ORLANDO, Florida, June 13 (Reuters) -

- TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

A week that started with investors in a reasonably

optimistic mood, betting that the U.S. and China would strike a

deal in their trade talks in London, ended on a sour note as

Israel's strike on Iran sparked a sharp rise in oil prices and a

selloff in world stocks.

Washington and Beijing did reach a 'framework' deal, and

although there is some ambiguity around the details and it has

yet to be ratified, it helped ease global tariff tensions.

Investor sentiment was also boosted by signs that global

inflation pressures are cooling. Consumer and producer price

inflation figures from the U.S., Japan, India and China were all

weaker than expected, although the big caveat is the impact of

tariffs has yet to be properly felt.

Strong demand for long-dated U.S. Treasuries at auction this

week also soothed concerns over U.S. debt sustainability.

President Donald Trump's 'big, beautiful bill', the budget

deficit and federal debt still loom over the market, but there

was a temporary reprieve this week.

Not so for the dollar. It slumped to its weakest level

against a basket of currencies in more than three years and

failed to draw any discernible 'safe haven' demand from the

flaring geopolitical risk and tensions in the Middle East.

Non-U.S. investors continue to reassess their exposure to

dollar-denominated assets. Those wanting to cut their exposure

will either sell assets outright, buy less, or hedge more. Many

long-term investors in Europe are increasing their hedge ratios,

which effectively equates to selling dollars on a large scale.

The other big move of the week was oil, which surged nearly

10% at one point on Friday. It cooled a bit, but the specter of

high energy prices is suddenly back. If so, what does that do

for the inflation outlook?

We may get an insight into what policymakers think about

that next week. The G7 leaders' summit in Canada gets underway

on Sunday, and three of the world's most important central banks

deliver their latest policy decisions - the Federal Reserve,

Bank of Japan and Bank of England.

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

This Week's Key Market Moves

* Oil. Brent crude rose 12% this week and WTI rose

13.5% -

at one point they were up nearly 10% on Friday alone - marking

the biggest weekly rise since February and October, 2022,

respectively.

* Gold ends the week 3.5% higher, within $50 of

April's

record high $3,500/oz.

* The dollar weakens 1%, ending the week near three-year

lows,

while the euro rises 1.3%, having traded above $1.16 earlier

this week for the first time since 2021.

* U.S. Treasury yields fall after weak economic data, strong

auctions. But weekly declines at the long end of the curve are

virtually halved by Friday's spike.

* World stocks and Wall Street end slightly lower.

The

MSCI World hits record highs earlier in the week but Friday's

weakness bites. The S&P 500 falls 0.5% on the week, MSCI World

sheds 0.3%.

Chart of the Week

My generosity knows no bounds, so two charts for you again

this week. Both highlight current relative market price dynamics

that have not been seen for around half a century.

The first from Bank of America shows that, in dollar terms,

emerging market stocks are the weakest relative to U.S. stocks

in 50 years. BofA analysts are in no doubt what investors should

do: "long EM... easy allocation decision." I wrote about this

last month.

The second chart is from veteran strategist Jim Paulsen, who

calculates that the market cap value of U.S. fixed income assets

as a share of total U.S. equity market cap is the smallest in

over 50 years. Along with a historically low equity risk

premium, it raises the question of how much further the gap

between stocks and bonds can widen.

Emerging markets and bonds, your time is ... now?

Here are some of the best things I read this week:

1. Dealing with Trump: Dos and don'ts

2. The 2025 trade war: Dynamic impacts across US

states and

the global economy

3. The Dollar's Global Role and the Financing of the

U.S.

External Deficit - Brad Setser

4. Abundance for Workers - Dani Rodrik

5. Bruce Springsteen faces the end of America

What could move markets on Monday?

* China's monthly "data dump" - house prices, industrial

production, retail sales, investment, unemployment (May)

* India wholesale price inflation (May)

* U.S. 20-year bond auction

* U.S. New York Fed manufacturing index (June)

* G7 leaders' summit in Calgary, Canada

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

Trading Day is also sent by email every weekday morning.

Think your friend or colleague should know about us? Forward

this newsletter to them. They can also sign up here.

(Writing by Jamie McGeever; Editing by Bill Berkrot)