Market Report.
📈 Yesterday, data showed that the UK’s inflation rate rose more sharply than expected in April, reaching 3.5% – the highest level since February 2024. Core inflation, which excludes volatile items, also rose to 3.8%, up from 3.4% in March. The rise in inflation is likely to add to speculation about whether the Bank of England will need to keep interest rates elevated for longer to bring inflation back to the 2% target. The GBPUSD pair broke through recent highs yesterday, surpassing 1.3450, levels not seen since 2022.
🏭 Japan’s manufacturing activity continued to decline in May, extending the contraction for nearly a year, due to the impact of U.S. tariffs on Japanese goods. The manufacturing PMI edged up slightly to 49.0 in May from 48.7 in April, but remained below the 50.0 threshold that separates growth from contraction for the 11th consecutive month. Factory output fell at a quicker pace than in April, while new orders and new export business also declined. Service-sector sentiment hit the lowest level since January 2021 during the COVID-19 pandemic.
🤝 Japan’s trade envoy is set to have another round of talks with U.S. officials this week, but it remains unclear if there will be a deal to lower the tariffs imposed by the Trump administration, which continue to threaten Japan’s key industries like the auto sector. In 2024, the US closed a trade deficit with Japan of 68.5 billion dollars.
💵 U.S. President Donald Trump’s massive tax and spending bill has cleared an important procedural hurdle in the Republican-controlled House of Representatives. The bill would extend Trump’s 2017 tax cuts, create new breaks for tipped income and auto loans, end many green-energy subsidies, and boost spending on the military and immigration enforcement. The House Rules Committee voted 8-4 to advance the bill, setting up a floor vote for passage within hours, despite some Republican opposition. The revisions to the bill include imposing work requirements for Medicaid, penalizing states that expand Medicaid. Democrats have criticized the bill, arguing that it will kick millions of Americans off healthcare and food benefits to finance tax cuts for the wealthy.
📉 Interestingly, spending cuts seem to be underestimated, and tax cuts (revenue) overestimated by critics. A tax cut could generate economic growth and employment, which in turn would reduce subsidies, minimising the deficit.
📊 On the other hand, US deficit reached record peacetime levels during the Biden administration. But Moody’s did not seem concerned about the solvency of US debt at the time.
📈 The downgrade and concerns over the fiscal outlook have led to a surge in Treasury yields, with the 30-year bond yield topping 5% and the 10-year note nearing 4.6%.
🌍 The ‘sell U.S.’ narrative gains ground: According to Reuters, asset managers at major firms like Goldman Sachs and JPMorgan are seeing increased investor interest in moving money away from U.S. assets and towards Europe. Investors are fielding more inquiries about the resilience of U.S. assets and are helping clients shift more capital to Europe ahead of potential trade conflicts. JPMorgan and Goldman Sachs asset managers report stronger client interest in investing in Europe, including in private assets, as countries like Germany unveil bigger spending plans.
🇪🇺 However, unlike the US, Europe is in recession and is showing worse macroeconomic data in all respects, with negative growth and rising unemployment and deficits in 2025. The French economy contracted by 0.1% in Q4 2024 and grew only 0.1% in Q1 2025, indicating stagnation. Its Unemployment is rising, from 7.4% in 2024 to a projected 7.9%. The government deficit remains very high, at 5.8% of GDP in 2024 and projected 5.6% in 2025. Public debt is rising, expected to reach 116% of GDP in 2025 and 118.4% in 2026.
🇩🇪 The German economy contracted by 0.2% in 2024 (second consecutive year of contraction) and no growth is expected for 2025. Unemployment is rising: the rate increased to 6.3% in March 2025. Germany is also facing persistent industrial weakness, and increasing government debt.
📉 In addition to this, the political crisis of Euroscepticism sweeping across Europe paints an uncertain future for the centralised administration in Brussels.
💱 The U.S. dollar fell for a third consecutive day against a range of currencies and the euro rose 0.5% against the dollar to $1.1339. The Japanese yen strengthened against the dollar, as rising Japanese government bond yields narrowed the yield gap with U.S. Treasuries.
🔮 There are two possible scenarios: either investors are really pulling out of dollar-denominated assets (the upward movement in bond premiums is not exclusive to the US; it is happening in all major economies, with Japan and Germany showing the same symptoms), or the Trump administration is indirectly causing this ahead of the G7 meeting in order to have a weaker USD without the need for Fed rate cuts.
Geopolitics:
🚢 A new project is emerging: the International North-South Transportation Corridor (INSTC), a crucial geoeconomic and infrastructure project that connects Russia, Iran, and India, with implications for the broader Eurasian region. The INSTC offers a trade and connectivity corridor that is sanctions-free, cheaper, and faster than the Suez Canal for much of Eurasia. Chabahar port in Iran’s Sistan-Baluchistan province is emerging as a strategic hub for the INSTC, connecting Central Asia to the Indian Ocean. India is investing in equipment while Iran is developing the port’s infrastructure.
🌐 The INSTC has the potential to reshape the geoeconomic landscape of Eurasia, offering an alternative to traditional trade routes and reducing dependence on the Suez Canal.
Market View:
📉 Markets are once again experiencing declines as the narrative surrounding the solvency of the United States gains traction. The Mini S&P 500 futures have retreated from the highs reached earlier this week, near 6,000 points, down to the current level of 5,865 points. In the case of the Nasdaq, the retreat is weaker, holding above 21,175 points and forming a certain level of support.
📊 European markets are also holding steady, with DAX 40 futures remaining around the 24,000-point mark, while Eurostoxx 50 futures, despite failing to reach 5,500 points, remain relatively stable at 5,425 points.
💱 The US Dollar Index (DXY) has not recovered from the declines that began on Tuesday night and is attempting to hold above 99.50 points. This has led to the strengthening of nearly all currency pairs against the dollar, particularly the pound, which has risen against the dollar. This increase is driven by higher-than-expected inflation data in the United Kingdom, ruling out imminent rate cuts by the Bank of England. The GBP/USD pair yesterday reached levels not seen since 2022, surpassing 1.3450. Similarly, EUR/USD also climbed above 1.1350 in recent hours.
🛢️ Meanwhile, crude oil is once again trading sideways, retreating to $64.50 per barrel for Brent. Volatility is being driven by upward risks of a potential war between Iran and Israel, and downward risks linked to a possible agreement between the United States and Iran.
🏆 Gold has continued its upward trajectory, nearing $3,350 per ounce in recent hours before retreating to the current level of $3,330.
💻 Bitcoin reached a new high of $111,888 before retreating to the current level of $110,765. Interestingly, during our live broadcast on Tuesday, we projected a potential Bitcoin high of $111,750, after which we anticipated the emergence of new selling pressure. This scenario has almost perfectly unfolded in recent hours.
