Investors reacted cautiously to news of a U.S. – China trade truce and continued concerns about escalating Middle East tensions impacting on oil prices as they digested the latest inflation figures.
US Markets took a break as the indexes ended a three-day winning streak.
S&P 500 Index dropped by 0.39%, to 6,015.48, Nasdaq Composite fell by 037% and Dow Jones Industrial Average remained flat.
A muted CPI and inflationary undercurrents
The release of May 2025 Consumer Price Index was a key factor in today’s market mood.
The CPI measured inflation at 2.4% on an annual basis. This is a small increase over April’s 2,3%, but still below market expectations of 2.5%.
In May, the core CPI, which excludes volatile energy and food prices, was unchanged at 2,8%, a similar increase to April.
Both CPI and CPI core increased modestly by 0.1% on a monthly basis.
The Federal Reserve is concerned that, while the CPI headline figure came in slightly lower than expected, indicating the new tariffs have not fully affected the U.S. economic system, certain underlying components remain sticky, notably shelter costs.
The Fed can breathe easier after this tame inflation report. It kept its federal funds rate at 4.25-4.50% in May.
The path for future interest rate reductions is still a hotly debated topic, and policymakers are expected to be patient unless there’s a major downturn on the job market.
Trade truce between the US and China: cautious optimism
The news that a tentative U.S. – China trade truce was in the works added another layer to the complexity of the story.
After two days of talks at a high level in London, the United States and Britain have reportedly come to a consensus about advancing an agreement on trade, based on previous discussions.
Trump said via Truth Social, that the deal had been “done” pending approval. Tariffs for Chinese products will be reduced by 55% while China sets 10%.
Trump added that China would supply rare earth minerals, magnets and other materials.
The U.S. stock market was subdued despite the diplomatic breakthrough. Futures had fallen earlier that day.
The reason for this cautious reaction is likely the pain that some Chinese exporters continue to feel due to U.S. Tariffs which are still significantly higher than they were last year.
Investors are still assessing the impact of the agreement on the economy and its certainty in the long term.
Reports of increased uncertainty in the Middle East triggered a surge in oil prices. US crude oil futures rose by 4% following a Reuters article that said the US was preparing for a part-evacuation of its embassy in Iraq.
Warner Bros Discovery was the S&P 500’s top-performing stock with an almost 5% increase.
Starbucks Corporation, Broadcom Inc. and other top performers saw their shares rise by 4% and 3 % respectively.
Intel Corp. and United Airlines Holdings ranked amongst the worst performers with declines of 6% and 5.5%, respectively.
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