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Global Financial Markets Weekly Review: Volatility Returns amid Geopolitical Risks and Monetary-Policy Uncertainty


The past week in international financial markets has been marked by pronounced volatility.
Positive sentiment from easing inflation data and improved US–China relations was upended late in the week by a sharp escalation in Middle East tensions.
Equity markets lost ground despite initial gains, while commodity and bond markets reflected renewed risk aversion.

Global Equity Markets

The week began on a constructive note. Global stocks advanced as investors responded to a softer-than-expected US Consumer Price Index report and fresh indications of progress in trade negotiations between the US and China. These factors contributed to net inflows into both global equity and bond funds, reversing several weeks of outflows.

  • S&P 500: Rose as much as 1.3% through Thursday, before erasing gains to close the week down 0.4%.

  • Nasdaq Composite: Followed a similar pattern, with early strength cut short by risk-off sentiment.

  • MSCI All Country World Index: Ended the week higher by 0.8%, reflecting gains in major developed markets.


However, Friday’s session was dominated by breaking news of a significant military offensive by Israel targeting Iranian assets. This unexpected escalation triggered a broad risk-off move across global equities, with the Dow Jones Industrial Average falling 1.8% in a single session and small-cap indices underperforming.


Bond and Currency Markets

Bond markets exhibited classic risk-aversion dynamics. Investors shifted capital into government securities as safe havens, driving down yields, especially in the US Treasury market.

  • US Treasury Yields: The 10-year yield declined 12 basis points over the week, reflecting both falling inflation expectations and geopolitical fears.

  • Corporate Credit: Spreads widened moderately, but remained contained thanks to strong inflows into investment grade and short-duration funds.

  • Eurozone Bonds: Benefited from similar flows, with significant demand for short-dated and high-quality paper.

  • FX: The US dollar was mixed, holding firm against emerging market currencies but relatively stable versus other majors.


Commodities

The commodity complex saw significant volatility:

  • Crude Oil: Brent crude rallied more than 10% for the week, the sharpest increase in over a year, as markets priced in supply disruption risks from renewed Middle East conflict.

  • Gold: Reaffirmed its role as a safe haven, rising over 3% and drawing more than $1 billion in net inflows to gold and precious metals funds.

  • Industrial Metals: Copper and other base metals remained firm on supply concerns, but gains were muted by global growth uncertainty.


Sector Performance and Fund Flows

Technology and communication services outperformed, driven by ongoing momentum in AI and chip sectors, though even these areas lost ground by week’s end.Defensive sectors such as consumer staples and utilities lagged, as risk appetite briefly returned before the geopolitical shock.

  • Equity Funds: Global funds received net inflows of $3.2 billion, marking a reversal after three weeks of outflows.

  • Bond Funds: Saw $20.1 billion in inflows, led by US and euro-denominated investment grade and short-duration products.


Macro Developments

Early in the week, financial markets responded positively to a US CPI print of 2.4% (core), supporting expectations that the Federal Reserve would maintain its policy rate at the upcoming June 18 meeting. Futures pricing now reflects a high probability of a prolonged pause, as the central bank assesses mixed economic data and persistent global risks.

Concurrently, US–China negotiations made incremental progress, notably in high-tech and raw materials trade, which helped steady global sentiment until the escalation of geopolitical risks on Friday.


Looking Ahead

The outlook for the coming week is shaped by two dominant themes...

  1. Geopolitical Risk: Further escalation in the Middle East could drive continued volatility across equities, bonds, and commodities.

  2. Monetary Policy: The US Federal Reserve’s rate decision and accompanying press conference on June 18 will be critical for market direction, particularly regarding future guidance on inflation and employment.


Investors are advised to remain cautious, with a focus on risk management and scenario planning. The balance between improving macro fundamentals and rising geopolitical uncertainty remains the central challenge for global markets as the second quarter draws to a close.


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