The State of Markets:  “US Equities: Breaking Out? Or (Still) Consolidating?” 

US equity markets have held up well this week, despite (mostly) poor newsflow. In particular, Wednesday’s ISM Services reading for May was below 50 (just, at 49.9), and fell short of consensus expectations of 52. The New Orders component was especially weak (46.4). ADP employment was also soft, with just 37k new private sector jobs created in May (vs. consensus of +114k).

Equity markets, though, were resilient. The S&P500 and NASDAQ100, for example, continued to trade near the top of their recent ranges (despite a mid-week wobble), while some indices broke out to the upside (e.g. the Philly SOX, see key chart below). The ‘breakout’ theme continued today following the better than expected payrolls data, with the S&P500 pushing above its range (on an intra-day basis). Bonds were also a key feature, with yields higher today on that jobs report.

The key question in recent weeks has been: Are US equities about to roll over (having lost momentum since mid-May)? Or, are they merely consolidating gains, before the uptrend resumes? This week’s price action has been bullish (so far) in that respect. We’ve outlined our full views in recent research (see this week’s ‘Daily Risk Appetite’ publications).

All eyes this week ahead will be on the US CPI report for May (due Wednesday). While many will be watching for signs that tariffs are impacting goods inflation, markets will also be focussed on the services print (especially after this week’s unexpectedly strong ‘prices paid’ reading in the ISM services survey). That will be followed by PPI on Thursday and Michigan Sentiment (flash estimate for June) on Friday. Elsewhere Chinese CPI & PPI is due on Monday and, in the UK, Chancellor Reeves reports the outcome of the government’s 2025 Spending Review. Please see below for a full list of key macro data and events this coming week.

Key chart: Philly SOX candlestick, shown with 50 & 200 day moving average

Upcoming important data/events this week:

Key Research

Monthly Global Asset Allocation No. 65, 3^rd June 2025:

“OIL: Keep Low Weightings in Strategic Portfolio”

The oil price outlook is bearish from a ‘fundamental’ perspective. In particular, current OPEC policy will result in excess supply, pushing global oil inventories higher and likely generating further oil price weakness (as well as contango in the futures curve).

As always in commodity markets, weak prices then generate supply responses (which bring supply/demand back into balance). That should eventually come from US shale, which is highly price sensitive. There’s currently little evidence, though, that oil prices have been low enough to generate that response.

For now, therefore, we favour maintaining a low allocation to oil in strategic portfolios (and neutral commodities overall).

Key North American macro data & events:

Fig B:  US Michigan sentiment (index) 

Key European macro data & events

Fig C:  Eurozone industrial production (Y-o-Y %) 

Key UK macro data & events

Fig D:  UK RICS house price balance (index, 6 months advanced) vs. Rightmove house prices (Y-o-Y %) 

Key Asia-Pacific macro data & events

Fig E: Japanese GDP growth (Q-o-Q%) 

This week:

Longview on Friday, 6^th June 2025:

“Can Europe Continue to Outperform the US? Is Global Sector Leadership Changing?” 

Valuation Quarterly Asset Allocation No. 62, 5^th June 2025:

“Cheap, Cyclical, & Catching Up: Valuation Rebalance Ahead” 

EZ Quarterly Asset Allocation No. 62, 4^th June 2025:

“Europe: From Headwinds to Tailwinds” 

Monthly Global Asset Allocation No. 65, 3^rd June 2025:

“OIL: Keep Low Weightings in Strategic Portfolio” 

Prior week:

Longview on Friday, 30^th May 2025:

“The ‘OW Europe’ Theme & How Much Inflation Is There…. Really?” – see email attached

US Quarterly Asset Allocation No. 62, 29^th May 2025:

“Mid-Cycle Soft Patch Ongoing” 

Recommended Global Macro Trade, 28^th May 2025:

“Start Re-BUILDing SHORT Gold Exposure”