It took approximately one week of escalating events in the Middle East and according to the US administration, the war is over, and we have now moved on with our lives as President Trump has accomplished to secure the safety of the region.
The news comes and goes at a constant fast pace and sometimes I wonder if I am watching a movie. Nevertheless, this is the new economic reality where we go through wars, escalations, trade deals and internal affairs that in previous administrations you might have seen throughout the years; but now we do all that in a week! The market has got used to it and it seems they are less surprised, always betting on the best-case scenario, and that’s what we have done this week as well. We went home last weekend thinking of probable war scenarios in the Middle East, however the price action in the market disagrees with that narrative, currently making new highs of the NASDAQ index and almost at the highs for S&P.
Across the pond, at the NATO convention, all member countries agreed renewed investment of 5% of their GDP to defense and infrastructure spending. This was characterized as a major win by President Trump as he has managed to persuade almost all NATO members to enact fast and increase spending towards NATO, a task that was up for debate for a few years now without any positive results. Furthermore, the sheer criticism for Fed Chair Jerome Powell has resurfaced as he continues his neutral rhetoric of “wait and see” mode with regards to the trajectory of the FED deposit rate. There are numerous participants in the US administration away from the President, which have come forward and pointed out that cuts should be enacted sooner than later, adding to speculation that a “shadow” FED Chair will be chosen by President Trump soon. Let me remind you that Fed Chair Jerome Powell is up for replacement in May 2026, but market speculation states that by September, President Trump will make public the name of the new FED chair. Fed committee member Christopher Waller and US Secretary Scott Bessent are among the two names that have been mentioned, both belonging in the more dovish camp than current Fed Chair Jerome Powell. This reinforced speculation has added fuel to more dovish bets around Fed cuts, currently pricing 62bps by year end.
Moreover, we saw an array of data across the board. Data offered a mixed picture across CPI and PPI numbers in Europe with a lower revision of the 1st quarter US GDP to -0.5%, a contraction basis which we haven’t seen since 2022. In terms of market moves, stocks gained across regions with US equity indices out trading between 3-4% higher on the week. EURUSD saw another leg higher trading in the 1.17-1.175 context with a lot of market analysts pointing out that the 1.20 level is going to be soon at reach. Gold futures traded 2.25% lower in the week as there were a couple of analyst reports pointing out some profit taking flows. Lastly oil traded 12% lower on the week post the de-escalation in the Middle East. (see graph below)
Looking ahead…
At the time of writing this newsletter, we are waiting for US CORE PCE data which will show some initial signs of any meaningful impact from tariffs. Overall, it seems that the market is bulled up given the rising expectations for more trade deals to resurface soon. President Trump has always pointed out that he likes to make deals, the question is would he be able to come at a conclusion with all of them as a “grandmaster” of dealmaking he is before the 9th of July deadline.
Written by: Michael Konstantinou, Senior Portfolio Manager
Source: Bloomberg
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