U.S. bonds diverged, equities fell on tariff fears, the dollar weakened, oil slipped, gold surged 4.75%, and Bitcoin held above $100K, rising 3.11%.

U.S. Treasury yields ended the week mixed, with long-term rates rising and short-term rates falling. The 30-year yield climbed above 5.09%, its highest level since 2007, following the House’s approval of President Donald Trump’s flagship tax bill. While the bill averts a year-end tax hike, it adds to the nation’s growing debt burden. A weak 20-year bond auction featuring a 5% coupon—the highest since 2020—intensified the sell-off, pushing yields broadly higher.

U.S. equities posted broad declines amid renewed trade tensions. Trump’s proposal of 50% tariffs on European imports rattled markets. Small and mid-cap stocks led the losses, down 3.47% and 3.60%, respectively, while large caps fell 2.60%. The "Magnificent 7" dropped 2.50%. All sectors closed lower, with tech and energy underperforming.

The U.S. dollar weakened 1.88% against the euro, pressured by persistent inflation concerns and rising tariff risks. WTI crude oil slipped 1.15% amid speculation over potential OPEC+ output hikes and an unexpected increase in U.S. crude inventories. Geopolitical tensions—from U.S.-Iran nuclear negotiations to the war in Ukraine—kept energy traders on edge. Gold surged 4.75%, continuing its strong run as a safe-haven asset. Meanwhile, Bitcoin remained stable above $100,000, posting a 3.11% gain.

U.S. business activity rose in May on domestic demand, but inflation, tariffs, and weak exports pose risks; housing remains pressured despite builder incentives.

In May, U.S. business activity expanded at its fastest pace since March, driven by domestic demand and a rebound in both manufacturing and services. The S&P Global Flash Composite PMI rose to 52.1, supported by strong factory output and new orders. However, exports declined, particularly in services, and employment slightly contracted amid cost concerns and demand uncertainty. Inflation pressures resurfaced, with input and output prices rising sharply due to tariffs and supply disruptions, prompting manufacturers to stockpile materials. Business sentiment improved but stayed below the 2024 average, constrained by trade and fiscal uncertainties. Meanwhile, the housing sector weakened in April as existing home sales fell 0.5% to their lowest April level since 2009, despite rising inventory and record-high median prices. New home sales exceeded expectations, supported by incentives and demand for affordable homes. However, rising cancellations and falling builder confidence point to persistent market strain. Overall, economic resilience is tempered by inflation, tariffs, and subdued external demand.

U.S. business activity improved in May, driven by domestic demand, but rising costs, supply disruptions, and weak exports highlight ongoing risks amid renewed inflation pressures.

U.S. business activity gained momentum in May, with the S&P Global Flash Composite PMI rising to 52.1 from April’s 50.6, reflecting the fastest pace of expansion since March. Growth was broad-based, driven by a rebound in services (PMI at 52.3) and a strong recovery in manufacturing (PMI also at 52.3), with factory output returning to expansion and new orders growing at the fastest rate in 15 months. This improvement was largely fuelled by stronger domestic demand, as exports of both goods and services continued to decline, with service exports falling at their sharpest rate since the pandemic. Employment, however, contracted slightly across both sectors due to ongoing uncertainty about demand sustainability and rising costs.

Despite the recovery in output, inflationary pressures intensified sharply, with prices charged for goods and services rising at the steepest pace since August 2022—driven overwhelmingly by tariff-related input costs and supply chain disruptions. Manufacturers responded by stockpiling inputs at a record rate, with delivery times lengthening to their worst since late 2022. Business sentiment rebounded from April’s two-and-a-half-year low, supported by a pause in new tariff increases and optimism around reshoring, yet remained below the 2024 average amid persistent concerns over trade policy, inflation, and fiscal tightening. While May’s data show signs of resilience, the U.S. economy remains vulnerable to cost shocks and weak external demand, clouding the outlook for the second half of the year.

We expect this to be a temporary rebound, as some companies are bringing forward purchases to avoid potential tariff-related price increases. Tariffs and rising inflation are likely to weigh on both the services and manufacturing sectors in the coming months.

U.S. home sales slowed in April amid high costs and uncertainty, while builders saw stronger sales but face rising cancellations and declining confidence in future demand.

U.S. existing home sales declined by 0.5% in April to a seasonally adjusted annual rate of 4.00 million units, marking the slowest April performance since 2009. Persistent affordability challenges, high housing costs, and growing economic uncertainty continue to dampen buyer activity. Despite a brief decline in mortgage rates earlier this year, sales have now fallen for the second consecutive month and are down 2.0% YoY. The median existing home price increased 1.8% from April 2024 to $414,000—the highest price ever recorded for April—though it represents the weakest annual gain since mid-2023. Inventory rose sharply by 20.8% YoY to 1.45 million units, the highest level in nearly five years, providing more bargaining power for buyers and signalling a possible cooling in home prices. Homes also remained on the market longer, averaging 29 days versus 26 days a year ago, while first-time buyers accounted for only 34% of purchases, still well below the 40% level typically seen as necessary for long-term market stability. The rise in resale inventory has intensified competition for homebuilders, prompting many to adopt price cuts and offer incentives to maintain buyer interest.

Amid this competitive landscape, homebuilders posted stronger-than-expected results in April, with new home sales reaching a seasonally adjusted annual rate of 743,000—an 11% increase from March and 3.3% higher than a year earlier—exceeding consensus expectations of 695,000. Although the median sales price for new homes rose slightly on a monthly basis, it remains 2% lower than the prior year and continues to decline from its 2022 peak. This reflects both increased use of price incentives and a broader shift toward more affordable housing options, as evidenced by the rise in homes sold under $400,000—from 46% a year ago to 49% in April. However, the headline figures may overstate market strength, as the data do not account for a growing number of contract cancellations driven by affordability pressures and broader economic uncertainty. Adding to concerns, homebuilder sentiment has deteriorated, with confidence and expectations for future single-family sales both falling to their lowest levels since November 2023. While underlying demand remains and incentives help support activity, the overall outlook for the housing market remains cautious and uncertain.

We expect continued pressure on the housing market as elevated costs and economic uncertainty persist, with builder incentives supporting demand but overall sentiment remaining cautious.