Key Highlights

• President Trump says the U.S. is “with NATO all the way,” despite reports questioning his commitment to Article 5 on collective defense.

• U.S. Secretary of State Marco Rubio says Spain’s exemption from the 5% of GDP defense spending commitment for NATO is “a big problem.”

• Ceasefire between Iran and Israel holds; leaked intelligence reports question success of US strikes on Iranian nuclear sites.

Chart of the Day

EXHIBIT #1: REGIONAL EQUITY SCORED HOLDINGS, IFLOW

^{Source: BNY}

With the ceasefire intact and the Fed seemingly edging slowly toward rate cuts, there is very little choice for markets but to continue with a risk-on stance, no matter how far it may deviate from the fundamental outlook. Even on that front, there are signs of life, especially in Europe where output is apparently expanding again. However, central banks are very forthright in their policy projections and expect that the next moves – no matter how delayed – will be toward easing. Given current valuations, we suspect that there is very little scope for equity investors to add aggressively. Instead of simply looking at earnings and ratios, an FX-like approach could come in play, where the most under-positioned markets will by default offer the most value. This can be done on an absolute and relative basis. In the chart, we rank all nine regional equity “cuts” in iFlow: seven now have holdings levels above the rolling one-year average. The only gap is in EM as a whole and EM EMEA. On an absolute basis, this means there is scope for further gains, based on a combination of flows and levels. Given the need to move further away from U.S. exceptionalism, we expect flows to be the main driver, rather than simple re-rating.

What's Changed?

Risk sentiment is modestly positive. Investors are deep into month-end rebalancing, along with rethinking the success of the Iran-Israel ceasefire. There is no urgency in the humidity of uncertainty as investors jog into the second half of 2025. Oil – the barometer of confidence in events over the last two weeks – is flashing caution, up 1.5%. The other indicator of choice for global equities, the dollar, is also up 0.15%. What is different is that these correlations are not derailing equities or bonds from gains. The Thai central bank’s decision to keep rates on hold wasn’t a shock but adds to how politics and monetary policy are colliding, which is also borne out by the Swedish Riksbank minutes. On the margins, we are back to a wait-and-see stance for Fed cuts, tariffs, taxes and the timing of each of these into the dog days of summer. The biggest focus for markets is around the NATO summit, with President Trump and Ukraine’s Zelenskyy meeting after today’s events. The biggest surprise for U.S. politics comes from the NYC mayoral Democrat primary, where avowed socialist Zohran Mamdani beat former New York Governor Andrew Cuomo. The pressure point for U.S. markets remains in rates and how fiscal and monetary policy tensions exert pressure on the dollar, with the second day of FOMC Chair Jerome Powell’s testimony seen as a modest risk for changing the return of July rate cut pricing in the U.S. market. The U.S. 5y note sale and the ongoing weakness in U.S. housing data will also matter but are unlikely to shift the current embracing of risk: momentum led investors at the start of the month and appears to be the dominant factor at the end of June. 

What You Need to Know

The Bank of Thailand’s Monetary Policy Committee voted 6-1 to keep the policy rate unchanged at 1.75%. One member voted for a 25bp cut. The decision followed stronger-than-expected growth in early 2025, driven by manufacturing and exports, though a slowdown is anticipated in H2 due to risks from U.S. tariffs, geopolitical tensions and weaker domestic consumption. GDP growth is forecast at 2.3% in 2025 and 1.7% in 2026. Headline inflation is expected to remain low at 0.5% and 0.8% in 2025 and 2026, mainly linked to supply-side factors. Credit growth remains weak, with declining demand and cautious lending, especially to SMEs and low-income households. SET +0.772% to 1108.5, USDTHB -0.178% to 32.607, 10y TGN -0.6bp to 1.683%.

China is to auction ¥300bn of 1y MLFs, against ¥182bn maturing this month. This marks a fourth month of net injections, at ¥118bn, although at a slower pace than the ¥375bn recorded in May. China has also issued guidelines on financial support to boost consumer spending. The guidelines define 19 sets of measures, includes initiatives such as launching a central bank lending program worth ¥500bn ($69.7bn) aimed at supporting services consumption and elderly care, supporting high-quality enterprises in the consumption industry chain to finance through IPOs, and facilitating eligible companies in the cultural, tourism and education sectors to issue bonds. CSI 300 +1.435% to 3960.07, USDCNY -0.006% to 7.1712, 10y CGB +0.2bp to 1.651%.

South Korea’s push for developed-market status faced a setback after MSCI Inc. maintained its classification as an emerging market, citing limited foreign exchange reforms and restricted availability of investment instruments. MSCI said in a statement it is “continuing to monitor the implementation and market adoption of measures to enhance the accessibility of the Korean equity market.” KOSPI +0.149% to 3108.25, USDKRW +0.302% to 1363.35, 10y KTB -4.7bp to 2.82%.

The minutes from the Riksbank’s June meeting reveal that Governor Erik Thedéen sees reduced risks of persistently high inflation than in May, with recent data supporting the view that earlier price pressures were temporary. While underlying inflation remains above target, it is expected to fall over the coming year. Thedéen warned that the recovery remains fragile due to uncertainty from global trade conflicts and escalating tensions in the Middle East, which continue to weigh on demand. He noted that most firms report limited exposure to tariffs so far, and a stronger krona is helping to moderate import costs. The outlook remains uncertain, and incoming data will be key. OMX +0.172% to 2456.665, EURSEK -0.082% to 11.0539, 10y Swedish GB -3.5bp to 2.264%.

What We're Watching

CNB decision – Czechia’s central bank is expected to hold its two-week repo rate at 3.50% on June 25, following a 25bp cut in May.

U.S. Treasury sells $28bn in 2y FRNs and $70bn in 5y notes.

U.S. May new home sales expected to drop to 693k, down 6.7% m/m from 743k in April.

Fed Chair Jerome Powell testifies to the Senate Banking Committee.

What iFlow is Showing

Mood: iFlow Mood shifted deeper into risk-off territory with the flattening-out in equity demand, while core sovereign bond buying momentum persisted.

FX: NOK, PHP and TWD posted the most significant inflows, against selling in IDR and CLP. Overall, the EMEA and G10 regions were bought, while APAC region currencies were most sold.

FI: Notable flows included buying in Mexico, South Africa and Japan sovereign bonds, against selling for Israel, Poland and Thailand. U.S. Treasurys and Eurozone government bonds saw moderate demand.

Equities: Broad equity selling pressure globally except for inflows in Sweden, Colombia, Israel, India and the Philippines. South Korea, Malaysia, Mexico and the U.S. were most sold. For global equities, the communication services, consumer discretionary and materials sectors were most sold, against strong demand in the utilities sector. 

Quotes of the Day

“We are what we repeatedly do. Excellence, then, is not an act, but a habit.” — Aristotle

“Run when you can, walk if you have to, crawl if you must, just never give up.”— Dean 

Economic Details

Poland’s registered unemployment rate stood at 5.0% in May 2025, unchanged year-on-year but down 0.2pp from April. The number of registered unemployed fell 2.5% m/m to 782,800 but rose 0.8% y/y. Employment in the enterprise sector dropped 0.8% y/y, with steepest declines in mining (–2.9%), wholesale trade (–4.6%) and electrical equipment manufacturing (–6.3%). Job offers fell 24.3% y/y, driven by a 26.8% drop in private sector listings. Group layoff notices in May affected 2,200 people, while 75,000 workers were earmarked for future reductions. The share of long-term unemployed fell slightly, while job exits due to hiring rose 4.9% y/y. WIG -0.161% to 101223.8, EURPLN -0.045% to 4.2512, 10y PGB -2.8bp to 5.472%

Japan’s Composite Index (CI) for April 2025 shows signs of stabilisation. The revised coincident index rose slightly to 116.0, up 0.2 points from March, with the government maintaining its assessment that the economy is “bottoming out”. The leading index was revised up to 104.2, but saw a sharp monthly drop of 3.4 points, reflecting weaker consumer sentiment, housing starts, and stock prices. The lagging index stood at 112.5, up 1.5 points, with broad-based gains in household spending, tax revenue, and wages. Three- and seven-month averages also softened, especially for the leading index. Revisions reflected updates to machinery orders, employment data, and tertiary activity indicators. Nikkei +0.391% to 38942.07, USDJPY +0.345% to 145.44, 10y JGB -2.6bp to 1.397%

In May 2025, Japan’s machine tool orders rose 3.4% year-on-year but declined 1.2% month-on-month. Domestic orders fell 5.2% y/y and 4.0% m/m, while foreign orders increased 6.7% y/y and dipped 0.1% m/m. Total order value was ¥128.7 billion, comprising ¥33.0 billion in domestic demand and ¥95.7 billion in foreign demand. Cumulative orders for January–May rose 6.3% y/y to ¥644.4 billion, with domestic orders at ¥182.4 billion (–0.6% y/y) and foreign orders at ¥461.9 billion (+9.3% y/y).

Japan May PPI came better than expected at 3.3% y/y from upwardly revised 3.4% y/y. It is primarily driven by gains in other services +4.6% y/y. Information & communications +2.4% y/y, Finance & insurance +2%, Real estate services +2.7% y/y, Advertising +2.5% y/y, transportation & postal activities +3% y/y and leading & rental +1.7% y/y. That said, May PPI declined by -0.1%, first negative m/m since January 2025.

New Zealand May Exports eases to 9.7% y/y (Apr: 22.3%) while imports declined to -7.2% y/y, the lowest since June 2024 (-13.4% y/y). On the month, May posted fourth monthly surplus of NZD 1.2bn. Milk powder, butter and cheese exports at NZD 2204mln +18% y/y vs total exports of NZD 7680mln in May. Exports to US and Japan are down -2.2% y/y and -14.3% y/y while exports to China at 13.4% y/y, Australia +9.9% y/y, Europe +34% y/y. NZX 50 -0.052% to 12460.96, NZDUSD +0.217% to 0.6019, 10y NZGB -4.5bp to 4.509%

Australia May CPI dropped faster than expected at 2.1% y/y from 2.4% y/y while trimmed mean at 2.4%, the lowest since November 2021, vs 2.8% in April. The largest contributor to the annual movement was Food and non-alcoholic beverages (+2.9% y/y). This was followed by Housing (+2.0%) and Alcohol and tobacco (+5.9%). Recreation and culture CPI dropped the most from 3.6% y/y to 1.4%, which holiday travel & accommodation fell from 5.3% y/y to 0.6%y/y in May. ASX +0.331% to 4778.93, AUDUSD +0.062% to 0.6493, 10y ACGB -3.5bp to 4.119%