Key Highlights

• RBNZ holds rates at 3.25% as expected, notes further cuts are likely if inflation continues to ease.

• President Trump states there will be no further tariff deal deadline extensions, pushes for tariffs on copper and pharmaceuticals.

• U.S. State Department tightens cyber security after deep fakes of Mario Rubio.

Chart of the Day

EXHIBIT #1: IFLOW CARRY PEAKING OUT AT 2025 HIGHS, OPENING THE WAY FOR REVERSAL OPPORTUNITIES

^{Source: BNY}

As both trade and geopolitical risk reduced toward the end of the quarter, iFlow Carry has made renewed inroads of positive significance, and the latest round is proving far more durable. The level of significance (defined by the rank correlation) remains relatively low at around 0.3, far below the high of 0.75 attained in mid-2023. Nonetheless, the general improvement in carry positioning speaks to the improvement in sentiment, which has been validated by equity flows during the same period. However, more recently the index has shown signs of stagnating, which means it is valid to start looking at fading interest in the theme as relevant positions become crowded. Comparing flow with yields, the usual suspects are in play on the high-yielding side, with core LatAm names accompanied by TRY and ZAR. Of the five highest yielders, only TRY and COP are in the top ten, with MXN not even in the top half. Meanwhile, of the five lowest yielders, JPY is the only strongly bought name; THB and TWD selling has been particularly strong. We also stress that if the list is expanded, the likes of SGD and SEK are also on the weak side of flows and helped push through carry significance – this much is evident when we anchor carry interest based on flows. We believe fading ZAR long trades offer the best risk/reward in a carry reversal.

What's Changed?

Risk sentiment remains mixed. The ongoing trade talks and modest economic data support putting cash to work, clashing with continued threats of more sector-specific tariffs along with soggy positioning across asset classes. The WSJ reports that President Trump delayed the reciprocal tariffs because Treasury Secretary Scott Bessent wanted more time for deals. The most important of these is with the EU, where the FT reports that the framework agreement is inferior to the U.K. version. However, the relief from delays and talks is not sufficient to hold markets today. The effect of more tariffs and delays is to sow caution, not chaos. One reason is that the RBNZ matched the RBA in keeping rates on hold; another is that China’s CPI rose for the first time in five months, even while PPI dropped to two-year lows. The net result was that rates rose in APAC, hitting shares, while Europe has seen modest stabilization after two days of bond turmoil. The biggest market mover overnight was commodities, where copper tariffs, on top of aluminum and steel, threaten to disrupt the global supply chain for goods further. Despite the API reporting a significant rise in U.S. crude oil inventories yesterday evening, oil prices are higher again. These factors reveal a limit to investors’ bar-belled approach to risk, as defensive plays match offensive ones. Taking more risk without a larger premium in a higher-volatility environment is not sustainable. For the U.S. session ahead, a reversal in response to the FOMC minutes or wholesale inventories data seems unlikely. Rather, we are all stuck with humidity around positions set for higher volatility and the heat of trying to make better returns from such risks. For many, this week has started the usual summer lull in trading until market weather conditions change. 

What You Need to Know

Copper futures in New York jumped 13% to $5.69 per pound, the largest one-day gain since 1969. U.S. copper prices then rose to record highs after President Trump announced 50% tariffs on copper imports starting next month. Commerce Secretary Howard Lutnick expects implementation within 30 days. Citi calls it a watershed moment, closing the window for U.S.-bound shipments, while LME premiums surged 25%. Chile, which supplies 70% of U.S. copper, warned of harm to come, while Canadian industry cautioned on integrated North American supply chains. JPMorgan had forecast 25% tariffs but now anticipates 50%. This follows Trump’s letters threatening reciprocal tariffs on trading partners by August 1, with pharmaceutical levies of up to 200% and broader Section 232 probes ongoing. HGU5 -1.68% to $5.59/lb.

China’s June headline CPI rebounded strongly into positive territory at 0.1% y/y, the first positive reading since 0.5% y/y in January. Core CPI came in at 0.7% y/y, matching the highs in April 2024, vs. 0.6% in May. Consumables inflation improved to -0.2% y/y (May: -0.5% y/y), while service items inflation was unchanged at 0.5% y/y. Overall, this is an encouraging reading, but it is not out of the woods yet. Year-to-date annualized headline and core CPI came in at -0.1% y/y and 0.4% y/y, respectively. Meanwhile, Beijing has announced additional efforts to reduce deflationary competition in industry due to oversupply. CSI 300 -0.176% to 3991.4, USDCNY +0.035% to 7.181, 10y CGB -0.2bp to 1.646%.

The RBNZ kept rates unchanged at 3.25%. It highlighted that inflation is likely to increase to toward the top of the 1-3% inflation target band, staying within the band and returning to around 2% by early 2026. The RBNZ commented that global policy uncertainty and tariffs are expected to reduce global and New Zealand economic activity. It made explicit mention of rate cuts in the press release, saying: “If medium-term inflation pressures continue to ease as projected, the committee expects to lower the official cash rate further.” This contrast with the wording “well placed to respond to domestic and international developments to maintain price stability over the medium term,” in May’s policy statement. Overall, the RBNZ strike a dovish tone but with circumspection, emphasizing the “highly uncertain” economic outlook. It commented that further data on the speed of New Zealand’s economic recovery, the persistence of inflation and the impacts of tariffs will influence the future path of the official cash rate. NZX 50 -0.703% to 12768.61, NZDUSD +0.017% to 0.5999, 10y NZGB +5.2bp to 4.602%.

Bank Negara Malaysia cut its overnight policy rate by 25bp to 2.75% – the first easing since July 2020 – stating that “the balance of risks to the growth outlook remains tilted to the downside, stemming mainly from slower global trade, weaker sentiment, as well as lower-than-expected commodity production… The reduction in the OPR is, therefore, a pre-emptive measure aimed at preserving Malaysia’s steady growth path amid moderate inflation prospects.” The BNM added that “ringgit performance will continue to be primarily driven by external factors,” though Malaysia’s economic prospects and domestic reforms will provide support to the currency. KLCI -0.349% to 1524.8, USDMYR +0.262% to 4.2513, 10y MGB +0.1bp to 3.441%.

Norwegian export prices were almost flat in June: overall export PPI rose just 0.7% y/y, while exported manufactured goods prices fell 1.7% m/m. Domestic manufactured goods inflation slowed to 1.8% y/y (down from April’s 3.2%) and outpaced export growth for a second successive month. Chemicals export inflation eased from 9.3% in May to 4.8% in June, and basic metals price growth also moderated. First-hand import food prices have climbed 9-11% y/y since February, whereas domestic food inflation was only 1.8% in June. Crude oil and natural gas extraction prices tumbled 6.6% y/y, dragging the overall PPI to -1.0% y/y, and power supply prices jumped 13% y/y but were down 18% m/m. OSE +0.023% to 1634.17, EURNOK -0.029% to 11.8367, 10y NGB -1.2bp to 3.875%.

What We're Watching

Central bank speakers: San Francisco Fed President Mary Daly speaks on the U.S. economic outlook and challenges for policymakers. St. Louis Fed President Alberto Musalem is to speak at event hosted by the Official Monetary and Financial Institutions Forum. ECB’s Joachim Nagel is to give a speech on monetary policy.

U.S. May wholesale trade sales expected up 0.2% m/m after 0.1% m/m in April, while inventories are forecast to fall -0.3% m/m, from -0.3% m/m. The overall sales/inventory ratio is a key focus for Q2 and beyond, feeding into outlooks for corporate earnings and growth.

U.S. FOMC meeting minutes, with the focus on discussions over rate cut bias and the effects of tariffs on inflation ahead.

U.S. Treasury sells $39bn in 10y and $65bn in four-month bills.

What iFlow is Showing

Mood: Sentiment remains weak, with iFlow Mood remaining in the negative but risk-neutral zone. Equities posted net buying for the second day in a row, while there has been a pick-up for core sovereign bonds.

FX: Relatively moderate FX flows except for large DKK inflows and SEK outflows. LatAm and EMEA posted inflows across the region, against mixed flows in G10 and APAC. Within the G10, USD, AUD and GBP were lightly sold, while EUR and JPY were bid.

FI: Broad buying interest in sovereign bonds, led by Hungary, Mexico, the Eurozone and India. Israel government bonds were significantly sold, along with light outflows in Sweden, Chile, Peru and Poland government bonds.

Equities: Brazil, Poland and Singapore equities were significantly bought. Overall, G10 and LatAm flows were mixed, while EMEA and APAC equities were better-bid. 

Quotes of the Day

“Books have the same enemies as people: fire, humidity, animals, weather and their own content.” – Paul Valéry

“Heat cannot be separated from fire, or beauty from the Eternal.” – Dante Alighieri

Economic Details

In June 2025, China’s PPI output prices fell 3.6% y/y and 0.4% m/m, while input prices decreased by 4.3% y/y and 0.7% m/m. In H1, output prices dropped by 2.8% and input prices by 2.9% y/y. Year-on-year, output price declines were led by a 4.4% fall in production material costs (mining -13.2%, raw materials -5.5%, processing -3.2%) and a 1.4% drop in consumer goods prices (food -2.0%, durables -2.7%, daily goods +0.8%). Input price decreases included fuel and power at -10.4%, ferrous metals at -8.0%, chemicals at -6.2% and agricultural products at -4.2%, partly offset by nonferrous metals (+2.4%). Month-on-month, output prices eased 0.4% (mining -1.2%, raw materials -0.7%) and input prices fell 0.7% (fuel -2.0%). CSI 300 -0.176% to 3991.4, USDCNY +0.035% to 7.181, 10y CGB -0.2bp to 1.646%.

The New Zealand Treasury commented that indicators suggest slowing economic momentum in the June quarter. Short-term pricing pressures appear to be firmer than previously thought, but these impacts will likely be temporary. Despite the higher near-term inflation outlook and continued strong agricultural sector performance, significant spare capacity in the economy will contain inflation over the medium term. Global activity is unwinding from its pre-tariff surge, and growth is expected to continue to slow over the second half of the year. NZX 50 -0.703% to 12768.61, NZDUSD +0.017% to 0.5999, 10y NZGB +5.2bp to 4.602%.

In June 2025, South Korean bank lending to households rose by ₩6.2tn (+0.5% m/m) to ₩1,161.5tn – driven by a ₩5.1tn increase in mortgages (+0.6% m/m) to ₩923.1tn – while corporate loans fell by ₩3.6tn (-0.3% m/m) to ₩1,343.0tn. Rising household debt adds to the Bank of Korea’s caution around cutting interest rates too quickly, as it grapples with the fallout from U.S. trade tariffs, an overheated real estate market and debt risks; policymakers are therefore expected to keep rates steady at Thursday’s meeting. KOSPI +0.603% to 3133.74, USDKRW +0.288% to 1375.6, 10y KTB +1.2bp to 2.852%.

In June 2025, Japan’s machine tool orders totaled ¥133.15bn, up 3.4% m/m but down 0.5% y/y. Domestic orders reached ¥39.87bn (+ 20.8% m/m; -2.3% y/y), and foreign orders ¥93.28bn (-2.5% m/m; +0.3% y/y). From January to June, cumulative orders amounted to ¥777.53bn, a 5.1% y/y increase, with domestic demand at ¥222.29bn (-0.9%) and exports at ¥555.24bn (+7.7%). Nikkei +0.334% to 39821.28, USDJPY +0.123% to 146.76, 10y JGB +1.1bp to 1.508%.

In June 2025, Japan’s M2 rose 0.9% y/y (up from 0.6% in May) with a seasonally adjusted annualized rate of 2.6%, while M3 grew 0.4% y/y (SAAR 1.8%) and M1 fell 0.3%. Quasi-money climbed 2.3%, but CDs dropped 5.4%. Broad liquidity (L) expanded by 1.5% (SAAR 2.2%). Among market-based aggregates, commercial paper surged 196.7%, straight bonds 87.4% and government bonds 29.8%, whereas bank debentures declined 2.9%; investment trusts rose 5.8% and pecuniary trusts 2.9%, with foreign bonds roughly unchanged (-0.2%).

Thailand’s Consumer Confidence Index fell to 46.7 in June 2025 (from 48.9 in May), driven by worries over U.S. tariff uncertainty, Middle East tensions, Thailand-Cambodia border frictions, fewer tourists, oversupply of farm goods and high household debt. A nationwide survey of 5,652 people found the domestic economy weighed most on sentiment (50.4%), followed by government measures (13.7%), politics (8.8%) and the global economy (8.4%). Only the Northeast region (50.4) and government employees (50.2) remained above the confidence threshold. The Ministry of Commerce will press on with cost of living relief, export and tourism support, infrastructure projects, tighter import standards and SME promotion. SET -0.477% to 1110.33, USDTHB +0.412% to 32.667, 10y TGN -3.4bp to 1.549%.