6 June 2025
Weekly Market View
Focus on the ‘hard’ data
Global equities broke out into a record high this week, more than recovering the ground lost since President Trump launched – and then scaled back – his ‘Liberation Day’ tariffs.
Although trade tensions have resurfaced, concerns about an all-out trade war have eased, especially after this week’s call between Trump and China’s President Xi.
The upcoming “hard” data for May, in the form of US non-farm payrolls and inflation, will provide the first sign of the impact of US tariffs on real economic activity. Softer US employment and stable inflation could revive Fed rate cut expectations, potentially driving US equities to a new high.
We also see further upside in China equities within Asia ex-Japan on potential earnings upgrades, fiscal stimulus and flows into Emerging Markets.
Meanwhile, we turn bearish on EUR/JPY as renewed Euro area disinflation trend raises the risk of more ECB rate cuts in H2.
The US tax bill is net earnings positive: add US equities, especially in growth sectors
Payment deferral by HK developer is idiosyncratic: Asia USD bonds are core holding
Diverging inflation and policy trends between Euro area and Japan: bearish EUR/JPY
Charts of the week: All-time high
The global equity index rose to a record high; we expect US stocks to follow as soft data leads to Fed rate cuts
MSCI All Country World, US and Europe total return indices*
US private sector payrolls, ISM manufacturing & services PMIs
Source: Bloomberg, Standard Chartered; *Indices rebased to 100 = 5 June 2024
Editorial
Focus on the ‘hard’ data
Global equities (MSCI All Country World Index) broke out into a record high this week. Stocks have more than recovered the ground lost since President Trump launched – and then scaled back – his ‘Liberation Day’ tariffs in early April. Although trade tensions have resurfaced, concerns about an all-out trade war have eased, especially after this week’s call between Trump and China’s President Xi. The upcoming “hard” data for May, in the form of US non-farm payrolls and inflation, will provide the first sign of the impact of US tariffs on real economic activity. Softer US employment and stable inflation could revive Fed rate cut expectations, potentially driving US equities to a new high.
While European equities have led the global rally this year, we expect US equities to catch up. We also see further upside in China equities within Asia ex-Japan on potential earnings upgrades, fiscal stimulus and flows into Emerging Markets. Meanwhile, we turn bearish on EUR/JPY as renewed Euro area disinflation trend raises the risk of more ECB rate cuts in H2.
Trade tensions resurface, then ease. This week, Trump doubled US tariff on steel and aluminium imports to 50%, exempting just the UK, the only market to have signed a preliminary trade pact with the US following ‘Liberation Day’. The US president, facing court challenges against his tariffs and criticism that he has gone soft on trade, could seek other legal grounds to impose targeted tariffs to force trade partners to return to the negotiating table. However, we don’t see an all-out trade war breaking out, especially after the Trump-Xi phone call which sought to reset US-China trade talks. In April, Trump significantly scaled back tariffs after US stocks, bonds and the dollar tanked. Thus, the so-called “Trump put” remains in place.
Weaker “soft” data. While trade tensions simmer in the backburner, US “soft” business confidence indicators (PMIs) have continued to weaken. The US ISM manufacturing PMI for May missed expectations, remaining contractionary. Meanwhile, ISM service sector PMI, particularly new orders
component, turned contractionary for the first time in almost a year, while ‘prices paid’ continued to rise.
Resilient “hard” data. Despite weak “soft” data, the so-called “hard” real activity indicators have remained resilient, likely supporting household consumption. One of the timeliest job market indicators – initial jobless claims – is rising but has averaged around 235,000 in May, well below levels that would signal recessionary conditions (the 2007-09 Great Recession was triggered after US claims rose to around 350,000).
US payrolls, inflation expectations. Against this backdrop, the upcoming employment and inflation reports for May are important drivers for markets. The consensus estimates US net job creation slowed to 126,000 in May. A significant miss in the payrolls data, if followed by a relatively stable inflation data next week (consensus estimate for May core inflation: 2.9% y/y, 0.3% m/m) would raise the prospect of the Fed resuming rate cuts from July. This could potentially drive US equities to a new record high. On the contrary, any tariff-driven surge in inflation would delay rate cuts, leading to a short-term consolidation in equity markets. However, we do not expect a significant pullback as investor positioning in US equities remains bearish.
Watching US budget. Trump’s “Big, beautiful bill’ could potentially upset bond markets if passed in its current form, given soaring deficit projections. We expect cutback to some of the tax incentives. There are some elements of the bill, including tax deductions on R&D, capex and interest expenses, that are net positive for US earnings growth (see page 4).
Bearish on EUR near-term. Continued Euro area disinflation, accentuated by US tariffs, raise the prospect of further ECB rate cuts in H2, following this week’s 25bps cut to 2.0%. Euro area core inflation fell sharply to a three-year low of 2.3%. Meanwhile, we see further appreciation in the JPY amid global growth uncertainty. The BoJ is likely to hike rates further as inflation continues to surprise higher, exceeding its 2% target. We see an opportunity to turn bearish on EUR/JPY (page 6).
The weekly macro balance sheet
Our weekly net assessment: On balance, we see the past week’s data and policy as neutral for risk assets in the near-term
(+) factors: Easing inflation in the US and Euro area; Trump-Xi talks
(-) factors: Weaker US business confidence and payrolls data, cautious Fed, higher US sectoral tariff
US ISM service sector ‘prices paid’ index rose to the highest level since November 2022, while new orders fell in May, below market expectations
US ISM services PMI for new orders and price paid
Euro area core and headline inflation fell more than expected in May
Euro area core and headline inflation
China’s Caixin manufacturing PMI fell below the neutral 50.0 mark for the first time in eight months, while services PMI was slightly above expectation
China Caixin manufacturing and service PMIs
Top client questions
What are the key takeaways from the HK/China earnings season?
Our view: We are bullish on China equities over a 12-month horizon, especially favouring the Hang Seng Tech index. This is backed by robust earnings projections across growth sectors.
Rationale: Over 95% of companies in the MSCI China index have reported their Q1 earnings. In recent weeks, consensus earnings expectations for the MSCI China index in 2025 have been revised lower to 6.3%, reflecting concerns over economic growth and tariff-related policies. However, 2026 projections remain robust at 11.8%. We see further upside to earnings, supported by a few factors:
- Fiscal stimulus, especially helping technology-related investments. Earnings expectations for the Hang Seng Tech index in 2026 have been revised higher to 24.6% (from 21.6% at the start of year), while valuations remain attractive, with 12m forward P/E at 16.5x.
- USD weakness could drive further rotation into EM equity markets, benefitting China equities.
- The latest Trump-Xi call to ease trade tensions could also offer potential tailwinds. While tariff uncertainties persist, progress on US-China trade deals during this 90-day tariff exemption period could support China’s exports and earnings growth.
— Michelle Kam, CFA, Investment Strategist
Earnings growth projections for the MSCI China index for 2026 remains resilient at 11.8%
Earnings growth projections for MSCI China index in 2025 and 2026
What are the implications of President Trump’s “One Big Beautiful Bill” for US equities?
Our view: Add exposure to US equities, on pullbacks. The tax bill is net-earnings positive, given extension of tax cuts and various tax deductions on R&D, capex and interest expenses.
Rationale: The bill is net-earnings positive. It benefits corporate earnings by extending existing tax cuts, making certain R&D, capex spend, and more interest expense tax deductible, while reducing tax on foreign income. On the flipside, the withdrawal of green energy credits, and other government policies, such as tariffs and immigration restrictions could negatively impact earnings, while concerns about the fiscal deficit could reduce US equity valuation.
Section 899 of the bill implies higher withholding taxes on dividends for some foreign holders of US equities. This might reduce the attractiveness of dividend yielding stocks, relative to non-dividend paying growth stocks. We continue to expect upside in US equities, underpinned by growth sectors: we favour US-listed semiconductor and the technology software sectors. Investor position normalisation and lower market volatility could drive flows back to US equities.
— Fook Hien Yap, Senior Investment Strategist
Growth sectors*, where fundamentals are robust, dominate the US equity market. High-dividend sectors carry less weight
Consensus 12m forward dividend yield of MSCI US sectors**. Horizontal lines for dividend yield of MSCI All Country World and MSCI US indices
* Technology, communication; **Width of the column represents the sector’s weight within MSCI US
Top client questions (cont’d)
Will rising long-term Japanese government bond yields hurt Japanese insurers?
Our view: Add Japanese insurer bonds on weakness. The impact of rising bond yields on solvency and profitability is not material due to Japanese accounting principles governing the treatment of domestic bond holdings.
Rationale: Reports indicate that Japanese insurers have been purchasing longer-dated Japanese government bonds (JGBs) and these investments in JGBs pose risks to their financial position due to rising bond yields. We note the increase in JGB yields has led to significant unrealized losses. However, these have been partially offset by substantial unrealized gains in insurers’ equity portfolios accumulated over the years.
From an accounting perspective, insurers’ liabilities typically have longer duration than their assets. Consequently, an increase in interest rates would reduce the present value of these liabilities, potentially leading to mark-to-market gains and increase in shareholders’ equity. However, most Japanese insurers recognize their yen-denominated liabilities and bond holdings at book value using the amortized cost method under Japanese accounting principles, which minimizes the impact of fluctuating JGB yields on their capitalization and earnings.
Furthermore, insurance liabilities are more stable than bank deposits, lowering the likelihood of forced asset sales during periods of market stress. Insurers also tend not to use leverage in their investment portfolios, further reducing the risk of disorderly selling in JGBs.
— Ray Heung, Senior Investment Strategist
We do not expect material impact on the credit metrics of Japan’s insurers from rising long-dated Japanese government bond yields
10-, 20- and 30-year Japan government bonds yields
Does the decision by a key Hong Kong property developer to delay its coupon payment impact Asia USD bonds?
Our view: Asian USD bonds remain a core holding. The payment deferral by a Hong Kong property developer is an idiosyncratic event.
Rationale: The decision by a Hong Kong developer to defer coupon payment has led to a markdown in the developer’s perpetual bonds. Perpetual bonds from other Hong Kong property developers have also dropped, in sympathy.
We believe this negative price reaction is primarily linked to the specific liquidity issues of this particular developer, and the spillover impact is not going to significantly affect other Asian bonds. Most other Hong Kong developers are rated investment grade and have stronger credit metrics compared to the developer in question. Lastly, the total weight of Hong Kong property developers’ bonds in the Asia Bond Index is low, at 1.4%.
— Ray Heung, Senior Investment Strategist
The deferral of a perpetual coupon payment by a HK property developer should have limited impact on Asian USD bonds
Asia USD bond index performance (6 June 2024 = 100)
Top client questions (cont’d)
What is the outlook for the EUR following the latest ECB meeting?
Our view: We are bearish on EUR/JPY amid diverging inflation and policy rate trends between the Euro area and Japan.
Rationale: This week, the ECB cut its deposit rate by 25bps to 2.0% as expected. The ECB also revised its inflation forecasts for 2025 lower to 2%, from 2.3% in March. For 2026, the average increase in consumer prices is projected at 1.6% (previously 1.9%), and for 2027, the ECB maintained its inflation forecast of 2%. Against this disinflationary backdrop, we see risks of further policy easing in H2, especially if the US reinstates reciprocal tariffs after the latest pause. We see EUR/USD falling towards 1.1250 (50-day MA) this week.
However, we see more compelling value in a bearish EUR/JPY idea. We see further strength in JPY on safe haven demand due to ongoing trade and global growth uncertainty. We expect the BoJ to continue hiking rates as Japan’s inflation continues to run above its 2% target. Japan’s recent consumer inflation exceeded expectations. Technically, a firm break in the EUR/JPY pair below 162.5 (50-Day MA) can pave the way for a test of 158.3.
— Iris Yuen, Investment Strategist
We expect EUR/JPY downside, with support at 158.3
EUR/JPY and key moving averages
Market performance summary*
*Performance in USD terms unless otherwise stated, 2025 YTD performance from 31 December 2024 to 5 June 2025; 1-week period: 29 May 2025 to 5 June 2025
Our 12-month asset class views at a glance
Economic and market calendar
The S&P500 has next interim resistance at 6,100
Technical indicators for key markets as of 5 June close
Investor diversity has normalised across asset classes
Our proprietary market diversity indicators as of 5 June close
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As a Professional Client you will not be given the higher retail client protection and compensation rights and if you use your right to be classified as a Retail Client we will be unable to provide financial services and products to you as we do not hold the required license to undertake such activities. For Islamic transactions, we are acting under the supervision of our Shariah Supervisory Committee. Relevant information on our Shariah Supervisory Committee is currently available on the Standard Chartered Bank website in the Islamic banking section. For residents of the UAE – Standard Chartered Bank UAE does not provide financial analysis or consultation services in or into the UAE within the meaning of UAE Securities and Commodities Authority Decision No. 48/r of 2008 concerning financial consultation and financial analysis. Uganda: Our Investment products and services are distributed by Standard Chartered Bank Uganda Limited, which is licensed by the Capital Markets Authority as an investment adviser. United Kingdom: In the UK, Standard Chartered Bank is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and Prudential Regulation Authority. This communication has been approved by Standard Chartered Bank for the purposes of Section 21 (2) (b) of the United Kingdom’s Financial Services and Markets Act 2000 (“FSMA”) as amended in 2010 and 2012 only. Standard Chartered Bank (trading as Standard Chartered Private Bank) is also an authorised financial services provider (license number 45747) in terms of the South African Financial Advisory and Intermediary Services Act, 2002. The Materials have not been prepared in accordance with UK legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Vietnam: This document is being distributed in Vietnam by, and is attributable to, Standard Chartered Bank (Vietnam) Limited which is mainly regulated by State Bank of Vietnam (SBV). Recipients in Vietnam should contact Standard Chartered Bank (Vietnam) Limited for any queries regarding any content of this document. Zambia: This document is distributed by Standard Chartered Bank Zambia Plc, a company incorporated in Zambia and registered as a commercial bank and licensed by the Bank of Zambia under the Banking and Financial Services Act Chapter 387 of the Laws of Zambia.