Hawkish Pause: Fed Signals Hikes as Markets Diverge

For the week of Jun 20, Global markets navigated a hawkish pivot from the Federal Reserve this week, with Chair Kevin Warsh's debut press conference flagging potential rate hikes and lifting short-term Treasury yields. U.S. equities managed modest gains as resilient retail sales and easing oil prices — aided by a U.S.-Iran MOU on the Strait of Hormuz — offset the hawkish policy shock. China's onshore markets advanced on solid industrial data, though the Hang Seng Index fell sharply as offshore sentiment soured, compounded by a holiday-shortened week and persistent weakness in domestic consumption. Singapore's Straits Times Index outperformed the region, surging to a fresh high led by broad-based gains in banks, industrials, and transport names.

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🇺🇸 United States

Market Overview

U.S. equities posted a modest but broad-based advance in a holiday-shortened week — markets were closed Friday for Juneteenth — with sentiment buoyed by softer oil prices following reports of a U.S.-Iran agreement to reopen the Strait of Hormuz. The Nasdaq Composite (COMP) led the major indices with a gain of +2.43%, while the S&P 500 (SPX) added +0.93% and the Dow Jones Industrial Average (DJI) rose +0.71%; however, intraday volatility spiked on Wednesday when the Federal Reserve's updated projections and Chair Warsh's hawkish tone triggered a sharp sell-off in bonds and a temporary retreat in equities.

(Refer to the major indices' weekly performance tables below.)

Major Indices – Weekly Performance

·       Dow Jones Industrial Average (DJI): +0.71%

·       S&P 500 (SPX): +0.93%

·       Nasdaq Composite (COMP): +2.43% 

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Key Highlights and Outlook

1️⃣ Fed Delivers Hawkish Pause in Warsh's First Meeting

The FOMC held the fed funds rate at 3.50%–3.75% for a fourth consecutive meeting, but the tone turned decisively more hawkish. Updated projections removed the previously expected 2026 rate cut, and roughly half of policymakers now pencil in at least one rate hike this year. Chair Warsh — who did not submit his own projections — reinforced the Fed's price-stability mandate and announced a broad operational review of the central bank's communications and frameworks.

2️⃣ Inflation Forecasts Revised Higher; Rate Cut Base Case Abandoned
The Fed raised its 2026 headline PCE inflation forecast to 3.6% and core PCE to 3.3%, levels well above the 2% target. With services inflation yet to re-accelerate and the unemployment rate anchored near 4.3%, the Fed appears content to hold — but the policy debate has shifted from "when to cut" to "how long to hold, or whether to hike." Markets responded by pricing a higher fed funds path than the Fed's own projections imply.

3️⃣ Retail Sales Beat; Housing Data Remain Challenged

May retail sales rose 0.9% month over month, beating the 0.6% consensus and reflecting resilient household consumption. Control group sales, which feed into GDP calculations, advanced 0.7%. Housing data were more mixed: housing starts fell sharply to an annualised 1.177 million in May versus expectations near 1.445 million, while the NAHB housing market index dipped to 35 amid elevated mortgage rates and rising material costs. Pending home sales offered a partial offset, rising 4.8% year over year.

4️⃣ Treasury Yields Rise Sharply at the Front End

The hawkish Fed read-through pushed short-term Treasury yields notably higher, with the two-year note hitting its highest level in over a year. Investment-grade corporate bonds underperformed Treasuries modestly, while high-yield bonds outperformed on risk-on sentiment and the week's oil-price tailwind. The widening yield advantage of short-term bonds over cash has reinforced arguments for extending duration slightly out of pure cash holdings.

5️⃣ Oil Prices Ease on U.S.-Iran MOU; Energy Sector Lags

Reports that the U.S. and Iran signed a memorandum of understanding clearing the path to reopen the Strait of Hormuz dragged oil prices lower, providing a macro tailwind for inflation sentiment but weighing heavily on energy stocks. The Energy sector (XLE) was the week's worst performer, falling more than 6%, while the Technology sector benefited from the broader risk-on rebound and led all S&P 500 sectors to the upside.

6️⃣ Earnings Resilience Seen as Key Offset to Higher-for-Longer Rates

With monetary policy uncertainty likely to persist into the second half of 2026, the market's ability to sustain recent gains will hinge on continued earnings strength. Analysts see double-digit earnings growth as a viable offset to elevated discount rates, particularly if energy-driven inflation proves transitory. Sector rotation toward cyclicals and broader market participation beyond mega-cap technology remain constructive near-term signals.

S&P 500 Sectors in Focus

Technology was the clear outperformer of the week, rebounding strongly as risk appetite recovered and investors rotated back into growth-oriented names following the oil-price relief. Industrials also performed well, supported by the favourable macro backdrop from easing energy costs. On the downside, Energy was the week's laggard by a wide margin, dragged lower by the sharp fall in crude prices after the U.S.-Iran agreement.

(Refer to the SPX sector ETF weekly performance table below.)

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Technical Snapshot

The S&P 500 (SPX) reclaimed above the 7,500 level after previous week’s retracement, and reclaiming its 20-week moving average with improving breadth. The index has been consolidating within its three-week price range bound. Weekly uptrend still holding well.

📊 Weekly charts:

• DJI weekly chart
• SPX weekly chart
• Nasdaq weekly chart

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🇨🇳 China / Hong Kong

Market Overview

Chinese equity markets were mixed in a holiday-shortened week, with mainland China and Hong Kong closed Friday for the Dragon Boat Festival. Onshore markets drew support from better-than-expected industrial production data and easing oil prices, with the CSI 300 Index rising +3.44% and the Shanghai Composite (SSE) gaining +1.46%. By contrast, the Hang Seng Index (HSI) fell -3.21%, reflecting weaker offshore sentiment, persistent concern over domestic consumption, and continued pressure from the property sector.

Index Weekly Performance

·       CSI 300: +3.44%

·       Shanghai Composite Index (SSE): +1.46%

·       Hang Seng Index(HSI): -3.21%

 

Key Highlights and outlook

1️⃣ May Activity Data: Export Strength, Domestic Drag

China's May activity data underscored a widening split between export-facing and domestic sectors. Industrial production rose 4.5% year over year — up from 4.1% in April — supported by AI-driven manufacturing demand and robust external orders. In contrast, retail sales fell 0.6% year over year, the first annual decline since late 2022, while fixed asset investment contracted 4.1% in the first five months of the year. The surveyed urban unemployment rate eased slightly to 5.1%.

2️⃣ Property Sector Weighs Despite First-Tier City Green Shoots

Property investment fell 16.2% year over year in the first five months of 2026, and national home prices remained under pressure in May. However, new-home prices in first-tier cities rose for a third consecutive month, suggesting policy support measures are gaining traction in the largest markets. The recovery nonetheless remains geographically narrow and has yet to translate into broader private sector investment or consumer confidence.

3️⃣ PBOC Unveils Financial Market Initiatives; Short on Stimulus

PBOC Governor Pan Gongsheng announced measures to expand overnight reverse repo operations, narrow the short-term interest rate corridor, and promote offshore renminbi usage, alongside initiatives to position Shanghai as a yuan-denominated asset hub. While the announcements signal continued commitment to financial market infrastructure development, they did not constitute broad-based monetary stimulus, and markets appeared to interpret them as incrementally supportive rather than a major policy shift.

4️⃣ Maybank Favours Capex and Export-Linked Names; Top Picks Highlighted

Maybank Kim Eng's Dim Sum Weekly maintained a preference for capex-leveraged and export-oriented names over domestic consumption plays, citing the AI infrastructure and industrial upgrading tailwinds. CATL and SMIC were highlighted as well-positioned semiconductor and advanced manufacturing beneficiaries. MiniMax was flagged as a tactical catch-up opportunity versus Knowledge Atlas ahead of an upcoming model update, while CK Hutchison was cited for its asset monetisation story and defensive cash flow from its global infrastructure, ports, and telecom portfolio. (MSSG Research)

 

Technical Snapshot

The HSI's -3.21% decline this week pushed the index back below the 24,000 level, with the weekly candle printing a notable bearish reversal after the prior week's recovery attempt. The SSE Composite held above 4,050 support and remains in a gradual uptrend despite the modest weekly gain, suggesting mainland sentiment is more resilient than offshore flows imply. Near-term direction for the HSI will likely hinge on whether domestic data prints — particularly retail and property — begin to stabilise in June.

(Refer to the Hang Seng Index constituents’ weekly performance table below.)

📊 Weekly charts:

• SSE weekly chart
• HSI weekly chart

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🇸🇬 Singapore

Market Overview

Singapore equities were the standout regional performer this week, with the Straits Times Index (STI) surging +3.32% to close at 5,192.70 — a fresh multi-year high and one of the index's strongest weekly performances year to date. The advance was broad-based, with SATS topping the constituent table at +10.91% and YZJ Shipbuilding, SGX, Keppel, and the three local banks all posting meaningful gains. The STI's year-to-date return now stands at +11.76%, underpinned by consistent inflows into financials and selected industrials.

Index Weekly Performance

·       Straits Times Index (STI): +3.32%

 

Key Highlights and Outlook

1️⃣ STI Surges to Fresh Multi-Year High on Broad Participation

The STI's +3.32% weekly gain was supported by broad constituent participation, with 22 of 30 index members closing in positive territory. The move confirmed a breakout above the prior resistance zone near 5,050. Sustained buying in defensively positioned banks and high-quality industrials suggests institutional accumulation rather than short-covering, a constructive structural signal.

2️⃣ Banks Lead Gains; OCBC and DBS Among Top Contributors

All three local banks posted solid weekly gains, with OCBC (O39) advancing +4.81%, DBS (D05) rising +4.30%, and UOB (U11) adding +2.86%. The banking sector continues to benefit from a higher-for-longer global rate backdrop that underpins net interest margins, alongside resilient loan demand and improving fee income. With the Fed explicitly ruling out near-term cuts, the favourable rate environment for Singapore banks remains intact into the second half of 2026.

3️⃣ S-REITs and Property Stocks Lag as Rate Sensitivity Weighs

Against the week's broadly positive backdrop, S-REITs and property-linked names underperformed. HK Land (H78) was the weakest STI constituent at -3.68%. The hawkish Fed read-through reinforced concerns that rate relief for yield-sensitive sectors remains distant, keeping cap rate pressure elevated and limiting near-term re-rating potential for the S-REIT sub-segment.

(Refer to the STI weekly performance table below.)

📊 Weekly chart:

• STI weekly chart

 

📅 Week Ahead (22-26 June 2026)

U.S.

- Fed operational review announcements

- May PCE price index

 

🗓️ Overarching Watchpoint

The May U.S. PCE print is the week's binary risk event. A reading above the Fed's revised 3.6% forecast would materially increase the probability of a 2026 rate hike and could trigger a broader risk-off move across equities and credit; a print in line or below would ease the hawkish pressure and support the case for a prolonged but stable hold, keeping equity markets on firmer footing heading into mid-year.

Source: Some content and data are excerpted from publicly available market reports.