Equity markets began the week supported by expectations of steady central bank policy and solid economic data, but midweek sentiment turned cautious as escalating Middle East tensions dampened risk appetite and flattened returns. In the U.S., early optimism from strong retail sales control group data – a measure used for GDP tracking purposes – and a Fed hold gave way to caution as Chair Powell’s hawkish tone and geopolitical tensions weighed on risk appetite. Canadian equities tracked global sentiment, with attention on the G7+ summit and mixed retail and housing data offering little directional clarity. In Europe, markets were pressured by persistent inflation in the U.K. and dovish surprises from the BoE and other central banks, which signalled concern over deflationary risks and U.S. trade policy. In China and broader emerging markets, upbeat industrial and retail figures pointed to policy-supported momentum, but persistent weakness in real estate and subdued private-sector confidence underscored the fragility of the recovery, reinforcing expectations for additional targeted stimulus to sustain growth near the 5% target.

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U.S. fixed income markets were steady early in the week as investors awaited the Fed’s decision, with rates drifting lower on soft retail sales and industrial production data. However, yields rose midweek after Chair Powell struck a hawkish tone, signaling fewer cuts ahead and citing elevated uncertainty, which pressured bonds. In Canada, rates followed U.S. moves, with little domestic data to shift expectations, while the Juneteenth holiday muted activity. European bond markets saw a notable pivot as the Swiss National Bank, Norges Bank, and Riksbank all delivered dovish surprises, citing deflationary pressures and currency strength, pushing yields lower.

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Canadian home sales climbed 3.6% in May in the first increase since November, but the real estate industry cautions it is too early to say the country’s housing market is rebounding after a two-year slump. There were 37,626 home sales last month after adjusting for seasonal influences, according to the Canadian Real Estate Association (CREA). That was higher than April when selling activity was essentially flat after months of consecutive declines. The swell in activity was similar to November when sales rose 3.2% month over month.

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The U.S. Federal Reserve held interest rates steady and policymakers signalled borrowing costs are still likely to fall this year but slowed the overall pace of expected future rate cuts in the face of estimated higher inflation flowing from the Trump administration’s tariff plans. The Fed’s policy rate remains in the range between 4.25% and 4.5%.

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Japan’s exports fell for the first time in eight months in May, bolstering views that the impact of U.S. President Trump’s tariffs could tie the Bank of Japan’s hands on rate hikes. Exports, a main engine of growth for Japan’s economy, declined 1.7% in May from a year earlier, compared with April’s 2.0% rise, Ministry of Finance data showed. That marked the first on-year drop since September 2024.

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