Preview

This week brings a delicate market equilibrium. The Fed is expected to hold rates steady, but revised projections and the dot plot could shift sentiment quickly. Markets still price in a September cut, though the Fed’s cautious tone suggests a slower path. Meanwhile, oil spiked after Trump called for a Tehran evacuation, highlighting renewed geopolitical risk. Japan’s exports saw their sharpest drop in 8 months, driven by falling U.S. auto shipments and rising trade tensions. JPMorgan made headlines by launching JPMD, a blockchain-based deposit token for institutional use – another sign that traditional finance is adapting. JetBlue, under pressure from weak domestic demand, announced more cost cuts and flight reductions, pointing to continued softness in consumer spending.

UK Inflation Holds at 3.4% – Rate Cut Postponed

In May, the U.K.’s annual inflation held steady at 3.4%, matching expectations and casting doubts over any imminent rate cuts by the Bank of England. Although core inflation eased slightly to 3.5% from 3.8%, services inflation remains elevated at 4.7% – keeping pressure on the central bank. The BoE is expected to hold rates at 4.25% in its upcoming meeting, with the next move likely coming in August. Analysts also warn of potential upside risks if the conflict in the Middle East sustains high oil prices.

Investment Insight:

Sticky inflation and rising geopolitical tensions (including a 4% surge in crude oil prices) are keeping central banks cautious. For investors, this reinforces the case for energy sector exposure and a hedge against UK Gilts volatility. Also, watch for renewed strength in the British Pound (GBP) if rates remain elevated longer than expected. A higher-for-longer stance by the BoE may keep UK equities under pressure in the short term – particularly rate-sensitive sectors like housing and retail.

Fed in Focus: No Rate Change, But Dot Plot Could Shake Markets

The Federal Reserve is widely expected to hold interest rates steady at its June meeting, but markets will be watching closely for updated forecasts and forward guidance. Key attention will be on the revised “dot plot” – the Fed’s internal projections for rate cuts this year. In March, the median forecast pointed to two cuts in 2025, but even minor shifts in voting members’ expectations could bring that down to one. While inflation remains relatively tame and labor market data shows signs of softening, geopolitical risks, including Middle East tensions and Trump’s proposed tariffs, complicate the outlook.

Investment Insight:

Markets are currently pricing in a potential first rate cut in September, but recent Fed commentary suggests a more cautious, “wait-and-see” approach. In this context, investors should closely monitor rate-sensitive assets. Treasury yields may remain stable or even rise if the updated dot plot signals a shift toward a single rate cut this year. Equities, particularly in the tech and growth segments, could face short-term volatility. Meanwhile, commodities – especially oil and energy-related stocks – remain highly responsive to geopolitical tensions and could outperform if high rates persist. With the Fed expected to revise its GDP and inflation projections, market attention will likely intensify around macroeconomic indicators throughout the summer. In such an environment, strategic positioning in value stocks, short-duration bonds and inflation-hedged commodities may offer greater resilience.

Japan’s Export Slump Deepens Amid Trade Pressure and Tariff Risk

Japan’s exports fell by 1.7% in May year over year, marking the sharpest decline since September 2024. The drop, though less severe than the 3.8% forecast by economists, reverses the 2% gain recorded in April. Exports to the U.S. were down 11.1%, with automobile shipments plunging 24.7%. Japan’s car industry, which represented over 28% of all exports to the U.S. in 2024, faces rising pressure ahead of a new 24% reciprocal tariff scheduled to take effect on July 9. Exports to China also declined by 8.8%. Meanwhile, imports fell by 7.7%, contributing to a smaller-than-expected trade deficit of 637.6 billion yen. The Bank of Japan noted in its latest statement that growth is likely to moderate due to trade-related uncertainties, while Moody’s Analytics emphasized that tariffs remain the main threat to Japan’s economic outlook.

Investment Insight:

The data confirms a deteriorating trade environment for Japan, particularly in key sectors such as automobiles and industrial exports. Ongoing trade disputes with the United States, combined with weak demand from China, are undermining Japan’s ability to drive growth through external demand. With export momentum weakening and domestic demand also cooling, Japan may face increasing pressure to revise monetary policy in the coming months. Investors should monitor developments in the Japan/U.S. trade talks, as well as the yen’s trajectory, which could further impact export competitiveness. Near-term volatility in Japanese equities remains likely, especially for companies heavily exposed to the U.S. market.