Markets cautious as US tax bill raises deficit concerns

General market commentary

Equity markets ended Thursday broadly lower as investors digested the U.S. House’s narrow passage of a sweeping tax and spending bill. While the Nasdaq managed a modest gain, the S&P 500 and Dow were largely unchanged, reflecting market uncertainty over the bill’s path forward in the Senate. Sector-wise, consumer discretionary and communication services led the charge, while utilities and healthcare lagged notably. Bond yields reversed their recent upward trajectory, with the 10-year Treasury falling to 4.54% amid deficit concerns stemming from the bill’s estimated $2.4–$3 trillion addition to the national debt over the next decade. Meanwhile, jobless claims dipped more than expected, pointing to ongoing labour market resilience.

Elsewhere, sentiment remained fragile, particularly in Europe, where the eurozone’s services PMI unexpectedly dipped into contraction territory. The U.S. dollar gained ground against major peers, buoyed by stronger private-sector data at home and growing global uncertainty. Despite overall market caution, Bitcoin surged to a new all-time high, pushing crypto-linked equities higher. Conversely, clean energy shares suffered steep declines, with the proposed elimination of green incentives under the tax bill weighing heavily. In commodities, oil prices slipped on potential OPEC+ supply increases, while U.S. home sales dropped amid affordability challenges, suggesting a slowing housing market as mortgage rates remain elevated.

Latest market and economic update

Most Asian equities rose on Friday, with Japanese markets advancing despite strong inflation data, as easing U.S. Treasury yields offered some respite from broader fiscal concerns. Chinese shares outperformed for the week amid optimism over U.S. tariff de-escalation and stimulus hopes, while other regional markets, including Japan, India, and South Korea, posted weekly losses.

U.S. equity futures held steady on overnight as investors weighed the potential long-term fiscal impact of President Trump’s newly passed tax-and-spending bill. Concerns over ballooning national debt and a recent credit rating downgrade continued to temper market sentiment, keeping futures trading within a narrow range.

European shares closed notably lower on Thursday, with the STOXX 50 down 0.6% and the STOXX 600 falling 0.7%, as weaker-than-expected Eurozone private sector data and mounting U.S. debt concerns weighed on sentiment. Luxury equities and automakers led the decline, with Hermes and LVMH each sliding nearly 2%, and Stellantis down around 4%, while Generali bucked the trend with a modest gain following its quarterly results.

The US dollar weakened notably, with the dollar index falling to around 99.6 and on track for a weekly loss of over 1%, as mounting concerns over the US fiscal outlook and rising national debt weighed on sentiment. The greenback also slipped against the euro, with EUR/USD climbing to 1.1317, as investors grew cautious amid credit rating downgrades and faltering trade negotiations.

Oil prices extended their decline in Asian trade this morning and were set for weekly losses of nearly 2%, as oversupply concerns mounted amid reports that OPEC+ may raise production in July. The market was further pressured by unexpected builds in U.S. crude inventories and anticipation of U.S.-Iran nuclear talks, which could potentially lead to increased Iranian oil exports.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Major U.S. banks, including JPMorgan, Bank of America, Citigroup, and Wells Fargo, are reportedly in early talks to develop a joint stablecoin in response to rising competition from the crypto sector. The initiative, still in its conceptual phase, would depend on upcoming legislation like the GENIUS Act, and aims to support faster, cheaper payments while safeguarding banks' share in the payments market.

Apple plans to launch smart glasses by the end of next year, aiming to expand its product range and boost demand for AI devices, with prototype production set to begin later this year. The move follows the lukewarm reception of its Vision Pro headset and contrasts with Meta’s successful Ray-Ban smart glasses, while Apple has also reportedly shelved plans for a camera-equipped smartwatch.

Pemex, the world’s most indebted energy firm, is planning a business restructure to cut costs, according to a May document seen by Reuters. While earlier reports mentioned potential layoffs of over 3,000 staff and savings of 10.5 billion pesos, the latest version confirms only a leadership change in its exploration division, with further details unclear.

Rio Tinto announced that CEO Jakob Stausholm will step down later this year, with a rigorous selection process already underway to find his successor. The company also secured a strategic win as Chile’s state-run ENAMI chose Rio Tinto for a 51% stake in the Altoandinos lithium project, expanding its presence in energy transition metals.

Bill Ackman’s Pershing Square has taken a new position in Amazon, citing confidence in the long-term growth potential of both Amazon Web Services and its retail business despite recent concerns over AWS slowdown and tariff uncertainties. Pershing Square highlighted the current attractive valuation and expects Amazon to maintain earnings growth above 20%, viewing recent challenges as temporary setbacks.

Analysts at Citi and Bank of America remain cautious on Hims & Hers Health amid rising competition in the GLP-1 market and signs of slowing growth, with Citi highlighting potential challenges from Evernorth’s lower-cost GLP-1 offering. Both firms maintain negative ratings, citing concerns over sales declines, increased competition, and regulatory risks that could impact Hims’ 2025 outlook.

Moody’s has upgraded Grifols’ corporate family rating from B3 to B2, reflecting the company’s strong operating performance, improved credit metrics, and robust cash flow outlook. The positive outlook is supported by expectations of continued financial improvement, although high leverage and capital intensity remain key considerations.

Upcoming data and events

Today, key economic data includes German GDP figures and French consumer confidence readings, which will provide insight into the health of the European economy. Additionally, UK retail sales numbers and US housing data, including new home sales and building permits, are set for release, offering a clearer picture of consumer spending and the housing market in these regions.

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