I. Performance and Valuation of Global Equity Indices
Data Sources: Bloomberg, Tiger Asset Management
Key Highlights
◼ Last week, global capital markets continued to fluctuate, with major global indices showing mixed performance, though the movements were relatively modest. Non-U.S. markets such as Nikkei, Emerging Markets, and Greater China generally posted positive returns. In contrast, the three major U.S. indices all declined to varying degrees, but the drop was mostly within 1%.
◼ Last week, the China-U.S.-U.K. trilateral economic and trade talks concluded. Although both sides claimed substantial progress, no concrete or detailed documents were released. Market expectations for this meeting were low to begin with, and as long as discussions returned to the outcomes of the Geneva talks in May, it was considered satisfactory. Meanwhile, U.S. inflation data for May was released, with both CPI and PPI beating expectations. As the first set of inflation data following the new tariff policy, the effects of tariffs have not yet been transmitted to end-consumer prices, which has also brought forward the timeline for rate cut expectations by the Fed. We believe the three major uncertainties surrounding the U.S. stock market are currently easing. As long as the California unrest and Middle East conflict do not escalate further, we remain optimistic about the market outlook.
◼ This week’s key focuses include U.S. retail data, the FOMC meeting, and developments in the Middle East geopolitical conflict.
II. Key Market Themes
U.S. Stocks: Light Breaking Through the Clouds
Over the past week, the U.S. stock market continued to fluctuate, with increased volatility characterized by gains followed by losses. Chronologically, three major events stood out: the China-U.S. economic and trade talks, U.S. May inflation data, and renewed geopolitical tensions between Iran and Israel. Let’s examine them one by one.
First, as we previously anticipated in our weekly commentary, the recent high-level talks between China and the U.S. were likely to yield limited or broad agreements, with little chance of breakthroughs on core issues. The outcome aligned with these expectations—both parties spoke positively of the discussions, yet no detailed official documents have been released to date. Fortunately, market expectations were already tempered; a return to the Geneva outcomes from May was already sufficient to avoid panic. In the short term, both sides are likely to continue signaling goodwill. However, in the long run, core strategic issues—such as semiconductors and rare earths—remain unresolved. Ultimately, it’s a race against time: whoever reduces dependency on the other first will gain the upper hand.
Next, the macroeconomic data must be acknowledged—U.S. inflation data for May was surprisingly positive and served as the main driver for equity gains. Official figures showed that core CPI, excluding food and energy, rose 0.1% MoM and 2.8% YoY, better than market expectations and no higher than the previous value. A breakdown revealed that the main source of inflation remains core services. Core goods, which should be more affected by tariffs, not only didn’t show a surge but actually posted a negative MoM growth. This indicates that, so far, the 10% tariff hike initiated by Trump has not yet impacted consumer prices. One day later, PPI data confirmed this conclusion. Core PPI rose 0.1% MoM and 3% YoY—below market expectations and the lowest reading in nearly a year. Based on this, Fed “mouthpiece” Nick estimates that core PCE for May will rise by 0.14% MoM, showing no significant acceleration from the prior period. Undoubtedly, this first inflation report post-tariff exceeded expectations, and the market now anticipates 2–3 rate cuts this year. We believe this week’s FOMC meeting offers a strong observation point. While Chair Powell will likely reiterate the "data-dependent" stance, the tone and the dot plot may contain surprises.
Data Source：U.S. Bureau of Labor Statistics
According to this chain of developments, U.S. equities should have continued to rally last week. However, on Friday, renewed conflict in the Middle East between Iran and Israel triggered risk-off sentiment. We will refrain from interpreting political issues, and instead focus on objective facts. The impact of Middle East geopolitical tensions on U.S. markets can be transmitted via two main channels: (1) broad-based risk aversion due to war; (2) rising oil prices caused by the conflict, potentially reigniting U.S. inflation. Either transmission path is closely linked to the scale and duration of the conflict. If the conflict de-escalates in the near term, the market impact will be limited; otherwise, a new narrative will take hold.
As we have stated before, the three major uncertainties facing U.S. equities are tariffs, rate cuts, and fiscal policy. Firstly, tariffs have become somewhat transparent—Ambassador Baucus stated last week that deferral policies for some countries might be extended. As July approaches, the White House will likely adopt a dual strategy of threats and extensions.
Moreover, the latest data indicates that U.S. tariff revenues have surged since April. In May alone, tariff revenues exceeded $22 billion, nearly triple the previous levels. Secondly, this week's strong inflation data has slightly reduced uncertainty around rate cuts. Lastly, the "Big Beautiful Law" is currently under Senate review. Despite a potentially bumpy process, an expansion in fiscal spending will likely provide short-term stimulus. Overall, we believe that all three major uncertainties are easing, and associated risks are improving.
Data Source: U.S. Department of the Treasury, Wind, Tiger Asset Management
This week, the June FOMC meeting will be a focal point, featuring the release of a new dot plot and updated economic projections from the Fed. Based on recent data, we believe Fed officials have reason to lower inflation forecasts, and Powell may slightly soften his tone. Nonetheless, two unresolved and unavoidable risks remain in the short term: (1) whether unrest in California will escalate; and (2) whether the Middle East conflict will intensify. If these two risks are contained soon, we maintain a relatively optimistic outlook for U.S. equities ahead of June macroeconomic releases.
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