US stocks mount challenge to European dominance

The environment for risk has taken a step forward this week. First there was the UK trade deal, then China and the US scaling back tariffs, then on Tuesday the US/ Saudi Arabia investment deals that will drive demand for US AI technology. The news flow is incrementally positive, even if the price action is not exciting as it was at the start of this week.

Will US stocks outperform Europe this summer?

The rally for European stocks has stalled, although the index is still eking out a decent weekly gain. Interestingly, if current patterns persist, then US stocks are on track to outperform European stocks on a weekly basis. US stocks have now moved into positive territory for 2025, however, the next challenge will be whether US stocks can regain their record highs from earlier this year.

Will this week prove to be a turning point for US stocks, and will they play catch up with their European peers? This is worth noting, and the US/ China trade agreement could prove to be a turning point for global stock market flows. There is no economic data of note due for release today, so markets may be dependent on news flow and they could consolidate in the current trading patterns.

Big tech’s huge strides

European stocks have had a quiet open on Wednesday, the Eurostoxx index is eking out a small gain, while the FTSE 100 is nursing a small loss. The key theme for global stocks this week is the resurgence of big tech, which is why the FTSE 100 is out of favour, it is too risk averse for this environment. The Dax is benefiting from another boost for defense firms after the US and Saudi Arabia signed huge defense deals on Tuesday. There have been some major developments for Big tech this week:

• Tesla has regained its $1 trillion valuation.
• Nvidia rejoined the $3 trillion club, and its stock price has surged by 14% in the past week.
• Nvidia is eroding its 2025 losses, and is down a mere 5% YTD, after the recent recovery.
• Better relations with China, along with President Trump’s Middle East tour that is opening up Middle Eastern investment into US tech companies have boosted Nvidia’s attractiveness for investors. This is a major driver for the Magnificent 7 this week, and it could be the driver of another bull market for the likes of Nvidia and other US chip stocks like AMD, which also rose 4% on Tuesday.

The wave of trade deals is good news for US stocks, and if big tech continue to lead this rally, then  US stock markets have a chance at regaining their record highs.

The problem with Japanese shares

Stocks in Asia were broadly higher, after a raft of upgrades to Chinese GDP for 2025. This has boosted hopes for the global economy this year. There is one notable outlier, the Nikkei. The Japanese stock market has been hindered by two factors: 1, it still doesn’t have a trade deal with the US, and President Trump seems to be more interested in elsewhere, for now. 2, a big move higher in Japanese bond yields. There has been a major step up across global bond yields, although Japanese yields have not moved as much as US and European yields in the past week, they have reached some key levels, and the 30-year Japanese bond yield is close to a 25-year high. It has backed away from the key 3% level, however, at elevated levels, Japanese yields could weigh on sentiment for Japan’s stock markets.

Trump’s Oil price wish may be stymied by OPEC

The oil price and gold are both lower on Wednesday. The price of Brent crude remains above $65 per barrel, but gains seem to be capped even though China’s growth for this year has been revised higher. An analysis of President Trump’s social media posts about the oil price suggest that he prefers the price of oil to be between $40 and $50 per barrel. This might be limiting the upside for crude on Wednesday, but we do not expect a rapid decline down to these levels. Firstly, President Trump’s Saudi hosts need a much higher oil price to sustain their plans for the future, and Opec’s production changes have a larger impact on the price of oil compared to President Trump’s social media posts.

The gold price is lower again on Wednesday, but there is no sign that gold will fall below the $3000 per ounce level. The next major support level is $3151, which is the 50-day SMA. If the gold price falls below this level, then we could see a return to $3000. However, for now, there is residual support for the gold price, which suggests a degree of uncertainty remains for investors, even with the positive developments regarding US tariffs.

Burberry outlook boosts stock price

Luxury stocks are also in focus this morning, and Burberry is the top performer on the FTSE 250 index and is higher by more than 8% this morning. Burberry’s sales fell in most markets and across most product lines, but they were stronger than expected, and the company also announced a wave of job losses over the coming year. The market is cheering the restructuring plan, which aims to save £60mn over the course of the programme. Forward guidance was also positive, the company sees the luxury retail space as broadly stable for the next year, which is also driving gains in its share price.