European stocks stay muted as China-US trade talks continue in London

European equities barely moved on Tuesday as talks between the United States and China carried on in London, with traders across Europe waiting to see how the standoff over critical minerals plays out.

According to CNBC,  the pan-European Stoxx 600 stayed flat. The FTSE 100 in London rose by 0.4%, while Germany’s DAX dropped 0.2%. The CAC 40 in France saw a small uptick. But despite those numbers, no one was taking real positions, especially not with the tension around trade hanging in the air.

Pressure weighed hard on the defense sector, with the Stoxx Aerospace and Defense index down 0.8%, extending its losses for a third straight day due to rising uncertainty around rare earth mineral supplies.

In April, China retaliated against U.S. tariffs by restricting the export of key minerals needed in defense tech, affecting Europe’s manufacturing and military industries.

Gilts gain as UK labor market weakens

Investors didn’t just have trade tension to stress over. UK government bonds — known as gilts — saw prices rise across the board after fresh labor market data was published Tuesday morning.

The Office for National Statistics reported average wage growth of 5.3%, below the 5.5% forecast by Reuters. The miss on wages added to news that job vacancies had dropped 7.9% over the past three months ending in April, compared to the previous three-month period. The slowdown points to softening in the job market, fueling speculation that monetary tightening may ease.

Following the release, 10-year gilt yields fell 7 basis points, while the 5-year lost 6. The 2-year gilt yield also slipped 7 basis points, and the 30-year dropped 6. As bond prices move up, yields go down — a clear signal that demand for gilts is growing amid market caution.

Gold rises, metals fall, and Japan’s yen sinks after Ueda remarks

In the commodities space, gold edged higher, trading at $3,333.89 an ounce by 08:18 GMT, after dropping earlier to $3,301.54. US gold futures were steady at $3,354.70. The precious metal is seeing steady buying ahead of this week’s U.S. inflation numbers, which could impact the Federal Reserve’s next move on interest rates. With investors avoiding risk ahead of potential macro shifts, safe-haven buying ticked upward.

But not everything in the metals space was up. Silver dipped 0.6% to $36.51 per ounce, despite hovering at a 13-year high. Platinum fell 1.1% to $1,206.42 after reaching its highest point since May 2021, and palladium slipped 1% to $1,063.22. The action in metals mirrored the broader caution seen in equity and bond markets across Europe.

Over in Japan, Bank of Japan Governor Kazuo Ueda faced parliament and made it clear the central bank is nowhere near ready to hit its inflation goal. Ueda stated, “Our short-term policy rate is 0.5%. We can say in general that our room to stimulate the economy when it confronts strong downward pressures is very limited.”

That line alone was enough to shake the yen, which dropped from 144.69 to as low as 145.29 against the dollar, before recovering slightly. Ueda downplayed the chance of a near-term rate cut, but hinted at potential economic support, which traders took as a signal that rate hikes won’t come soon.

Japan’s inflation rate is the highest in the G7, yet it still maintains the lowest policy rate. Ueda’s position reflects a need to eventually lift rates, but not until the economic outlook clears up. Reports also surfaced suggesting Japan’s finance ministry might reduce issuance of super-long bonds, and even buy some back — another reason the yen lost steam.

The Bank of Japan is expected to keep rates unchanged at its upcoming policy meeting next week, citing what it called “extremely high uncertainties” in the economic forecast. As investors juggle risks across currencies, bonds, commodities, and geopolitics, the pressure is mounting fast.

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