Markets Tread Carefully as Chip Stocks Weigh on Sentiment and Geopolitics Loom Large  | Weekly Market Analysis

Key events this week:

Monday, June 23, 2025

• USA - S&P Global Manufacturing PMI (Jun)
• USA - S&P Global Services PMI (Jun)
• USA - Existing Home Sales (May)

Tuesday, June 24, 2025

• USA - CB Consumer Confidence (Jun)
• USA - Fed Chair Powell Testifies

Wednesday, June 25, 2025

• USA - Fed Chair Powell Testifies
• USA - New Home Sales (May)
• USA - Crude Oil Inventories

Thursday, June 26, 2025

• USA - Durable Goods Orders (MoM) (May)
• USA - GDP (QoQ) (Q1)
• USA - Initial Jobless Claims

Friday, June 27, 2025

• USA - Core PCE Price Index (YoY) (May)
• USA - Core PCE Price Index (MoM) (May)

US equity markets wrapped up the week on a cautious note, with the S&P 500 slipping lower as a selloff in semiconductor stocks offset dovish commentary from a prominent Federal Reserve official. While the Dow Jones Industrial Average eked out a modest gain of 35 points, or 0.1%, the S&P 500 fell by 0.3%, and the NASDAQ Composite dropped 0.5%. The midweek Juneteenth holiday kept overall trading volumes muted, and investors appeared reluctant to take significant positions heading into the weekend.

Technology shares, particularly those in the semiconductor sector, dragged markets lower after a report from the Wall Street Journal revealed that the Trump administration is preparing to tighten restrictions on semiconductor equipment exports to China. Industry leaders such as Nvidia and Broadcom took the brunt of the hit. According to officials, the proposed move involves revoking existing waivers that currently allow US companies to sell advanced chip-making equipment to Chinese firms. Though not officially characterized as a new escalation in the trade war, the changes would bring the US policy framework closer in line with China’s licensing system for rare earth exports.

Economic data also painted a mixed picture. The Philadelphia Fed’s manufacturing index released Friday suggested ongoing weakness in the US industrial sector, reinforcing the notion that certain areas of the economy remain under stress. Still, some positive signals came from the Federal Reserve, where Governor Chris Waller surprised markets by suggesting that the central bank should consider cutting rates at its next meeting. Citing subdued inflation data and the likelihood that price shocks from import tariffs will be temporary, Waller’s remarks were seen as a pivot toward easing. The comments stood in contrast to Fed Chair Jerome Powell’s remarks earlier in the week, where he left the door open for rate cuts but maintained the Fed’s cautious, data-dependent approach.

Waller's dovish comments seemed to resonate with former President Donald Trump, who blasted Powell just a day earlier on Truth Social, accusing the Fed chief of being “destructive” and costing the economy “hundreds of billions of dollars” by not lowering rates. The intersection of monetary policy and political pressure continues to cloud the outlook for the US economy, particularly in light of Trump’s renewed focus on trade and tariffs as campaign issues.

International markets mirrored the uncertainty as a series of central bank decisions and geopolitical shocks played out globally. The Bank of England, Norges Bank, and Swiss National Bank all issued updates that markets closely parsed for future rate guidance, with Trump’s unpredictable trade agenda looming over monetary policy discussions in Europe.

Currency markets also experienced heightened volatility. The Japanese Yen depreciated for a third straight session, lifting USD/JPY toward the 146.75 mark, its highest since mid-May. A series of factors contributed to the yen's weakness, including the Bank of Japan’s reluctance to aggressively unwind its accommodative policies. Investors are now revising expectations for the timing of the next interest rate hike, especially as Japanese officials remain cautious about economic risks stemming from existing 25% US tariffs on autos and other goods. Still, some upside risk for the yen lingers, particularly in light of Japan’s hotter-than-target inflation and stronger-than-expected PMI data. These factors, combined with rising geopolitical tensions after US strikes on Iranian nuclear facilities, could bolster the yen’s safe-haven appeal in the near term.

The Australian Dollar also extended its decline against the US Dollar, marking a third consecutive session of losses. The risk-sensitive AUD has been hit by fears surrounding the expanding Middle East conflict. President Trump announced that US forces had "obliterated" three Iranian nuclear sites in coordination with Israeli airstrikes. The move prompted Iran’s parliament to approve legislation to close the Strait of Hormuz - a key global shipping channel - intensifying concerns about global energy supply disruptions. Despite a steady performance in domestic PMI data, Australian sentiment remains subdued amid heightened geopolitical risk.

The Swiss Franc gained ground, pulling the USD/CHF slightly lower during Monday’s Asian session. Safe-haven demand supported the franc, even as recent data showed that Switzerland’s trade surplus narrowed to CHF 2.0 billion in May, marking its smallest since December 2023. Traders are now eyeing the ZEW Survey and the Swiss National Bank’s quarterly bulletin for further policy cues.

New Zealand’s dollar faced its own headwinds, opening the week with a bearish gap as NZD/USD retreated from recent highs and touched a fresh monthly low around the 0.5930 region. Lower inflation expectations and rising risks from US tariffs are pushing the Reserve Bank of New Zealand toward additional rate cuts, putting pressure on the kiwi.

In the UK, the British Pound fell to 1.3405 amid risk-off sentiment and weaker-than-expected economic data. Downbeat retail sales figures released Friday showed a 2.7% monthly decline in May, far exceeding forecasts and putting more pressure on the Bank of England to cut interest rates. Although the BoE kept rates steady at 4.25% during its June meeting, comments from Governor Andrew Bailey confirmed that rates are on a downward path - albeit cautiously. Markets are now pricing in further rate cuts in August and later in the year.

The Canadian Dollar opened the week on a mixed note. USD/CAD rose above the mid-1.3700s, but momentum remained limited. Crude oil prices, boosted by fears of supply disruptions in the Middle East, lent some support to the commodity-linked loonie. Simultaneously, hopes for a potential US-Canada trade agreement and expectations that the Bank of Canada may hold off on further rate cuts due to inflation concerns also played into CAD’s resilience.

Looking ahead, markets are bracing for a packed economic calendar. Global flash PMIs are expected early in the week, offering a broad snapshot of global growth momentum. Traders will also keep a close eye on upcoming geopolitical developments, particularly any Iranian response to recent US strikes. Later in the week, Canadian inflation data and Fed Chair Jerome Powell’s congressional testimony will provide further direction for financial markets. Powell’s remarks will be closely scrutinized for clues on whether the Fed is prepared to act on Waller’s suggestion and pivot toward rate cuts as early as its next meeting.