But the S&P500’s performance is hiding a few issues on the US debt and global trade fronts. The past few weeks were marked by less-than-ideal developments for the US, despite the resilience of the bulls.

First, the US debt was downgraded by Moody’s two weeks ago. Combined with Trump’s ‘beautiful’ fiscal package ahead, this has raised worries about the sustainability of US debt. Add the relatively high interest rates to the mix and the outlook indeed looks scary. The US 30-year yield spiked past the 5% mark before easing back below that level in May.

Elsewhere, the selloff in Japanese long-maturity debt also made headlines, hinting at falling confidence in some Western governments’ ability to finance unsustainable budgets. Europe, however, is benefiting from the outflows, as European governments have been stricter in containing debt levels. Even with prospects of increased spending, German debt looks like a go-to for investors who want to diversify holdings within the sovereign bond space. Others, of course, prefer gold and Bitcoin.

Trade tensions re-escalate

Trade tensions are heating up again. Not only does Donald Trump seem unfazed by growing questions around the legitimacy of his tariffs, but he also accused China of violating the trade truce they signed in Geneva earlier this month. The US spent the week cancelling Chinese student visas and imposing fresh restrictions on chip designers doing business in China. China responded, accusing the US of imposing ‘discriminatory restrictions.’

Cherry on top, the US announced an increase in tariffs on steel and aluminium imports to 50%, from the 25% previously in place — perhaps to help facilitate the recent deal between the US and Nippon Steel. Iron ore futures tanked 3% in Singapore last week and remain under pressure this morning. Meanwhile, WisdomTree’s industrial metals ETF has been unable to reverse its downtrend from the May trade optimism and is diving again on the back of rising global trade tensions.

The renewed tariffs on steel and aluminium will likely throw some cold water on negotiations between the EU and the US. The EU’s metal exports to the US represent around 1% of its total exports, but the move could still have severe consequences for Europe’s already struggling industrial sector. An affair to follow...

In FX

The US dollar opens the week under pressure. On the data front, Friday brought some good news for the US — and for Federal Reserve (Fed) watchers. The core PCE index – the Fed’s favourite gauge of inflation – came in line with expectations, while the headline PCE printed a softer-than-expected figure. That helped boost dovish Fed expectations and initially supported the dollar, but the greenback starts the week under pressure again, weighed by re-escalating trade tensions and US debt concerns. Asset managers remain heavily short the US dollar, and consensus still points to further losses for the greenback against most G7 majors.

In that respect, the EURUSD looks better bid in the early hours of the trading week, as a set of flash CPI figures from major eurozone economies came in soft enough to suggest inflation may be easing toward the European Central Bank’s (ECB) 2% target in May. The aggregate figure is due tomorrow, but ECB doves are already out and betting that the bank will cut interest rates by 25bp when it meets this Thursday.

Speaking of rate cuts, the Bank of Canada (BoC) is also expected to cut rates by 25bp on Wednesday to offset the economic damages from the heated trade war with the US and the impact of lower oil prices.

Oil jumps

Oil prices are up this morning on the back of rising tensions between Russia and Ukraine, as Ukraine launched drone attacks deep inside Russian territory. That is counterbalancing the weekend announcement of an additional 411,000 barrels per day that OPEC will bring to the market starting in July. But that announcement was expected and widely priced in. So the kneejerk reaction to that number is mildly positive — if anything — on relief that the number matched earlier guidance and wasn’t higher.

Still, price rallies driven by geopolitical tensions tend to be short-lived in the absence of significant escalation, and may serve as interesting top-selling opportunities for traders playing the higher-supply/lower-demand narrative of the moment. As such, a rise above the 50-DMA, which stands near $62.90pb, could offer interesting top-selling levels. The major resistance to the YTD decline stands near $65.35pb — the key 38.2% Fibonacci retracement.

Mood is so, so...

Chinese and Japanese markets are down, while Hong Kong’s Hang Seng index fell nearly 2% on news that New World Development — a property developer — slid further into distress amid delayed interest payments on some bonds, reminding investors of China’s ongoing property crisis lurking beneath the AI shine.

Elsewhere, the ASX 200 is under pressure. Miners of industrial metals are struggling, while gold miners are supported by rising geopolitical and trade tensions. European and US futures point to a bearish start to the new month, with the exception of FTSE futures, which are slightly in the positive at the time of writing, backed by an early rally in oil prices.

This week, we’ll be watching PMI numbers from around the world, the US jobs data, and the latest earnings from CrowdStrike and Broadcom — besides the trade headlines, which will probably dominate overall sentiment and continue to set the global tone.