Market Movers: Full Circle
Market Movers highlights key activities and developments before the U.S. market opens each morning.
Key Highlights
- Japanese negotiator Akazawa to actively seek an agreement that benefits both countries, while protecting Japan’s national interests; no deal without an agreement on the car sector.
- RBA unexpectedly holds rates at 3.85%; board opts to wait for Q2 inflation numbers before cutting further.
Chart of the Day
EXHIBIT #1: NEW ZEALAND FINDS GOOD EQUITY SUPPORT AHEAD OF RBNZ DECISION
Source: BNY
The Reserve Bank of New Zealand is widely expected to hold rates at 3.25%, and markets will be looking for any signal that it is at the end of its rate-cutting cycle. The surprise RBA hold overnight may also result in some additional caution over cuts. In the run-up to the decision, cross-border investors have primarily hedged their positions, though early signs of shifting momentum are emerging. While New Zealand’s relatively small market limits its appeal as a diversification play against the U.S., growing fundamental and positional support suggests NZD and local assets could begin to perform on their own merits. Meanwhile, New Zealand equities have outperformed other developed market APAC peers over the past quarter, even in April, when global markets saw broad outflows. This resilience, combined with FX spot inflows, highlighted an asset rotation process that left only a few markets benefiting from reductions in U.S. holdings – New Zealand among them. Now that larger developed markets have recovered to pre-“Liberation Day” levels, the past two weeks have seen an even stronger surge in inflows into New Zealand. Unlike April’s idiosyncratic flows, these recent allocations appear to be driven by broader portfolio shifts into developed APAC equities, rather than a uniquely New Zealand story.
What's Changed?
Risk sentiment is mixed again. The markets are embracing the view that President Trump will back down on tariffs and Japan will push more aggressively for talks after the upper house elections. The July 9 extension to August 1 is assumed to be a rolling negotiation tool. APAC markets rallied back, with bonds lower as the RBA delivered a surprise and tariffs provided a sting, with Japanese 10y yields up 3.5bp to 1.48%. The dollar fell, particularly against AUD and KRW, while JPY lagged behind. Economic data showed trade bouncing back with Taiwanese exports doubling, but exports in Germany were at four-month lows and the French trade deficit was the biggest in eight months. This is not a market that can ignore trade issues, but it does want to believe in time to fix them. The difference between today and yesterday rests on the U.S. bill and note sale to come. Rates are higher globally, and the U.S. markets’ ability to believe in an FOMC cut matters to outcomes today; as such, the sales will serve as a barometer in the post-debt-ceiling world for the front end of the U.S. rate curve. Today’s drop in German Bunds reflects the bear steepening trade in play on the back of new supply, with the EU increasing its 20y sale by €1bn. U.K. gilts are also lower in response to renewed wealth tax talk to bolster compliance with the financial rules into the autumn. GBP is lagging on the politics and growth story, while EUR remains closer to its 2021 highs. Momentum for markets remains the most dominant factor, even as the iFlow Carry index is back at extreme positive levels, leaving rates to rule FX and USD to lead equities. The Red Sea ship sinking in Houthi attacks kept oil higher yesterday, but not today. This reflects the inherent volatility in all markets, as we see geopolitical clashes with ongoing higher-than-normal risk premiums underpinning the dilemma of chasing a new quarter’s returns in just another summer trading day. Today’s market mood has run the full circle of emotions, leaving us back where we were yesterday, only with less patience.
What You Need to Know
The U.K.’s Office for Budget Responsibility has published its latest fiscal risks and sustainability report. The report notes that as of the end of 2024, the U.K.’s public-sector net debt stood at 94% of GDP, which is one of the highest among advanced economies. Underlying debt has climbed by 24 percentage points of GDP over the past 15 years and by 60 points over 20 years. Debt is now at its highest level since the early 1960s, and with growth slowing and borrowing still around 3% of GDP above the stabilizing threshold, further reductions are proving elusive. Looking ahead, demographic pressures and rising age-related costs are projected on current policies to push debt beyond 270% of GDP by the early 2070s, severely constraining fiscal resilience. FTSE 100 +0.127% to 8817.69, GBPUSD +0.059% to 1.361, 10y gilt +4.6bp to 4.632%.
Japan’s Prime Minister Shigeru Ishiba on Tuesday called the looming 25% U.S. “reciprocal” tariff on Japanese imports “truly regrettable”, vowing to press Washington for a better deal. At a cabinet meeting on tariff strategy, he emphasized that Japan would not sacrifice its agriculture sector and that any agreement must include auto tariff relief. Ishiba noted that the U.S. is open to extending talks past the August 1 deadline and that the contents of President Trump’s tariff letter could be revised based on Japan’s response. Nikkei +0.255% to 39688.81, USDJPY +0.103% to 146.2, 10y JGB +3.5bp to 1.497%.
Also facing 25% tariffs from the U.S., due to come into effect on August 1, Seoul vowed to accelerate negotiations. It convened emergency meetings of the Industry and Finance ministries alongside top exporters. While the new tariffs won’t stack onto existing 25% auto and 50% steel levies, the market believes the U.S. is unlikely to relent on autos and steel under Section 232. The more advisable path for South Korea is seen as emulating Vietnam, which is proposing measures to reduce its U.S. trade surplus through increased defense, energy and agriculture imports, and easing nontariff barriers in digital platforms, pharmaceuticals and quarantine processes. KOSPI +1.813% to 3114.95, USDKRW -0.621% to 1369.35, 10y KTB +0.6bp to 2.84%.
The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 3.85%, against a consensus of a 25bp rate cut. The board judged that it could wait for a little more information to confirm that inflation remains on track to reach 2.5% on a sustainable basis, as Q2 inflation might be slightly stronger than expected. Governor Bullock stressed that the decision today was “more about timing than direction,” and that the majority of the board wanted to wait until the Q2 inflation print before cutting further, to avoid the RBA having to “end up fighting inflation again.” ASX +0.125% to 4797.68, AUDUSD +0.771% to 0.6541, 10y ACGB +8.3bp to 4.265%.
Germany’s calendar-adjusted and seasonally adjusted exports in May 2025 stood at €129.4bn, down 1.4% m/m and up 0.4% y/y, while imports fell 3.8% to €111.1bn (+4.2% y/y). The trade surplus widened to €18.4bn from €15.7bn in April. Exports to the EU reached €71.3bn (-2.2%), including €49.3bn to the euro area (-2.6%) and €22.0bn to non-euro EU states (-1.3%); imports from the EU were €57.7bn (-3.6%). Trade with non-EU countries saw exports of €58.1bn (-0.3%) and imports of €53.3bn (-4.1%). Top export markets were the U.S. at €12.1bn (-7.7%), China at €6.8bn (-2.9%) and the U.K. at €7.2bn (+15.1%); imports from China were €13.8bn (-1.0%) with €7.4bn from the U.S. (-10.7%) and €3.1bn from the U.K. (+4.0%). DAX +0.137% to 24106.61, EURUSD +0.342% to 1.1749, 10y Bund +5.5bp to 2.698%.
Hungarian consumer prices in June 2025 rose 4.6% y/y and 0.1% m/m. Over 12 months, food inflation was +6.2% (+4.9% excluding food services), with eggs +26.0%, flour +24.4%, edible oil +22.2%, coffee +20.3% and chocolate/cocoa +19.6%; margarine fell -31.2%. Energy costs (electricity, gas and fuels) rose 8.6% (natural/manufactured gas +18.4%; butane/propane +5.8%). Alcohol and tobacco jumped 6.3% (tobacco +7.0%), services +5.4% (postal +11.3%; personal care +10.1%; dwelling repairs +9.8%; rents +9.4%). Consumer goods prices rose 2.6% (jewelry +23.8%; furniture +4.6%; new cars +3.7%). Motor fuel eased -1.0%, while pharmaceuticals were up +5.5%. Month-on-month, prices rose 0.1%: food +0.1% (excl. food services -0.2%); edible oil +2.4%; eggs +1.8%; service prices +0.6%; motor fuel +0.5%. Budapest SI -0.304% to 99156.64, EURHUF -0.178% to 399.36, 10y HGB -2bp to 6.98%.
What We're Watching
Central bank speakers: ECB’s Joachim Nagel to speak in Frankfurt on the topic of “Germany and Japan 2.0 – Addressing Common Challenges at a Global Inflection Point.”
U.S. June NFIB Small Business Optimism expected to ease slightly from 98.8 to 98.6.
U.S. June New York Fed 1y inflation expectations forecast to drift to February’s low, at 3.13% from 3.2% in May.
U.S. May consumer credit is seen falling to $10.55bn, from $17.87bn in April.
U.S. Treasury sells $50bn in 1y and $50bn in 6-week bills, along with $58bn in 3y notes.
What iFlow is Showing
Mood: Sentiment continues to improve but remains in negative territory. The equities flow turned to net buying for the first time since late June, while demand for core sovereign bonds remains at the lower end of the range.
FX: Broad inflows across the region, led by EUR and DKK. Notable outflows in SEK, USD, CNY and TWD. Noteworthy observations are scored holdings of CAD, GBP, BRL, HUF, ZAR and INR, which have all sustained high holdings levels over the past three months.
FI: Good buying interest in sovereign bonds led by Hungary and India, which saw significant buying, while Israel and Peru stood out with sizable outflows. U.S. Treasurys and Eurozone government bonds posted light cross-border demand.
Equities: Good demand across APAC and EMEA equities against mixed flows in G10 and LatAm. Poland and Singapore equities posted significant buying, while notable selling flows were seen in Canada, Denmark, Malaysia and Israel. Within EM APAC, the energy, materials and industrial sectors saw the best demand, against light selling in the health care, communication services and utilities sectors.
Quotes of the Day
“The wheel is come full circle.” – William Shakespeare
“No matter the deviation, all things come full circle. You begin and end your journey in the same place, but with a different set of eyes.” – Jennifer DeLucy
Economic Details
Australia June NAB business conditions rebounded strongly from 0 to 9, the highest level since March 2024. The business conditions index increased sharply in the month, driven by notable improvements in trading conditions and profitability. The rebound in profitability is encouraging, particularly if sustained, as there was a risk that ongoing weakness in profitability would eventually flow through to weaker hiring and employment conditions. Conditions improved across most industries, with manufacturing and retail rallying after May declines and services sectors continuing to lead in trend terms. Overall, the survey is encouraging that sluggish momentum in early 2025 will improve into the second half. ASX +0.125% to 4797.68, AUDUSD +0.771% to 0.6541, 10y ACGB +8.3bp to 4.265%.
Japan’s seasonally adjusted May 2025 current account surplus was ¥2,818.1bn, up 22.2% m/m and 14.4% y/y. The three-month SA surplus rose 1.1% (¥27.9bn). Exports totaled ¥8,593.2bn vs. ¥8,732.2bn in imports, yielding a ¥139.0bn trade deficit and a ¥174.5bn goods and services shortfall; services alone posted a ¥35.5bn deficit. Primary income added a ¥3,538.5bn surplus, while secondary income ran a ¥545.9bn deficit. Japan’s non-seasonally adjusted figures recorded a ¥3,436.4bn surplus (52.2% m/m; 16.5% y/y), driven by a ¥4,255.5bn primary income surplus against a ¥522.3bn trade deficit; exports were ¥8,034.4bn, imports ¥8,556.8bn and the services surplus ¥201.1bn. Over three months, the NSA surplus climbed ¥1,492.8bn in yen terms. Nikkei +0.255% to 39688.81, USDJPY +0.103% to 146.2, 10y JGB +3.5bp to 1.497%.
In June 2025, acquisitions and disposals in Japanese residents’ portfolio investment assets were ¥54,161.1bn and ¥54,261.9bn, respectively. Net outflow ¥100.8bn; net sales of equities and funds ¥1,988.7bn; long-term debt net purchases ¥2,120.8bn; short-term debt net sales ¥232.9bn; deposit-taking corporations +¥12.3bn; banks -¥891.9bn; trust banks +¥904.2bn; general government -¥1.5bn; other sectors -¥111.6bn. Nonresidents’ acquisitions and disposals were ¥83,708.1bn and ¥82,682.7bn, net inflow ¥1,025.3bn; long-term debt +¥1,874.2bn; equities and funds plus long-term debt +¥2,899.5bn; short-term debt -¥1,198.5bn. Mid-month assets and liabilities shifts were -¥2,767.4bn and -¥1,801.9bn, respectively.
In June 2025, Japan’s Economy Watchers Survey showed the seasonally adjusted current conditions DI rising by 0.6 points to 45.0, marking a second consecutive monthly gain. Household-related DI increased, led by an improvement in food service, while corporate-related DI rose on non-manufacturing strength. However, the employment-related DI dipped. The leading conditions DI climbed 1.1 points to 45.9, driven by higher household and employment outlooks, despite a deterioration in the corporate outlook. On an unadjusted basis, the current conditions DI was 45.1 (+0.3) and the leading conditions DI 46.9 (+0.8). Watchers observe that the economic recovery remains fragile, supported by summer bonus and wage expectations but clouded by price pressures and U.S. trade policy concerns.
In June 2025, Bank Indonesia’s Consumer Confidence Index (IKK) held at 117.8, up from 117.5. By expenditure, confidence peaked among respondents spending Rp 4.1-5mn (117.8); by age it was highest among 20-30 year-olds (122.1). Geographically, Medan, Makassar and Surabaya saw the largest gains, while Semarang, Mataram and Palembang experienced declines. The current economic conditions index (IKE) rose to 106.7 (106.0), while the consumer expectations index (IEK) stayed at 128.9 (129.0). Components: the income index (IPSI) 120.2 (118.1), durable goods purchase index (IPDG) 105.9 (104.1) and employment availability index (IKLK) remained pessimistic at 94.1. Average propensity to consume increased to 75.1% (74.3%), savings fell to 14.1% (14.9%), and the debt-to-income ratio stayed at 10.8%. JCI +0.05% to 6904.392, USDIDR -0.136% to 16208, 10y IDGB +0.9bp to 6.589%.
In the Philippines, the unemployment rate slowed to 3.9% (2.03 million) in May 2025, down from 4.1% (2.11 million) in both May 2024 and April 2025. Labor force participation rose to 65.8% (52.32 million), up from 64.8% (50.97 million) and 63.7% (50.74 million), respectively. Employment climbed to 96.1% (50.29 million) from 95.9% (48.87 million). Services accounted for 61.8% of employed persons, agriculture for 21.1% and industry for 17.1%, with the top subsectors being wholesale and retail trade (19.8%), agriculture and forestry (18.8%) and construction (9.5%). Underemployment increased to 13.1% (6.60 million), and average weekly hours worked fell to 39.8, down from 39.9 in April and 40.6 a year earlier. Youth (15-24) participation reached 33.6%, employment 91.5% and underemployment 11.5%. PSEi +0.13% to 6433.6, USDPHP -0.595% to 56.363, 10y PHGB -0.3bp to 6.183%.
