Markets are starting the week under pressure, grappling with a new round of geopolitical uncertainty, fresh signals from the oil patch, and key macroeconomic data. While much of the recent narrative has revolved around a softening inflation outlook and cautious central bank pivot talk, this week’s developments suggest a re-emergence of global supply chain risk and policy unpredictability. Here’s a deep dive into the key themes driving markets.
Trump Shocks Markets with Surprise Tariff Hike on Steel and Aluminum
In a move that caught markets off guard, U.S. President Donald Trump announced over the weekend that the U.S. will double existing tariffs on imported steel and aluminum—from 25% to 50%—effective June 4th. While the administration did not specify targeted countries, the implication is clear: protectionist measures are back on the table just as global manufacturing attempts to stabilize.
The policy is expected to have a ripple effect across industrial sectors, further tightening U.S. construction and manufacturing input costs, and potentially triggering retaliatory moves from trade partners—particularly China.
Tariff headlines immediately pressured risk sentiment. Equity futures slid in early Asia and European trade, with S&P 500 futures (ES) down 0.5%, as traders began to reprice tail risks around a broader global trade skirmish. Sectors sensitive to commodity inputs, such as autos and heavy manufacturing, were especially vulnerable.
US-China Frictions Reignite
Further weighing on sentiment, U.S. Treasury Secretary Bessent—in a Sunday CBS interview—accused China of deliberately holding back exports of “key products essential to the industrial supply chain.” Although he stopped short of naming specific items, the implication is that China may be strategically managing its outbound trade to exert leverage.
Secretary Bessent added that President Trump is expected to speak directly with Chinese President Xi Jinping “very soon,” suggesting that diplomatic overtures may be forthcoming—but also hinting at high-stakes negotiations that could add volatility in the near term.
This rhetoric comes amid growing concern that global supply chain normalization could stall just as Western economies face disinflationary headwinds and slower growth.
Oil Markets Surge as OPEC+ Signals Controlled Supply Growth
In stark contrast to the risk-off tone in equities, oil markets rallied on the back of an expected—but still market-moving—announcement from OPEC+. Member countries that had previously undertaken voluntary production cuts agreed to a 411,000 barrels-per-day (bpd) output increase in July, effectively beginning a slow unwind of those restrictions.
Importantly, OPEC+ emphasized that the move is conditional and could be paused or reversed depending on market conditions—a flexibility clause that traders read as supportive for prices. The forward-guidance style messaging reflects OPEC+’s continued concern about global demand fragility and a desire to manage price floors without shocking the system.
Crude prices surged on the announcement, with WTI and Brent gaining amid expectations of tighter-than-expected supply in the near term.
China’s PMI: A Tale of Two Economies
Adding further complexity to the global macro picture, China released official PMI data over the weekend, showing a mixed outlook:
- Manufacturing PMI rose in line with expectations, indicating stabilization after months of contractionary prints.
- Non-manufacturing PMI, however, eased slightly, defying forecasts of continued strength in services and construction.
While the divergence isn’t severe, it reinforces the view that China’s post-COVID recovery remains uneven, with consumption and infrastructure-related services failing to deliver the strong rebound policymakers had hoped for. It may also prompt further monetary or fiscal stimulus measures in the coming weeks.
Dollar Weakens as “Sell America” Trade Reemerges
In currency markets, the U.S. dollar remains under pressure, with the DXY index drifting lower as traders digest the implications of rising trade tensions and potentially slower U.S. growth. The return of tariffs, geopolitical uncertainty, and mixed macro data have re-invited a “sell America” narrative, particularly against commodity-linked and emerging market currencies.
Fixed Income: Bearish Tilt Ahead of Data Deluge and Fed Speak
In rates markets, there’s a mild bearish bias as traders await a slate of high-profile economic releases and central bank commentary. The U.S. Treasury curve has seen modest steepening as focus shifts to incoming data that could determine whether the Federal Reserve has room to pivot toward easing—or whether inflation resilience will keep the pause narrative in play.
Key event risks on Monday include:
- U.S. ISM Manufacturing Index
- Final Manufacturing PMI prints from both the U.S. and Canada
- Speeches from major central bank figures, including:
- Bank of England’s Catherine Mann
- ECB President Christine Lagarde
- Federal Reserve’s Lorie Logan, Austan Goolsbee, and Chair Jerome Powell
Market participants will be watching closely for any shift in tone, particularly from Powell, as inflation data and labor market resilience continue to confound straightforward rate path forecasting.
Volatility Creeping Back In
The calm that followed the U.S. disinflation trend earlier this year may be giving way to a new volatility regime. Trade frictions, supply chain risks, mixed global data, and cautious central banks are re-entering the macro picture. For now, markets remain reactive and headline-driven—but with Powell and PMIs on deck, the week ahead may offer more concrete direction.
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