Key Takeaways:
- Stock futures decline amid escalating U.S.-China trade tensions.
- President Trump doubles steel tariffs to 50%, increasing tensions with the EU.
- Oil prices rise following OPEC+’s decision to maintain output increases.
- Investors shift towards short-term Treasuries amid bond market volatility.
- Despite strong May gains, analysts are skeptical about future market momentum.
Global Markets Unsettled by Escalating Trade Tensions
Stock futures fell on Monday, the first trading day of June, as global trade tensions intensified, casting uncertainty over the markets’ recent strong performance. S&P 500 futures traded down 0.3%, while Nasdaq-100 futures dropped 0.5%. Futures tied to the Dow Jones Industrial Average declined 101 points, or 0.2%.
Deteriorating U.S.-China Relations
China pushed back against U.S. accusations that it had violated a temporary trade agreement, instead blaming Washington for failing to uphold the deal—a sign that negotiations between the world’s two largest economies are deteriorating. Tensions reignited following a brief pause after U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng met in Geneva and agreed to a 90-day suspension of most tariffs.
National Economic Council Director Kevin Hassett suggested on Sunday that President Donald Trump and China’s President Xi Jinping could have a conversation about trade as soon as this week, offering a possible avenue for easing tensions.
Heightened Tensions with the European Union
Relations between the U.S. and the European Union also became strained after President Trump announced he would double steel tariffs to 50% from 25%. The EU warned that this “undermines” negotiations, with a spokesperson adding: “This decision adds further uncertainty to the global economy and increases costs for consumers and businesses on both sides of the Atlantic.”
Steel Stocks Surge Amid Tariff Increase
Despite the broader market declines, steel stocks rallied on Monday morning in response to the increased tariffs. Cleveland-Cliffs soared 32%, while Steel Dynamics and Nucor both rose by 13%.
Analysts Question Continuation of Market Momentum
On Friday, the S&P 500 closed out the month of May with a more than 6% gain, its best monthly performance since November 2023. The tech-heavy Nasdaq Composite surged more than 9% for the month, and the Dow Jones Industrial Average rose about 4%. However, some analysts remain cautious about the markets’ ability to sustain this momentum.
“We’re probably still range-bound,” said Chris Toomey, Managing Director at Morgan Stanley, speaking with CNBC’s “Closing Bell.” “The concern we’ve got is that while I think we’ve taken out the worst-case scenario with regards to the ‘liberation day’ [tariffs], we’re in a situation where I think the market’s right now probably pricing in the best-case scenario.”
Oil Prices Climb Following OPEC+ Decision
Oil prices rose as OPEC+ decided to maintain its planned output increase of 411,000 barrels per day in July, consistent with the prior two months. U.S. crude oil gained $2.50, or 4.1%, to reach $63.29 per barrel, while global benchmark Brent climbed $2.31, or approximately 3.7%, to $65.09 per barrel.
Investor Shift Toward Short-Term Treasuries
Amid bond market volatility, investors are increasingly turning to shorter-term Treasury bills, following the lead of Berkshire Hathaway’s Warren Buffett. “There’s lots of concern and volatility, but on the short and middle end, we’re seeing less volatility and stable yields,” said Joanna Gallegos, CEO and founder of bond ETF company BondBloxx, on CNBC’s “ETF Edge.”
The 3-month Treasury yield sits above 4.3%, while the 2-year and 10-year Treasury yields are at 3.9% and approximately 4.4%, respectively. Last month, Treasury yields spiked amid concerns that a new U.S. tax bill would exacerbate the country’s budget deficit.
Outlook Amid Uncertainties
As global trade disputes continue to unfold, markets may face increased volatility in the coming weeks. Investors and analysts are closely watching developments between the U.S., China, and the European Union, as well as policy decisions impacting key sectors such as steel and oil. The question remains whether the strong gains seen in May can be sustained amid these geopolitical challenges.
