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My view on what's going on in the financial markets and the global economy, and a few other things that might interest me from time to time.

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Week ended June 27 2025: markets race ahead

  • Writer: tim@emorningcoffee.com
    tim@emorningcoffee.com
  • Jun 27
  • 4 min read

Updated: Jun 28

MARKETS LAST WEEK

We are at the stage again where making money in stocks is like shooting fish in a barrel, with nearly everything running in one direction (up).  The risk-on sentiment last week was stoked by the end of the Israeli-Iranian conflict early in the week courtesy of the U.S. dropping its “bunker busting bombs” on three key Iranian nuclear sites, essentially forcing the Iranians to wave a white flag.  Although Mr Trump is wanting to grab headlines (what’s new?) with his controversial decision, the fact is that the Israelis have waged an impressive war campaign since Hamas attacked the country over 1.5 years ago, weakening the Iranian proxies one by one – and then Iran itself – with incredibly clever tactics. 

 

I am not going to drift into a controversial topic like the Middle East, although it is clear that the unexpected quick end of hostilities clearly added fuel to the risk-on fire in markets.  With oil rapidly declining as peace broke out and the Trump administration signalling progress on the trade front, I suppose there is little not to like.  U.S. economic data was also good enough last week, bracketed by better-than-expected PMI manufacturing and services data for June, released on Monday, and a four-month high for consumer confidence, released on Friday.  Perhaps the only glitch was slightly higher-than-expected core PCE inflation in May (noting significant lag), although personal spending was lower in May potentially signalling economic weakness ahead.   The fact is that the U.S. economy still has overtones of a Goldilocks scenario, certainly not justifying an immediate easing of monetary policy by the Fed, no matter what the president advocates

 

For U.S. equity investors, that old chestnut “earnings” for S&P 500 companies for the second quarter are just around the corner, and this might have a bearing on sentiment given the heady valuations that we are currently experiencing (again).  I extracted the graph below from an article earlier this week from John #Authers  (#BloombergOpinion).

Of course, I don’t think things like earnings or P/E ratios matter one bit for most retail investors today, certainly not to those investors that pump their ideas on X and Reddit, simply playing the momentum game. Professional investors can choose to either jump on the band wagon or to sit in cash and let things proceed, with the former creating obvious risks were the music to stop, and the latter leading to “boring” cash returns as stocks and bonds soar.

 

Turning back to earnings, S&P 500 aggregate EPS increased 13.7% in 1Q2025, and is expected to increase by 5.9% in 2Q2025 (source is “The Week in Earnings” from LSEG I/B/E/S).  In essence, earnings growth is expected to slow, even as trailing P/E ratios increase.  This might derail the rally, although many companies threw a lot of “tariff caution” out there during their 1Q25 earnings releases and analyst calls, which might set the stage – as often seems to be the case – for upside surprises to push stock prices even higher off of beaten down earnings expectations.

 

The net result is that unless you are seriously long gold or the U.S. Dollar, this was a winning week for nearly all assets in nearly every geographic market.  The best performing global index this past week was the NIKKEI 225 (Japan), which rallied into the BoJ decision the week before, and the best performing US index was the NASDAQ Composite, not surprising in that US tech shares have suddenly re-discovered their mojo. The losing trades were haven assets like gold and the U.S. Dollar, although the greenback has been heading south all year.  This is unusual since the Fed remains relatively hawkish while most other central banks are easing by reducing their policy interest rates.  However, the dynamic at play is clear in that central banks globally are trying desperately to reduce their reliance on the U.S. Dollar since the Trump Administration continues to pursue economic policies that undermine U.S. exceptionalism.  Although there remains no real alternative to the U.S. Dollar, it would appear gold has been the beneficiary of investors leaving the greenback as a reserve currency most of this year.

As you can see in the graph above, the U.S. Dollar has been on a one directional decline, weakening steadily since the beginning of the year, even as stocks recovered from the disastrous “liberation day” tariff announcement in early April.  Does this matter to many investors?  I would say “probably not” for U.S. investors that mainly invest in U.S. assets, but there are collateral effects nonetheless for earnings of U.S. economies that sell their products globally.  For international investors, or folks like me that live abroad and hold mainly U.S. Dollar assets, having to buy foreign currencies to finance my “burn rate” abroad is starting to get expensive. Although short the U.S. Dollar is arguably a crowded trade, I see nothing that would stop foreign countries from continuing to reduce their dependency on the Dollar given the highly unpredictable nature of Mr Trump and his rather bizarre economic policies

 

All global stock indices rallied this week, and U.S. Treasuries also improved as yields fell across the curve. Corporate bonds also were better bid, as credit spreads continue to inch tighter.  Bitcoin was slightly better on the week, performing in line with other risk assets. 

 

The tables in the section "Market Tables" below provide details of market performance for the indices and asset classes traked by EMC over various periods, updated for the end of last week.

 

WHAT’S AHEAD THAT MATTERS

Key economic data this week:

The U.S. has a holiday-shortened week, with markets closed on Friday July 4th for U.S. Independence Day.  The most significant data releases this coming week will be Eurozone June CPI on Tuesday and the U.S. jobs report for June on Thursday.

 

Upcoming central bank policy meetings are as follows:

  • ECB: July 23-24 (likely to pause until September)

  • FOMC: July 29-30 (no change expected; now there are three 25bps reductions expected at FOMC meetings starting in September)

  • Bank of Japan: July 30-31 (no change expected; recall BoJ is in tightening cycle)

  • Bank of England: August 7 (25bps reduction in Bank Rate expected)

 

MARKET TABLES


 


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