Please see the below article from Brooks Macdonald detailing their discussions on further developments in the Macro environment. Received this morning 28/05/2025.
What has happened
Following the US and UK holidays, global equities delivered a strong performance yesterday. The rally was partly driven by a delayed market response to President Trump’s decision to postpone 50% EU tariffs until July 9. The S&P 500 surged 2.05%, snapping a four-day losing streak, with the Magnificent 7 stocks leading the charge, gaining 3.24% ahead of Nvidia’s highly anticipated earnings release. The rally was broad-based, with the Russell 2000 small-cap index climbing 2.48%. Globally, Germany’s DAX and Canada’s S&P/TSX hit record highs, while Europe’s STOXX 600 posted a second consecutive day of gains. Meanwhile, the 10-year US Treasury yield fell 6.7 basis points to 4.45%, signalling a pause in recent upward pressure on yields.
Global bond yields lower
A big catalyst for market rally was developments in Japan. The 30-year Japanese government bond yield fell by 19 bps, which was the largest single-day drop since the regional banking crisis of March 2023. This movement reversed recent upward trends, as the 30-year bond yield had previously reached their highest levels since the bond’s issuance. The decline followed reports that Japan’s finance ministry circulated a questionnaire to market participants, leading to speculation of reducing long-dated bond issuance. The rally in Japanese bonds produced ripple effects globally. The US 30-year Treasury yield dropped 8.6 basis points to 4.95%. In Europe, 30-year yields also declined, with Germany (-6.1bps), France (-5.6bps), and Italy (-5.8bps) all seeing notable pullbacks.
May consumer confidence rises sharply
Adding to the positive momentum, the US Conference Board’s May consumer confidence index rose sharply to 98.0, exceeding expectations of 87.1 and marking the first increase in six months. The expectations component soared 17.4 points to 72.8, the largest monthly gain since May 2009, reflecting optimism as trade tensions eased. This piece of data cemented the view that a significant economic downturn is unlikely, hence further supporting risk assets across the board.
What does Brooks Macdonald think
The combination of easing trade tensions, resilient consumer confidence, and falling bond yields provides a supportive backdrop for equities and other risk assets, particularly in sectors tied to economic growth. However, uncertainties around upcoming corporate earnings and potential shifts in monetary policy warrant vigilance.
Bloomberg as at 28/05/2025. TR denotes Net Total Return.
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Alex Clare
28/05/2025