A Week of Two Tides - Economic Relief and Rising Global Tensions

The week closed with a heavy news load in the economic, political and geopolitical spheres, generating direct impacts on the financial markets of the United States and the world. On the one hand, lower-than-expected inflation data was released in the US, there were diplomatic advances with China on trade issues, and on the other hand, a military attack by Israel against Iran raised tensions in the Middle East, causing a strong reaction in the prices of oil, gold and defense stocks.

On the economic front, inflation data for May showed a greater cooling than anticipated. The consumer price index (CPI) rose by only 0.1% month-on-month and 2.4% year-on-year, below market expectations. Core inflation remained at 2.8% y/y, also below expectations. This was compounded by an equally weak producer price report (PPI), with a monthly variation of 0.1% in both its general and core versions. These figures reinforced the view of an ongoing disinflationary process, increasing the likelihood of two rate cuts by the Federal Reserve in the remainder of the year. As a result, Treasury bond yields fell, also helped by successful auctions of long-term debt.

On the international front, US and Chinese economic representatives met in London to ratify the trade agreement reached in May in Geneva. A relaxation of export controls was announced: The US will allow more aircraft engines to be exported and China will facilitate access to rare minerals. However, existing tariffs remained unchanged at 10% for US products and an average of 55% on Chinese imports. Despite this, analysts noted that the tone of the meeting was constructive, and Goldman Sachs even raised its GDP growth forecast for 2025 to 1.25%, while reducing the probability of recession to 25%.

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