News of the week summary - 29/06/2025
Wall Street climbs to record highs
The S&P 500 reached a record level this week, marking a sharp turnaround from the steep market drop triggered earlier in the year by Donald Trump’s aggressive tariff announcements. Since April, when stocks touched a 15-month low following Trump’s “liberation day” declaration of new tariffs, the index has surged more than 23%, technically entering what is called a “bull market”, a period where prices rise by at least 20% from a previous low.
This rally has been fueled by two major factors. First, geopolitical tensions in the Middle East have cooled after the U.S. brokered a ceasefire between Israel and Iran, calming fears of a disruption in oil supply. Second, the U.S. and China have reportedly reached a trade agreement, easing concerns about an escalation of the tariff war that had weighed heavily on markets earlier in the year.
Investors were also encouraged by speculation that a provision in Trump’s budget, which would have allowed higher taxes on foreign investments, might be scrapped. On top of that, U.S. economic data has proven more resilient than expected, and corporate buybacks (when companies repurchase their own shares, reducing supply and boosting stock prices) have helped drive the market upward.
While equities rallied, U.S. government bonds (Treasuries) and the dollar faced pressure. Yields have risen on concerns over the sustainability of America’s growing debt burden, while the dollar fell to its lowest level in three years. This contrast highlights how investors are shifting money into riskier assets like stocks while questioning the long-term fiscal outlook of the U.S.
Analysts suggest the focus of markets has now shifted away from fears of tariffs and toward enthusiasm towards themes like artificial intelligence and economic growth potential.
Long-term U.S. bonds sold by market amid debt concerns
Long-term U.S. bonds are facing a wave of investor withdrawals, with outflows from funds holding government and corporate debt reaching nearly $11 billion in the second quarter, the fastest pace since the financial turbulence of early 2020. For years, these funds had typically attracted steady inflows, averaging about $20 billion per quarter. The reversal reflects growing unease about America’s fiscal trajectory and its implications for the bond market.
The concern is straightforward: President Trump’s signature tax cuts, while intended to boost growth, are expected by independent analysts to add trillions of dollars to the national debt over the coming decade. Financing this deficit requires the U.S. Treasury to issue large volumes of bonds, increasing the supply of debt. When supply expands faster than demand, bond prices fall and yields rise, which discourages investors, particularly in longer-dated bonds that lock in fixed interest payments for decades.
Compounding the anxiety is the risk that Trump’s tariffs could stoke inflation. Inflation is particularly damaging for long-term bonds because it erodes the real value of the fixed payments investors receive. Even with inflation already running above the Federal Reserve’s 2% target, investors worry about “persistent overshooting,” which would further undermine the attractiveness of these securities.
This shift in sentiment has been visible in performance: long-term U.S. debt fell about 1% this quarter, even after recovering from steeper declines earlier in the year. By contrast, short-term bonds (those maturing in the near future) are attracting heavy inflows, with over $39 billion added to such funds this quarter. The appeal lies in their higher yields, thanks to the Fed’s elevated policy rates, combined with less exposure to inflation risk.
While some asset managers caution that the exodus doesn’t signal the collapse of the Treasury market, the movement suggests investors are increasingly wary of U.S. fiscal sustainability and may look abroad for diversification. As one strategist put it, this is less an “earthquake” than a series of tremors shaking confidence in America’s long-term debt.
U.S. exports plunge as tariffs disrupt trade
U.S. goods exports fell sharply in May, dropping 5.2% from April to $179.2 billion, the steepest decline since the coronavirus crisis in 2020. The slowdown reflects the ripple effects of President Trump’s “liberation day” tariffs, which prompted trading partners to scale back purchases of American goods. Although some of the proposed levies were delayed, others, including a 10% universal tariff and sector-specific duties on industrial metals, went into effect, creating significant uncertainty for exporters.
Industrial supplies, including shipments of crude oil and metals, were the hardest hit, falling 13.6% after a strong rise the previous month. Vehicle exports, which had sharply declined in April, saw a modest recovery of 3.5%. Imports, in contrast, remained broadly steady, causing the trade deficit in goods to widen to $96.6 billion, slightly above economists’ expectations.
The drop in exports illustrates how tariffs act as a tax on international trade. When the U.S. imposes levies on foreign buyers, American goods become more expensive abroad, reducing demand. Companies often respond by adjusting shipment schedules, building inventories in advance, or delaying exports to navigate new costs, contributing to the month-to-month volatility seen in the data.
Analysts caution that this volatility is likely to continue until the U.S. provides clear guidance on the scope and duration of its tariff policies. Until then, exporters face an uncertain environment, and global trade patterns may continue to shift in response to these artificial cost pressures.
Trump eases pressure on China regarding Iranian oil
President Trump announced that China can resume purchasing crude oil from Iran, marking an apparent reversal of his administration’s sanctions policy. Since March, the U.S. had imposed penalties on Chinese refiners and related shipping entities to curb Tehran’s oil exports, part of a broader “maximum pressure” campaign aimed at limiting Iran’s revenue and its nuclear and military programs.
China is the main buyer of Iran’s roughly 1.5 million barrels per day of crude exports, making U.S. sanctions a key lever in controlling Tehran’s income. The new announcement comes alongside Trump taking credit for a ceasefire between Israel and Iran, which has helped calm markets that were rattled by fears of disruption in Middle Eastern oil supplies. Oil prices, which spiked above $80 per barrel during heightened tensions, have since fallen back to around $68 as traders anticipate de-escalation.
Analysts remain cautious, noting that markets may take time to adjust, and that formal lifting of sanctions is unlikely without a deal addressing Iran’s nuclear program. The policy shift also intersects with ongoing trade negotiations between the U.S. and China, highlighting the complex interplay between geopolitics, sanctions, and global oil markets