Commentary Corner - Week of June 23-27, 2025
This past week was a return to relative calmness in the markets after most of the geopolitical tensions brewing over the past few weeks have been resolved. The so-called “peace dividend” has materialized in most asset classes in the form of positive returns with minimal volatility. Most US equity indices are significantly up on the week, marching into green territory. All US equity indices are now significantly up YTD compared to last week’s breakeven levels. Both the S&P 500 and the NASDAQ composite reached new all-time highs.
US credit markets seem to be undeterred WoW, with US HY continuing to tighten to historical tights. At this rate, we might soon be headed for US HY trading below 300bps (pre-Liberation Day credit spreads). In US Treasury markets, demand for safe haven Treasuries continues, with a rally across the yield curve, particularly in the short end. The increasing term premium (long term – short term rates) reflects increasing investor caution surrounding the long-term uncertainties regarding the “big, beautiful bill” that President Trump has proposed. Oil prices have significantly decreased after the proposed ceasefire in the Middle East came into effect, with volatility (VIX) also decreasing in accordance.
The USD continues to weaken against most major currencies, with its performance in 1H 2025 being its worst start to the year since 1973. This decline has been driven by concerns surrounding President Trump’s tariff policies, Fed independence, and the growing US debt burden. Despite Trump’s desire to have a weaker greenback (a “cheap” US dollar will make US exports look more attractive to foreign buyers), the long-term implications of the USD losing its status as the de facto reserve currency will have serious implications down the road.
One developing story to keep track of is the breakdown of trade negotiations between the US and Canada before President Trump’s imposed July 9th tariff deadline. The main point of contention is Canada’s proposed digital services tax, which negatively impacts US tech companies. What was once a foregone conclusion has now had a wrench thrown into the works, with the exact outcome at the current moment being unclear to both parties. Surprisingly, US and Canadian equity markets seem to be undeterred by this prospect, both ending the week in the green. (Update Sunday evening: Canada proposes to scrap the digital services tax in an effort to curry favour with President Trump)