
U.S. 20-year bond auction
U.S. New York Fed manufacturing index (June)
G7 leaders' summit in Calgary, Canada

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