Rising yields and global growth concerns

Market update

Global equity markets were mostly positive last week. In the US, there was a +1.1% increase in equities - the key event was the release of May's non-farm payroll report, which revealed slower (albeit stronger than expected) job growth and a steady unemployment rate - signals that the labour market is cooling. This was accompanied by an acceleration in wage growth. Equities rose while bonds fell in response. UK equities saw a moderate increase of +0.8%. In Europe, equities also gained ground with a +1.1% increase, supported by slowing inflation in several major economies. EM equities also saw an increase of +2.0%, with Chinese equities rising modestly, as weak manufacturing data raised hopes for more stimulus. In Japan, equities declined by -2.1% as weak household spending and falling real wages raised concerns about domestic demands. Uncertainty over US-Japan trade talks and speculation around the Bank of Japan's bond tapering strategy also weighed on investor sentiment.

US Treasury yields rose following stronger than expected May jobs data, with the 10-year yield climbing by +10 basis points over the week as markets scaled back expectations for near-term Federal Reserve rate cuts. In the UK, gilt yields were unchanged over the week, reflecting potential cautious optimism after slowing inflation and comments from Bank of England Governor, Andrew Bailey, who reiterated that rates are likely to fall but warned the path remains uncertain due to persistent price pressures (bond prices and yields move in opposite directions).

Oil prices rose by +5.8% due to stronger than expected US jobs data, which boosted confidence in future energy demand, as well as the renewed optimism over US-China trade talks following a positive call between President Trump and President XI. Despite OPEC+ announcing a planned output increase from July, markets remained supported by expectations that rising demand would absorb the additional supply.

Macro news

The latest developments on the tariffs front saw the White House announce a doubling of the steel and aluminium tariffs from 25% to 50%, though the UK has managed to avoid the additional hike owing to the recently announced trade agreement.

The OECD has cut its global growth forecast to 2.9% for 2025 and 2026, down from 3.3% in 2024. It cites US tariffs and rising protectionism as key risks. These policies could further disrupt supply chains and fuel inflation. The US is expected to be hit hardest, while China's growth is predicted to slow from 4.7% in 2025 to 4.3% in 2026. The OECD predicts modest UK growth of 1.3% in 2025, slowing to 1% in 2026 due to public finance pressures and trade tensions. Public debt is projected to rise to 104% of GDP by 2026, despite an improvement in the budget deficit from 5.3% to 4.5%.

Eurozone inflation hit 1.9% in May 2025, aligning with the ECB’s target. Falling services inflation (down to 3.2% from 4% in April) supports expectations of a 25-basis-point rate cut by the ECB this week.

UK house prices rose more than expected in May, climbing 3.5% year-on-year, according to data by mortgage lender Nationwide. On a monthly basis, prices increased by 0.5%, reversing most of April’s decline and marking the largest monthly gain since December. This exceeded economists' expectations (0.1% month-on-month and 2.9% year-on-year).