Key Highlights

• President Trump reiterated on Friday that a 25% tariff on Japanese cars is possible; Japan’s lead trade negotiator Akazawa states there is “no question July 9 is a milestone in negotiations.”

• Canada drops its digital services tax to restart trade talks with the U.S., after President Trump halted trade discussions in response to the measure.

• Turkish court adjourns hearing on the leadership of the opposition CHP party until early September; Turkish assets respond positively as fears of a crackdown on the opposition continue.

Chart of the Day

EXHIBIT #1: DECLINING EURO EXPOSURES IN FX AND EQUITIES

^{Source: BNY}

Heading into month-end rebalancing, we have not identified the euro as one of the key currencies at risk. While equities have performed well, our data show that outflows have clearly been accelerating since mid-month. This is a sign that investors are uninterested in adding to exposures and that some valuation concerns across asset classes are coming through. We believe there is also interest in avoiding holding exposures close to the upcoming trade deadlines. Headlines on Friday suggested an agreement is close, but even in the best outcomes, rotation interest is evident and this could cause some unease as the ECB’s flagship Sintra symposium opens. Based on current performance, it is plain that hedging of Eurozone equities is the biggest risk and potential driver of EUR selling by cross-border investors. However, we can see that equity flows have been even more aggressive – last Thursday saw the biggest net outflow day in two months, even though sentiment was generally stable. This points to outright asset rebalancing: investors are now liquidating their high-performing holdings, especially if all the good news is in the price. EUR outflows are not directly related to equity hedging, and some outright positioning reduction in direct currency exposures is also feeding through.

What's Changed?

Risk sentiment is mixed as we head into month and quarter-end. Rotation trades out of the winning positions are notable, as is the rush for trade talks, which is driving positioning with Canada the lead barometer again. For Europe, the economic data point to trouble: German retail sales were lower, Swiss KoF lower and Italy’s June flash CPI higher, while the U.K.’s Q1 GDP was unchanged, confirming a peak into more sluggish output. In Asia, the focus remains on growth policies: China is considering ultra-long special bonds to support its 5% GDP target, with the NBS PMI reports weak as expected; meanwhile Japan saw weaker-than-expected industrial production, which a government official noted was linked to production uncertainties. Australia’s MI June inflation figure of 2.4% remains tame and supports RBA easing, with the stumbling block being FX; the same was seen in Taiwan overnight, with regulators easing insurers’ access to excess reserves. As the ECB’s de Guindos notes, markets are living with “brutal uncertainty.” The difference now lies in the extent of downside fears. The tail risks have been on a diet of headlines and social media posts, which have effectively eased the worst-case scenarios. Of course, removing downside is not the same as sparking upside. The ongoing bullish burst-back in U.S. shares reflects the rotation of mood around Q2 growth, tariffs, hopes of tax cuts and further deregulation. Markets may be ending the second quarter and first half of 2025, but they look far from balanced when it comes to portfolios in the U.S., as the S&P 500 extends its record in futures and bonds rally further, while 10y yields also reach 4.25%. The most important drivers on the day will be the U.S. Senate vote on the “big, beautiful” tax and spending bill, along with central bank speakers, with ECB President Lagarde talking about the EUR moment. For investors, today is about that brutal uncertainty on alternatives to U.S. exceptionalism. 

What You Need to Know

Norges Bank will sell NOK 150mn of foreign exchange on behalf of the government per day in July 2025. At the same time, Norges Bank needs to sell foreign currency equivalent to NOK 126mn per day to fund the transfer of dividends to the government, pushing the total FX figures to NOK 276mn per day. This is the first time that Norges has turned into a net seller of FX on behalf of the government since January 2022. This means the non-oil budget deficit exceeded the revenues in NOK from petroleum activities, and some of the government’s foreign currency revenue has to be converted to NOK in order to be spent via the budget. OSE +0.456% to 1615.06, EURNOK -0.067% to 11.8008, 10y NGB -1.7bp to 3.835%.

Italy’s inflation rose to 1.7% y/y in June 2025, up from 1.6% in May. Core inflation (excluding tobacco) held steady at 1.6%. On a monthly basis, consumer prices increased by 0.2%, reversing a 0.1% decline in May. Upward pressure came from food and non-alcoholic beverages (+0.2% m/m, +3.7% y/y), transport (+0.8% m/m, -0.9% y/y) and restaurants and hotels (+0.2% m/m, +3.4% y/y). Energy-related components weighed on the index, with housing, water, electricity, gas and fuels down 1.4% m/m, though annual inflation in that category rose to 2.0%. Clothing and footwear also contributed with a 1.0% y/y increase. HICP also came in at 1.7% y/y, below the expected +1.8% y/y. FTSEMIB -0.055% to 39720.54, EURUSD +0.026% to 1.1721, 10y BTP -2bp to 3.453%.

In June 2025, China’s manufacturing PMI rose to 49.7, up 0.2 points from May, marking continued recovery. Among 21 surveyed industries, 11 were in expansion, four more than the previous month. Production (51.0) and new orders (50.2) both remained in expansion, while large enterprises (51.2) and key sectors such as equipment manufacturing (51.4) also showed growth. However, small firms continued to contract. The non-manufacturing business activity index increased to 50.5, driven by a 1.8-point rise in construction (52.8), though service sector activity softened slightly. The composite PMI output index rose to 50.7, indicating an overall acceleration in economic activity. CSI 300 +0.365% to 3936.08, USDCNY -0.101% to 7.1654, 10y CGB 0bp to 1.648%.

Japan’s industrial production rose 0.5% m/m in May 2025, while shipments increased 2.2%. Inventories and the inventory ratio both fell by 1.9%. Year-on-year, production declined by 1.8% and shipments were down 2.4%. Gains in production were led by production machinery, general-purpose and business-oriented machinery, and motor vehicles, while there were falls for transport equipment (excluding motor vehicles), chemicals and electronic parts. Production is forecast to rise 0.3% in June, then fall 0.7% in July. Inventory contraction was driven by electrical machinery and production machinery. For June, growth is expected in electrical machinery and electronics, whereas declines are anticipated in July in transport and production machinery. Nikkei +0.838% to 40487.39, USDJPY -0.36% to 144.13, 10y JGB -0.6bp to 1.432%.

Germany’s retail sales fell by 1.6% in real terms and 1.2% in nominal terms in May 2025 compared with April, according to preliminary data. Despite the monthly decline, sales were up 1.6% y/y in real terms and 2.8% nominally. Food retail sales decreased by 1.3% in real terms and 0.8% in nominal terms m/m, but y/y they rose 0.5% and 3.4%, respectively. Non-food sales declined 2.2% in real terms and 1.9% in nominal terms versus April but increased 2.0% and 2.4% y/y. Online and mail-order sales fell 1.4% versus April but were up 9.3% in real terms and 9.2% in nominal terms compared with May 2024.

U.K. GDP grew by 0.7% in Q1 2025, unchanged from the first estimate. Output growth was led by services (+0.7%), production (+1.3%) and construction (+0.3%). On the expenditure side, growth was supported by higher gross fixed capital formation, net trade and household consumption. Nominal GDP rose 1.5%, mainly due to increased employee compensation. Real GDP per head grew by 0.6%, slightly revised up. However, real household disposable income per head fell 1.0%, reversing a 1.8% gain in the previous quarter. The household saving ratio declined by 1.1 points to 10.9%, due to reduced non-pension savings contributions. FTSE 100 -0.065% to 8793.2, GBPUSD -0.11% to 1.3701, 10y gilt -3.3bp to 4.471%.

Switzerland’s KOF Economic Barometer fell by 2.5 points to 96.1 in June 2025, the lowest level so far this year, signaling a deteriorating economic outlook. The decline was driven primarily by weakening indicators in manufacturing, particularly in the wood, chemicals, pharmaceuticals and metals industries. Sub-indicators for business sentiment, production and order backlogs also worsened. Construction and export expectations remained relatively stable, while foreign demand indicators improved slightly. Meanwhile, the SNB announced that its foreign exchange transactions came in at CHF 49mn, a sharp decline from the quarterly averages seen last year. SMI +0.015% to 11982.14, EURCHF +0.025% to 0.93616, 10y Swiss GB -4.1bp to 0.425%.

What We're Watching

Germany June HICP is expected to edge higher to 2.2% y/y, 0.3% m/m. There is downside risk as Bavaria and North Rhine Westphalia both registered -0.1% m/m prints.

U.S. Senate vote on tax and spending bill.

U.S. June Chicago PMI is expected to improve from 40.5 to 42.9.

U.S. June Dallas Fed manufacturing activity is expected to rise to -12 from -15.3 previously.

Central bank speakers: Atlanta Fed President Raphael Bostic speaks on the U.S. economic outlook. ECB President Lagarde will deliver her annual keynote address at the ECB’s flagship Sintra Forum on Central Banking.

What iFlow is Showing

Mood: Equities selling picked up in momentum to drive iFlow Mood further into risk-off mode at -0.15. Overall demand for bonds remains elevated.

FX: Major G10 currencies – USD, EUR, GBP and AUD, with JPY the exception – were lightly sold, against broad demand in the rest of the region especially in EMEA. PEN, PLN and PHP posted the largest inflows.

FI: Good demand in G10 and LatAm government bonds, against mixed to selling bias in EMEA and APAC region. Notable flows include good buying in Mexico, Peru and Eurozone government bonds and selling in Israel, Hungary, Poland and Indonesia sovereign bonds.

Equities: Equities were sold across developed and emerging markets in all regions. Chinese equities stood out with the most net buying, while Eurozone, Switzerland, Japan, Denmark, Mexico and U.S. equities were most sold. 

Quotes of the Day

“Deciding under uncertainty is bad enough, deciding under an illusion of certainty is catastrophic.” – Kenneth E. Boulding

“Uncertainty is the worst of all evils until the moment when reality makes us regret uncertainty.” – Alphonse Karr

Economic Details

In Q1 2025, Italy’s general government deficit rose to -8.5% of GDP (from -8.2% a year earlier), while the primary balance improved slightly to -4.7% of GDP. The current balance was -3.5%. The tax burden increased to 37.3%, up 0.5 points y/y. Household disposable income rose 1.8% q/q, consumption increased 1.2%, and purchasing power rose 0.9%. The household saving rate climbed to 9.3% (+0.6 points). For non-financial corporations, the profit share declined slightly to 42.1% (-0.2 points), while the investment rate increased to 22.4% (+0.2 points). FTSEMIB -0.055% to 39720.54, EURUSD +0.026% to 1.1721, 10y BTP -2bp to 3.453%.

In May 2025, the euro area’s annual M3 growth rate held steady at 3.9%, while M1 growth rose to 5.1% from 4.7% in April. Adjusted loans to households increased 2.0% (up from 1.9%), while lending to non-financial corporations decreased slightly to 2.5% (from 2.6%). Within M3 components, marketable instruments growth accelerated to 11.2%, while short-term deposits (M2-M1) declined to -0.1%. Household deposit growth edged up to 3.5%, and deposits by non-financial corporations rose to 2.7%. On the counterpart side, net external assets contributed 2.6 points to M3 growth, and claims on the private sector 2.4 points. Euro Stoxx 50 +0.023% to 5326.84, EURUSD +0.035% to 1.1722, BBG AGG Euro Government High Grade EUR -1.6bp to 2.781%.

In May 2025, Türkiye’s exports rose by 2.6% and imports by 2.7% y/y. Over January-May, exports increased by 3.4% and imports by 5.8%. Excluding energy and gold, May exports rose by 5.0% and imports by 4.3%. The trade deficit widened by 2.7% in May and 12.7% over the first five months. Seasonally adjusted exports rose 10.3% from April, while imports fell 5.0%. Manufacturing made up 95.0% of exports and 84.2% of imports, with high-tech goods comprising 4.0% and 10.0%, respectively. Under the special trade system, May exports rose by 3.0% and imports by 1.3%, as the trade deficit narrowed by 4.1%. BI 100 +2.251% to 9616.64, USDTRY -0.298% to 39.7816, 10y TGB -57bp to 31.69%.

Türkiye’s seasonally adjusted unemployment rate fell to 8.4% in May 2025, down 0.2 percentage points from April. The youth unemployment rate fell by 0.3 percentage points to 15.4%. Employment rose by 100,000 people, pushing the employment rate up 0.1 percentage points to 49.0%. Labor force participation remained stable at 53.5%. The composite labor underutilization rate dropped 1.1 percentage points to 31.0%, and average actual weekly working hours increased by 0.6 to 42.7 hours.

In May 2025, Hungary’s industrial producer prices rose 6.9% y/y, with domestic prices up 3.9% and non-domestic prices up 8.3%. The increase was driven by higher production costs and a weaker forint. Manufacturing and energy sector prices each rose 3.7%, while food industry prices jumped 7.6%. By end-use, prices rose 3.1% for energy and intermediates, 3.9% for capital goods and 6.1% for consumer goods. Compared with April, total industrial producer prices fell 0.7%, with domestic prices down 0.9% and non-domestic prices down 0.6%. For January-May 2025, producer prices rose 7.9% y/y. Budapest SI -0.125% to 97852.43, EURHUF -0.008% to 398.97, 10y HGB +1bp to 7.04%.

In May 2025, South Africa’s key monetary aggregates showed continued y/y growth: M0 rose by 26.73%, M1 by 6.20%, M2 by 7.19% and M3 by 6.86%. Credit conditions also strengthened: claims on the domestic private sector increased 4.98% y/y, total loans and advances grew 5.44%, and total domestic credit extension rose 6.53%. Among loan types, mortgage advances and installment sales credit showed steady gains, while net claims on the government sector decreased slightly versus April. JSE TOP40 +0.551% to 88701.07, USDZAR -0.2% to 17.7849, 10y SAGB -3bp to 9.947%.

In May 2025, lending by Swedish MFIs to households grew by 2.4% annually, with housing loans (83% of the total) rising by 2.1%. Consumer loans grew by 4.9%. Lending to non-financial corporations rose 1.9%. Total lending reached SEK 8,053bn, with SEK 5,046bn to households and SEK 3,007bn to corporations. Of SEK 4,172bn in housing loans, 71% had floating interest rates. Mortgage credit companies held 1% of the housing loan market, with lending down 1.3% y/y. Household deposits totaled SEK 2,829bn, of which 75% was on demand. The average housing loan rate was 3.03%, down from April. M3 money supply grew 5.0% annually to SEK 5,025bn. OMX -0.151% to 2502.389, EURSEK -0.007% to 11.1154, 10y Swedish GB +5.9bp to 2.32%.

Sweden’s retail sales volume fell by 4.8% m/m in May 2025, with durables down 6.0% and consumables (excluding Systembolaget) down 2.8%. Over March-May period, the retail volume declined 0.6% versus the previous three months. Year-on-year, May’s retail volume dropped 1.8% (durables -1.5%, consumables -1.4%) in working-day-adjusted terms. In unadjusted constant prices, sales fell 2.6% annually. Turnover in current prices decreased by 0.7% compared with May 2024, as durables fell 2.3% while consumables (excluding Systembolaget) rose 2.6%.

In Q1 2025, the U.K.’s underlying current account deficit (excluding precious metals) narrowed slightly to £18.6bn (2.5% of GDP), down £0.1bn from the previous quarter. Including precious metals, the deficit widened by £2.4bn to £23.5bn (3.2% of GDP). The total trade deficit excluding precious metals fell to £7.5bn (1.0% of GDP), as the goods deficit narrowed to £55.3bn and the services surplus to £47.8bn. The primary income deficit increased to £6.4bn (0.9% of GDP). The U.K. recorded a net financial inflow of £13.9bn, while its net international investment liability rose to £371.5bn. FTSE 100 -0.065% to 8793.2, GBPUSD -0.11% to 1.3701, 10y gilt -3.3bp to 4.471%.

In May 2025, UK net mortgage borrowing rose to £2.1bn, up from -£0.8bn in April. Mortgage approvals for house purchases rose to 63,000, while remortgaging approvals increased by 6,200 to 41,500 – the largest rise since February 2024. Consumer credit borrowing fell to £0.9bn from £1.9bn, with credit card borrowing dropping sharply to £0.1bn. Private non-financial corporations (PNFCs) borrowed £1.0bn, reversing net repayments in April. The net money flow (M4ex) rose to £5.2bn, with households and NIOFCs increasing holdings, while PNFCs reduced theirs. Net lending (M4Lex) jumped to £8.4bn from £1.4bn.

In June 2025, the U.K. Lloyds Bank Commercial Business Barometer Summary Indicator rose to 51, up 1 point from May. Business activity expectations for the next 12 months increased slightly to 57, while current economic optimism edged up to 45. The prices charged outlook declined to 61, down 2 points. Compared with earlier months, business sentiment and optimism were notably higher than in April, when both metrics dropped sharply. Despite the modest m/m gains in June, price expectations have fallen for a second consecutive month. The survey also noted a rise in hiring intentions, with 60% of firms expecting higher staffing levels in the coming year. This suggests employers are starting to prepare for future growth. Wage growth expectations rose for a second month in a row, with 36% of respondents forecasting average pay increases of 3% or more.

In May 2025, Japan recorded 43,237 new housing starts, down 34.4% y/y, marking a second consecutive monthly fall. All major categories – owner-occupied (-30.9%), rental (-30.5%) and condominiums (-43.8%) – declined. Regionally, starts fell 31.5% in the Tokyo area, 22.3% in Chubu, 36.0% in Kansai and 40.5% in other regions. Floor area started fell 35.9% y/y, with private sector residential starts down 37.3%. However, non-residential starts rose 27.2%, supported by gains in warehouses (+116.2%), factories (+29.0%) and retail (+27.9%). Seasonally adjusted annualized housing starts fell 15.6% from April to 528,636 units. Nikkei +0.838% to 40487.39, USDJPY -0.36% to 144.13, 10y JGB -0.6bp to 1.432%.

In May 2025, Australia’s total lending rose 0.5% m/m and 6.9% y/y. Housing credit increased 0.5% m/m and 5.8% y/y. Personal credit rose 0.5% m/m and 2.9% y/y. Business credit went up by 0.8% m/m and 9.5% y/y. Broad money expanded by 0.5% m/m and 5.7% y/y. All figures are seasonally adjusted and reflect domestic financial institution activity only. Elsewhere, Australia’s TD-MI inflation gauge rose 0.1% m/m in June 2025, following a 0.4% decrease in May. Annual inflation eased to 2.4% from 2.6% previously. The trimmed mean also increased 0.1% m/m, after falling 0.3% in May. Year-on-year inflation remains below the 3.3% peak for the year recorded in April. ASX -0.064% to 4790.08, AUDUSD +0.108% to 0.6536, 10y ACGB +3.3bp to 4.162%.

New Zealand recorded 2.35 million filled jobs in May 2025, up 0.1% (1,689 jobs) from April, with gains in primary (+0.4%) and service industries (+0.1%) but a 0.2% decline in goods-producing sectors. Compared with May 2024, total filled jobs fell by 34,237 (-1.4%), led by construction (-6.2%), administrative services (-5.6%) and manufacturing (-2.1%). Regionally, Auckland saw the largest drop (-1.9%), followed by Wellington (-2.2%). Jobs declined 2.1% for men and 1.2% for women. Youth employment was hit hardest, with jobs for 15-19-year-olds down 9.9%. Despite the fall in employment, gross earnings rose 0.7% y/y to $15.9bn. NZX 50 +0.153% to 12602.82, NZDUSD +0.199% to 0.6067, 10y NZGB +2.1bp to 4.535%.

New Zealand’s business confidence rose 9 points in June 2025 to a net 46%, with expected own activity up 6 points to 41% as tariff concerns eased. However, past own activity and employment indicators remained subdued. Inflation expectations were steady at 2.71%, but cost and pricing pressures remained elevated. Investment intentions increased sharply, led by agriculture, while export intentions rose slightly. Employment intentions improved modestly but stayed low. Construction confidence remained strong, particularly in residential. Firms cited low turnover and competition as the biggest problems across sectors. Government policy gained in importance as a driver of investment decisions.