One quarter ends another begins, trade tensions ease oil price down, markets up

Stock markets are back to the highs of the start of an eventful first half of the year, driven by expectations of easing monetary policy, an easing of fears as to what the impact of Liberation Day tariffs might do to company margins, and the ongoing expectations that AI growth will drive the Mag 7 profits and another leg of global economic growth. Stocks have also been helped in the week as Trump announced that America and China have signed a trade agreement amid efforts to end a trade war between the world’s biggest economies. Overnight, Canada scrapped a digital services tax hours before it was due to take effect, in an effort to smooth trade talks with its neighbour.

To be fair, the recent rally has been a reasonably broad-based one, an indication of market breadth —a measure that tracks the number of stocks rising versus those declining — reached a new high on Friday. Over the weekend, Trump’s beautiful big bill passed its first hurdle, but still has more to go, helping markets start the final day of the first half of the year on the front foot.

The latest inflation data showed core prices accelerating slightly, but the 3-month inflation rate is near its post-pandemic low. This, combined with weakening economic conditions, has helped support the view that the Fed are more likely than not to cut interest rates, possibly as early as July. The price of oil, which at one point this month traded around $80 a barrel, has returned to the low $ 60s as tensions in the Middle East have eased for now. The weakness of the US dollar has meant that overseas investors have not fully benefited from the rally, as the S&P 500 index in sterling terms is down year-to-date.

This week, as we pointed out on Friday, will see the release of the monthly PMIs; aside from that, it’s a relatively quiet week on the economic front. On Thursday, we will receive a host of US employment data, which should provide helpful insight into the current state of the US employment market. The ECB are more than likely done for now easing monetary policy. On Tuesday, we get the euro area’s monthly inflation data. This morning, we got the final reading for Q1 GDP for the UK, which saw no adjustments.

In the coming month, the 2^nd quarter earnings season will get underway. According to FactSet, at the end of the 1^st quarter, the estimated (year-over-year) earnings growth rate for the S&P 500 for Q2 2025 was 9.4%, as a result of downgrades to estimates have now fallen to 5%. Again, according to FactSet, the S&P 500 sits on almost 22x next year’s earnings.