Key Highlights

• U.S. and China sign a trade understanding including a Chinese commitment to deliver rare earths used in various industries.

• EU leaders discuss new U.S. trade proposal, as White House plans to reach agreements with ten major trading partners ahead of July 9 deadline to reinstate higher tariffs.

• Spain and France report higher inflation in June; markets caught by surprises as services drive prices up.

Chart of the Day

MONTH-END REBALANCING SCORES

^{Source: BNY}

Based on equity returns and FX flow, NOK, ZAR and CAD face the highest month-end rebalancing risks. These markets all performed well in both asset classes, resulting in overexposure. On a cross-border basis, NOK and ZAR are particularly at risk due to the dominance of cross-border interest, but their starting positions in holdings are very different. We continue to see NOK as most at risk, and its equity gap is also by far the largest. If commodity prices begin to wane, equity exposures may also be reduced and hedges can roll off accordingly, but there is no sign of this ahead of month/quarter-end, despite questionable fundamentals for commodity earnings. JPY will also require equity-based hedging, but this is no different to what much of APAC has seen of late, and the rebalancing need is being helped more by FX flow performance through the month. In fixed income, ZAR and NOK are the only currencies with high (net selling) rebalancing scores, while BRL may also face some pressure based on duration performance. ZAR again faces sales from cross-asset inflows, and the fiscal component is particularly strong. In contrast, NOK is more of an FX story, as the surprise Norges cut has not generated sufficiently strong marginal gains in duration. BRL’s FX flows were moderate, but fixed income performed very strongly, contributing to rebalancing needs. Once again it is commodity names that are in focus; barring a miraculous change in global growth fundamentals, we believe rebalancing needs are in line with current terms of trade evolution.

What's Changed?

Risk sentiment is positive, as APAC shares rallied to three-year highs and S&P 500 futures hit new record highs. There are many drivers behind the rally, including the China/U.S. trade agreement announced late yesterday; the ongoing Iran/Israel ceasefire, which has led energy prices down sharply on the week; the push to remove the section 899 “revenge tax” from the Senate tax bill; the ongoing pressure on Fed Chair Jerome Powell to ease rates, mixed with President Trump’s plans to replace him; and better earnings reports, as exemplified by Nike overnight. The balance of fears about growth globally is easing, and hopes of a better second half of 2025 have the upper hand. As we near the end of June, some of the factors driving uncertainty are proving less powerful in disrupting markets and the economy, countering the ongoing uncertainty over policy into July. The overnight headlines are still about growth and inflation, which look critical in keeping the present mood intact. That raises the question of whether the stronger EUR will be enough to beat back higher inflation, or whether the ECB will be stuck with the job. The second question is whether the U.K. government can continue to spend without driving up rates or inflation. For the U.S. markets today, this will show up in the core PCE price index, along with the spread of U.S. personal income and spending. The consumer mood for June as surveyed by the University of Michigan will also matter should it bounce; however, there will be a greater focus on inflation expectations ahead. The biggest underlying factor supporting equities today has been in the drop in “stagflation” fears. Most of that has been led by the reduction in recession fears linked to global trade or geopolitics. What hasn’t been fully unwound is inflation, and that puts U.S. bonds back in the spotlight, with the Senate tax bill, U.S. debt limit and ongoing Fedspeakers central to keeping record-breaking rallies intact. 

What You Need to Know

U.K. Prime Minister Keir Starmer has made major concessions on his welfare reform bill to avert a Commons defeat, following threats from over 120 Labour MPs. Key changes include limiting cuts to new claimants and initiating a further consultation on disability benefits. The compromise, estimated to cost £8bn over three years, marks a reversal after weeks of insisting there would be no changes. Ministers also agreed to boost employment support funding to £1bn this year and expand consultation with disability groups. The reforms will no longer affect existing disability benefit recipients, and rebels are pushing to unfreeze elements of universal credit linked to long-term illness. FTSE 100 +0.438% to 8773.88, GBPUSD +0.102% to 1.3742, 10y gilt +0.8bp to 4.48%.

In June 2025, the economic sentiment indicator (ESI) fell to 94.0 in both the EU and euro area (down 1.0 and 0.8 points, respectively); these falls were led by reduced confidence in industry and retail. Services and consumer confidence remained broadly stable, while construction confidence improved. Among major EU economies, sentiment dropped most in France (-3.4), followed by Spain (-1.4) and Germany (-0.8); Poland saw a rise (+1.0). The employment expectations indicator (EEI) was unchanged in the EU at 97.5. Selling price expectations decreased in most sectors except retail, and consumer price expectations eased. The economic uncertainty indicator dropped by 2.0 points to 16.4. Euro Stoxx 50 +1.001% to 5296.5, EURUSD +0.103% to 1.1713, BBG AGG Euro Government High Grade EUR -1.6bp to 2.781%.

Preliminary estimates suggest France’s consumer price index (CPI) is expected to rise by 0.9% y/y in June 2025, up from 0.7% in May, driven by faster increases in service prices (notably for accommodation, health and transport) and a smaller decline in energy costs. Food prices are also projected to rise slightly. Manufactured goods prices are projected to fall at the same pace as in May, while tobacco inflation is expected to ease. Month-on-month, CPI is forecast to increase by 0.3% after a 0.1% decline in May, on service and energy price gains. The harmonized index of consumer prices (HICP) should rise 0.8% y/y and 0.4% m/m. CAC40 +1.234% to 7650.59, EURUSD +0.103% to 1.1713, 10y OAT +0.3bp to 3.251%.

Spain’s annual inflation rose to 2.2% in June 2025, up from 2.0% in May, with a m/m increase in CPI of 0.6%. Underlying inflation also stood at 2.2% y/y. Meanwhile, retail activity remained strong: the general retail trade index rose 4.8% y/y in real terms, and retail sales increased 0.2% m/m. Employment in the retail sector grew by 1.4% compared with June 2024. IBEX 35 +0.662% to 13828, EURUSD +0.103% to 1.1713, 10y Bono +0.6bp to 3.218%.

S&P Global Ratings lowered its long-term foreign currency sovereign credit rating for Colombia to BB from BB+ and the long-term local currency rating from BBB- to BB+. This was motivated by Colombia’s strained public finances, along with heightened security challenges, which led the agency to a weaker assessment of institutional effectiveness. The outlook on the long-term ratings is negative, reflecting the risk that steady fiscal deterioration in Colombia could persist over several years alongside the country's heightened security challenges, further worsening the sovereign’s financial profile. Concerns about the long-term trajectory of fiscal policy could hurt investor sentiment and contribute to poor economic performance. COLCAP +0.341% to 1678.59, USDCOP -0.53% to 4040.25, 10y CGB -2.5bp to 12.245%.

China’s industrial profits fell 1.1% y/y to ¥27.20tn in the first five months of 2025. State-controlled enterprises saw profits drop 7.4%, while private firms recorded 3.4% growth. Manufacturing profits rose 5.4%, offsetting a 29.0% decline in mining. Notable profit gains were seen in food processing (+38.2%), electronics (+11.9%) and electrical equipment (+11.6%), while sectors like coal (-50.6%), autos (-11.9%) and petroleum extraction (-10.4%) posted sharp declines. Revenue rose 2.7% to ¥54.76tn, with a profit margin of 4.97%. As of end-May, total assets had grown 5.1% to ¥182.36tn, while receivables were up 9.0%. May profits alone dropped 9.1% y/y, indicating continued pressure on industrial earnings. CSI 300 -0.615% to 3921.76, USDCNY +0.021% to 7.1691, 10y CGB +0.1bp to 1.648%.

What We're Watching

Colombia BdlR – Colombia’s central bank is expected to hold its policy rate at 9.25% on June 27, following a 25bp cut in May that was supported unanimously by the board.

U.S. May personal income and real personal spending is seen at 0.3% m/m (April: 0.8%) and 0% m/m (April 0.1%).

U.S. May core PCE is forecast to tick higher at 0.1% m/m, 2.6% y/y vs. 2.5% y/y in April.

U.S. June final University of Michigan Consumer Sentiment is expected to come in at 60.3 vs. a preliminary reading at 60.5.

Canada April GDP is forecast to stay flat 0% on the month and slow to 1.3% y/y (March 1.7%).

Fedspeakers: The Fed releases the results of its annual bank stress tests; Fed Governor Lisa Cook and Cleveland Fed President Beth Hammack are participating in a Fed Listens event.

What iFlow is Showing

Mood: Risk sentiment has deteriorated, with iFlow Mood drifting further into risk-off territory. Significantly, net flows in equities turned negative for the first time since the beginning of May 2025, while demand for core sovereign bond remains solid.

FX: G10 currencies were sold, against inflows in the rest of the region. PHP, TWD, PLN and PEN were most bought, while IDR, SGD and EUR were most sold. Elsewhere, USD and GBP were lightly sold, against continued JPY inflows.

FI: Good sovereign bond demand across G10, mixed flows in LatAm and selling bias in EMEA and APAC. Notable flows were selling in Israel and Indonesia against demand for Mexico and Eurozone government bonds.

Equities: Equities were mostly sold except for light buying in China. Mexico, Switzerland, Eurozone and Malaysia equities were most sold. Within global equities, the utilities and real estate sectors were bought, against most selling in materials, consumer discretionary and consumer staples.

Quotes of the Day

“Adversity causes some men to break; others to break records.” – William Arthur Ward

“Good players win races, great ones break records, legends change the game” – Anonymous

Economic Details

Italy’s economic sentiment index edged down to 93.9 in June 2025 from 93.1 in May, with modest gains in manufacturing (87.3) and construction (103.4), while retail confidence slipped to 101.9 and services rose to 95.6. Consumer confidence improved to 96.1 from 96.5, led by a rise in economic sentiment (99.6) and current conditions (97.9), while personal and future components remained stable. Overall, sentiment indicators suggest moderate improvements in key sectors, though retail and consumer future expectations showed little momentum. Italy’s industrial sales rose by 1.5% m/m, with domestic sales up 1.9% and foreign sales up 0.7%. Service sales increased by 0.5% over the month. On a year-on-year basis, industrial sales grew by 1.1%, with domestic sales up 1.3% and foreign sales up 0.4%. Service sales rose 2.1% y/y. FTSEMIB +0.307% to 39471.99, EURUSD +0.103% to 1.1713, 10y BTP +1.1bp to 3.464%.

Türkiye’s economic confidence index rose slightly by 0.1% in June 2025 to 96.71, up from 96.65 in May. The increase was supported by gains in the consumer confidence index (+0.3% to 85.1) and services confidence index (+0.4% to 110.9). However, the real sector (manufacturing) index declined by 0.2% to 98.4, while construction confidence dropped 1.7% to 86.9. Retail trade confidence saw the largest monthly fall, down 2.5% to 108.5. Despite the overall uptick in economic confidence, most sectoral indices weakened, with only consumers and services showing improvement over the previous month. BI 100 -0.341% to 9269.3, USDTRY +0.275% to 39.8846, 10y TGB +10bp to 32.48%.

Czech GDP grew by 0.7% q/q and 2.4% y/y in Q1 2025, following a refinement of the estimate. Among non-financial corporations, the investment rate fell to 26.2% (down 1.7 percentage points q/q and 0.8 percentage points y/y), while the profit rate stagnated at 43.4%, 1.2 percentage points lower than a year earlier. Labor costs rose 7.3% y/y. For households, real income and consumption both increased by 0.3% q/q, with income from employment rising 2.8% y/y to CZK 50,124. Real consumption was up 2.7% y/y. The saving rate declined to 18.3% (down 1.5 percentage points q/q), and the household investment rate was unchanged at 10.2% q/q but 0.6 percentage points lower y/y. Prague SE +0.001% to 2130, EURCZK -0.122% to 24.73, 10y CZGB +0.5bp to 4.263%.

Hungary’s unemployment rate stood at 4.3% in May 2025, with 210,000 people unemployed. During March-May, the jobless total averaged 212,000: 117,000 men (4.5%) and 95,000 women (4.1%). The average job search duration was 12.8 months; 42.1% of the unemployed had been seeking work for less than three months, while 33.2% had been out of work for at least a year. Employment shrank by 38,000 from a year earlier to 4.673 million, with 18,000 fewer men and 20,000 fewer women in work. Domestic primary labor market employment fell by 44,000 to 4.501 million. The employment rate for 15-64-year-olds held steady at 75.1%, with rates of 78.9% for men and 71.2% for women. Budapest SI +0.035% to 97749.63, EURHUF -0.116% to 399.33, 10y HGB -6bp to 7.03%.

Sweden’s producer price index (PPI) fell 0.5% m/m in May 2025, with declines across the domestic (-0.4%), export (-0.5%) and import (-1.1%) markets. Year-on-year, the PPI slid -2.8% in May, from -2.4% in April. Excluding energy-related products, the annual decline deepened from -0.6% to -2.9%. Falling prices for refined petroleum products, basic chemicals and motor vehicles drove the overall decrease. Import prices were particularly affected by lower crude oil and metals costs. The price index for domestic supply fell 3.4% y/y, with energy prices down 10.0%. Consumer goods price inflation eased sharply from 2.6% to 0.5%. Electricity trade services provided some upward pressure domestically, but were outweighed by broader industrial price declines. OMX +1.35% to 2483.818, EURSEK -0.336% to 11.0761, 10y Swedish GB +0.3bp to 2.289%.

Norway’s retail trade remained flat in May 2025 compared with April, while it rose 1.5% q/q and 0.1% y/y. Food and beverage sales grew 1.0% m/m but declined 3.5% y/y. ICT equipment saw the largest annual increase at 22.8%, despite a sharp 6.2% monthly drop. Sales of other household equipment fell 3.0% from April but were up 1.5% y/y. Automotive fuel sales dropped 1.7% m/m and 6.2% y/y. Cultural and recreational goods dipped slightly by 0.2% m/m but rose 3.5% y/y. Online and non-store retail fell 2.4% on the month but saw a strong 7.0% annual increase. OSE +0.746% to 1609.49, EURNOK -0.251% to 11.7616, 10y NGB +0.9bp to 3.874%.

As of June 2025, Norway had 60,614 fully unemployed individuals, equivalent to 2.0% of the labor force. This was up 6% from a year earlier. The jobless rate was 1.8% for women and 2.2% for men. Youth unemployment (under 25) was below the national average, while the 30-49 bracket had the highest absolute number of unemployed people. Regionally, Oslo (2.8%) and Akershus (2.4%) had the highest unemployment rates among large counties. By occupation, unemployment was highest in construction (2.9%), transport (2.8%) and service jobs (2.6%). Long-term unemployment rose, with 20% more individuals jobless for over two years compared with June 2024.

The Philippines’ total external trade in goods rose by 2.7% y/y to $17.87bn in May 2025, with imports making up 59.2% of the total. The trade deficit narrowed by 30.4% to $3.29bn. Exports increased by 15.1% to $7.29bn, led by electronic products ($3.85bn), which comprised 52.8% of the total. Manufactured goods accounted for 79.0% of exports, with the U.S. remaining the top export destination ($1.12bn). Imports fell 4.4% to $10.58bn, driven by falls for mineral fuels and metal scrap. Electronic products were also the top import ($2.35bn), with China the largest supplier ($3.15bn). PSEi +1.226% to 6408.27, USDPHP -0.076% to 56.561, 10y PHGB -2.1bp to 6.267%.

New Zealand June ANZ consumer confidence up 6 points to 98.8 in June, the highest since December 2024 (100.2). ANZ consumer confidence readings have been volatile in Q2 2025. The proportion of households thinking this is a good time to buy a major household item (the best retail indicator) climbed 3 points, but at -7 the level is still very soft. Inflation expectations climbed 0.3 points to 4.9%, the highest level since April 2023. NZX 50 +0.83% to 12583.59, NZDUSD +0.265% to 0.6073, 10y NZGB +2.5bp to 4.514%.

Japan Tokyo headline and core-ex fresh food and energy CPI measures both fell more than expected to 3.1%, from 3.4% and 3.3%, respectively. This lower inflation was mainly driven by the fall in the fuel, light and water component, which saw its first negative reading since April 2024, at -0.7% y/y from 7.1% y/y. Food inflation remains elevated at 6.4% (May: 5.8% y/y), with Tokyo rice inflation at 90.6% y/y. Headline CPI dropped -0.2% m/m, while core CPI ex fresh food and energy posted its first m/m decline since April 2024. Elsewhere, Japan’s May jobless rate held steady at 2.5%, with the new-jobs-to-applicants ratio dropping to 2.14%, the lowest figure since November 2021. Japan May retail sales eased to 2.2% y/y, from an upwardly revised 3.5% in April; the wholesale trade plunged into negative territory at -1% from +1.7% in April. Nikkei +1.43% to 40150.79, USDJPY -0.056% to 144.34, 10y JGB +1.5bp to 1.438%.