Key Highlights

• President Trump sends new round of tariff letters, including 50% rate on Brazil, 30% on Algeria, Libya, Iraq and Sri Lanka, and 20% on goods from the Philippines.

• EU leaders meet in Rome to debate €100bn fund after another Russian air attack on Kyiv; Ukraine PM notes $40bn budget deficit.

• Bank of Korea keeps rates on hold at 2.5%, as expected, as it assesses Seoul housing market; easing bias at next meeting.

Chart of the Day

EXHIBIT #1: TARIFFS THREATEN TO DERAIL GOOD PERIOD OF FLOWS FOR BRAZILIAN ASSETS

^{Source: BNY}

BRL fell 2.3% yesterday after President Trump’s tariff letter, and in the near term we see significant risk of large-scale asset outflows. The currency was already vulnerable to a pullback in carry, as we have highlighted in recent notes, with carry positions looking crowded and some degree of reversal necessary. While BRL has not been one of the core drivers of recent carry flows and has remained in overheld territory since November 2022, there isn’t a sufficiently strong profitability buffer in place to allow investors patience. Furthermore, if the market is to start moving against carry-based economies, domestic factors will play a strong role alongside excess positioning. This is where the latest news could prove more damaging. Our data indicate that Brazilian equities and sovereign bonds are seeing the strongest period of combined inflow this year (see chart), which until now has been a function of the general recovery in global risk appetite. With terms of trade for industrial commodities exporters still relatively tame and now facing the prospect of a growth hit from a drop in soft commodity earnings, the pass-through to the economy is significant. We do not foresee any balance of payments stress, and real rates will likely remain very high to anchor currency and debt holdings, but some near-term adjustments are likely, especially in Brazilian equity holdings. These are 5% above the average over the past year for cross-border clients.

What's Changed?

Risk sentiment is mixed again, with APAC and EMEA equities mostly higher and bonds mixed. Markets have been awaiting more information and are willing to remain hopeful against the ongoing backdrop of President Trump’s tariff letters. Some will call this trade numbness, but others see it as an uncomfortable summer lull before the next storm after August 1. Three price moves stand out over the week: 1) Nvidia broke through the $4tn market cap landmark, highlighting the ongoing faith in AI investments over the next five years. 2) Copper has seen a split, with higher prices in the U.S., while China and U.K. futures are lower. The U.S. tariff on copper risks seeing other centers run the commodity’s pricing, hurting the dollar’s role in world commerce. 3) Bitcoin broke through $112,000 to hit a new record high. This move was led by spot ETF flows and further institutional investment, with the price up 14% from June’s $98,000 low. The common thread linking these moves lies in the fragmentation risks to global finance, with DeFi, USD alternatives and technology colliding with fears of future dystopian worlds. However, looking at the tape of asset prices today, indifference rather than fear dominates. While U.S. futures are lower, along with bonds and the U.S. dollar, the rest of the world remains in a wait-and-see pattern, with momentum to put cash to work the driving force. Witness today’s 20y JGB sale in Tokyo being a non-event, something that may contrast with the U.S. 30y sale later today. Witness the Bank of Korea keeping rates on hold, while Fed speakers today will be watched for a path towards a July cut, along with how they address the political pressure to do so and remain credible. The key risk for the day is unlikely to be weekly jobless claims, even though they are the frontline for fears over a slowing U.S. economy; rather, the risks lie in EU trade deals breaking down or more surprise U.S. executive orders that challenge the status quo. 

What You Need to Know

The BoK kept its headline rate unchanged at 2.5% in a unanimous vote. It is seeking to ensure financial stability amid concerns about rapid increases in housing prices and household debt. The BoK maintained a dovish tone and will adjust the timing and pace of any further base rate cuts, while closely monitoring changes in the domestic and external policy environments and examining the resulting impact on inflation and financial stability. BoK bias is firmly toward easing, with four out of six members open to a rate cut in the next three months. KOSPI +1.579% to 3183.23, USDKRW -0.233% to 1371.75, 10y KTB -0.5bp to 2.847%

Germany’s final June Consumer Price Index rose 2.0% y/y – its lowest annual change since October 2024 – while m/m prices were unchanged. The Harmonized Index of Consumer Prices also rose 2.0% y/y and 0.1% m/m. Energy prices fell 3.5% y/y (fuel -4.6%, household energy -2.8%), and food inflation slowed to 2.0% (from 2.8%). Inflation excluding energy stood at 2.6%, and core inflation (excluding food and energy) at 2.7%. Services inflation was 3.3%, led by transport, social services and insurance, while goods inflation was 0.8%. On a monthly basis, package holidays and airfares rose sharply as overall prices held steady. DAX +0.229% to 24605.77, EURUSD +0.086% to 1.173, 10y Bund -0.1bp to 2.672%.

In June 2025, Czech consumer prices rose 0.3% m/m and 2.9% y/y, led by recreation and culture (+2.4%), housing, water and energy (+0.7%), transport fuels and cars (+1.0% and +0.4%) and food and non-alcoholic beverages (meat +2.0%, butter +7.7%, UHT semi-skimmed milk +3.3%, chocolate +2.4%). These gains were partly offset by lower prices for spirits (-1.2%), fruit (-3.0%) and vegetables (-1.9%). Goods inflation was 0.1% and services inflation 0.5% m/m. Year-on-year inflation accelerated to 2.9% (up 0.5 percentage points on May) as food inflation surged (butter +24.7%, eggs +40.4%, coffee +29.2%) and imputed rents rose 6.3%, despite lower energy prices. The HICP rose 0.2% m/m and 2.8% y/y. Prague SE +0.649% to 2182.15, EURCZK -0.065% to 24.635, 10y CZGB -1bp to 4.276%.

In the 12 months to June 2025, Norwegian CPI rose by 3.0% and its CPI-ATE by 3.1%. From May to June 2025, the CPI edged up 0.2% (matching the 0.2% increase a year earlier), while the CPI-ATE climbed 0.5% (up from 0.2% in June 2024). The biggest monthly gains were in transport (+1.4%) and food and non-alcoholic beverages (+1.4%), followed by restaurants and hotels (+1.0%), recreation and culture (+0.5%) and miscellaneous goods and services (+0.5%). Communications rose 0.3%, alcoholic beverages and tobacco 0.4% and health 0.2%. Offsetting these were declines for clothing and footwear (-2.5%), furnishings and household equipment (-0.9%) and housing, water, electricity, gas and other fuels (-0.8%); education was unchanged. These monthly shifts reflect rising transport and food costs balanced by lower housing-related energy costs and seasonal clothing discounts. OSE +0.582% to 1631.08, EURNOK -0.287% to 11.8059, 10y NGB -0.4bp to 3.889%.

What We're Watching

Central bank speakers: St. Louis Fed Alberto Musalem speaks at OMFIF event with Q&A. San Francisco Fed President Mary Daly speaks on the U.S. economic outlook and challenges for policymakers. BoE Deputy Governor Sarah Breeden delivers a speech titled “Weathering the Storm: Stability in a Changing Climate.”

U.S. weekly jobless claims forecast to be stable at 235k vs. 233k last week, with continuing claims expected to rise 1k to 1.965 million.

U.S. Treasury sells $22bn in 30y, $80bn in four-week and $70bn in eight-week bills.

What iFlow is Showing

Mood: iFlow Mood drifted marginally lower, as demand for core sovereign bonds outpaced equities markets.

FX: DKK stood out as having the only significant buying flows within the iFlow universe. SEK, USD, AUD, GBP, CNY, IDR and TWD were lightly sold, against inflows in the rest.

FI: Broad demand for sovereign bonds globally, especially for U.S. Treasurys, U.K. gilts and Eurozone and Chinese government bonds. Israel and Peru posted the most selling in government bonds. In the corporate bonds complex, iFlow showed significant selling in the Eurozone, New Zealand and Peru.

Equities: Equities were better bid in EMEA, LatAm and APAC, against mixed flows in the G10 complex. Brazil, Poland, South Africa and Singapore equities saw the best demand. Within the U.S. equity market, the communication services, consumer staples and financials sectors were sold, against buying in the rest, especially the information technology, consumer discretionary and utilities sectors.

Quotes of the Day

“If moderation is a fault, then indifference is a crime.” – Jack Kerouac

“Our obligation is to give meaning to life and in doing so to overcome the passive, indifferent life.” – Elie Wiesel

Economic Details

In May 2025, Italy’s seasonally adjusted industrial production fell 0.7% m/m, though the March-May average rose 0.6% versus the prior quarter. By product group, energy output climbed 0.7% m/m, while intermediate goods dropped 1.0%, consumer goods declined 1.3% and capital goods were unchanged. On a calendar-adjusted annual basis, overall production was down 0.9% y/y: energy remained strong (+5.3%), but capital goods (-0.2%), consumer goods (-1.8%) and intermediate goods (-2.7%) contracted. The largest y/y gains came in coke and refined petroleum products (+6.1%), mining (+5.1%) and electricity/gas/steam supply (+4.7%), while transport equipment (-5.6%), pharmaceuticals (-5.2%) and chemicals (-4.0%) saw the steepest declines. Overall output has been broadly flat since August 2024. FTSEMIB -0.226% to 40728.93, EURUSD +0.086% to 1.173, 10y BTP -0.9bp to 3.515%.

In May 2025, Türkiye’s industrial production rose 3.1% m/m, led by mining and quarrying (+5.3%) and manufacturing (+3.2%), while there was no change for electricity, gas, steam and air conditioning supply. Among manufacturing subsectors, capital goods surged 8.6%, durable consumer goods +4.3%, medium-high technology +3.4%, medium-low technology +2.3%, intermediate goods +1.5%, nondurable consumer goods +1.6% and energy +0.7%, with low-technology products up 1.1% and high-technology products up 25.3%. Over the year, total industry expanded by 4.9%, buoyed by mining (+10.0%), manufacturing (+4.6%) and electricity (+4.7%), while capital goods gained 12.0%, energy 8.8% and medium-low technology 7.3%, against a 1.7% drop for durable consumer goods. BI 100 +1.778% to 10348, USDTRY +0.039% to 40.0639, 10y TGB -8bp to 31.57%.

In May 2025, Sweden’s GDP fell 0.2% m/m (seasonally adjusted) and was up 0.5% on a calendar-adjusted year-earlier basis. The decline was driven by weaker output in service-producing industries and general government activity. On the demand side, household consumption contracted, and net exports of goods weakened, contributing to the overall downturn. These preliminary GDP indicator figures offer an early glimpse of economic performance ahead of the full quarterly national accounts. OMX +1.658% to 2578.484, EURSEK -0.048% to 11.1454, 10y Swedish GB -1.9bp to 2.4%.

In May 2025, Swedish household consumption fell 1.2% m/m (seasonally adjusted) but rose 0.6% y/y (constant prices, working-day adjusted). Over the past three months it was 1.6% higher than a year earlier. Three of the four biggest sectors saw declines: retail trade (food and beverages, 20% weight) down 3.1%; transport and motor vehicle services (13% weight) down 2.0%; recreation & culture (13% weight) down 3.9%. Housing, electricity, gas & heating (25% weight) rose 0.9% m/m and 1.8% y/y, partly due to colder weather. Clothing & footwear plunged 10.2% and 17.8%, while restaurants, cafés and accommodation services gained 3.3% and 3.2%, respectively.

In May 2025, Swedish private-sector production dipped 0.1% m/m (seasonally adjusted) but was 2.0% higher than in May 2024 (calendar-adjusted). Industry output rose 0.6% m/m and 5.0% y/y, led by a 4.1% m/m gain for paper and paper products despite a 2.3% annual decrease, while fabricated metal products fell 5.6% m/m (+1.1% y/y). Service production fell 0.5% m/m but gained 1.2% y/y, with hotels and restaurants up 5.5% m/m (3.3% y/y), contrasting with a 2.8% m/m drop in wholesale and retail trade (+2.5% y/y). Construction output slipped 0.9% m/m and edged up 0.3% y/y. The electricity, gas, steam and hot water plants and waterworks sectors also contributed to the aggregate with mixed monthly and annual changes.

South Korea’s Financial Supervisory Service reported that foreign investors bought a net ₩3.076tn of listed stocks and a net ₩3.624tn of listed bonds in June 2025. Foreign investors have been net buyers of stocks for two months in a row and net investors in bonds for five consecutive months. Cumulatively, foreign investors held 27.4% of equities by total market capitalization and 11.3% of total listed bonds in June 2025. KOSPI +1.579% to 3183.23, USDKRW -0.233% to 1371.75, 10y KTB -0.5bp to 2.847%.

Japan’s June PPI eased from an upwardly revised 3.3% to 2.9% y/y and posted a second consecutive m/m drop of -0.2% after -0.1% in May. The main drags on PPI were from petroleum and coal products (-4.6% y/y), chemical and related products (-3.0%) and iron and steel (-5.2% y/y). The import price and export price indexes were down -12.3% y/y and -6.9% y/y, respectively. The downward trajectory in PPI does not bode well for future CPI trends. In a sign of limited term/inflation premiums in bonds, the 20y JGB auction went smoothly with a 1.4bp tail – better than the 2.1bp tail at June’s auction. Bid/cover was 3.15 vs. 3.11 previously. The 20y auction average yield was 2.482% vs. 2.496% tail, which was not bad considering the prevailing 20y JGB rate coming into the auction of around 2.495%. Nikkei -0.439% to 39646.36, USDJPY +0.014% to 146.35, 10y JGB -0.6bp to 1.502%.

Japan’s $1.7tn Government Pension Investment Fund boosted its investment in Treasurys to the highest in a decade. As of March 2025 51.8% of its foreign bond holdings were in U.S. Treasurys, including bills, notes and bonds, vs. 49.4% a year ago. The rise in U.S. holdings has taken place at the expense of Eurozone allocations, with France, Italy, Spain and Germany losing a combined 1.5 percentage points as a share of government bond holdings.

The RICS survey shows the U.K. residential real estate sales market stabilizing in June 2025: buyer inquiries net +3% (up from -22%), agreed sales net -3% (-25%), with near-term sales expectations net +6% and a 12-month outlook of +5%. Supply remains modest: new seller instructions net +3% and market appraisals +16%. House prices remained flat to marginally negative (net balance -7%), with sharper falls in the South East, East Anglia and London, but gains in Northern Ireland, North West, Scotland and the East Midlands. In lettings, tenant demand was -2% and landlord instructions -21%, while a net balance of +24% of contributors expect rents to increase in the three months ahead. FTSE 100 +1.106% to 8965.07, GBPUSD +0.17% to 1.3609, 10y gilt -2bp to 4.592%.