Key Highlights

• President Trump says “150 countries want to make a deal with the U.S.,” as he wraps up his Middle East tour with further agreements in Abu Dhabi

• Japan holds out for a better trade deal with the U.S., with autos key as PM Ishiba fears political backlash

• Atlanta Fed President Bostic only sees “one rate cut this year,” also says a recession isn’t in his outlook

Chart of the Day

EXHIBIT #1: SHORT UTILIZATION IN U.S. TREASURY SECURITIES, TOTAL AND 5-7 YEAR DURATION

^{Source: BNY}

The surprise price action in U.S. bonds in the past few days shows an underprepared market adding to volatility. The signaling value of short interest in Treasury markets now skews heavily toward term premia rather than inflation. This also means the “recovery” in risk over the last two weeks would focus on term premia being priced out as well, but in the process some inflation premia may have been lost. In our view, US Treasurys’ haven status is not under threat for now, but it does mean markets are underpriced for inflation moves associated with data and potential supply shocks. The 5- to 7-year part of the curve is even below pre-“Liberation Day” levels. During the phases of volatility in UST markets in April, we noted that some buying interest even emerged at the 10-year+ part, which reflects some degree of value arising in Treasury markets as yields increased while the dollar fell, rendering flows of greater interest to international investors. Yet, the current moves are more of a data-driven story and lack of interest in reflecting stagflation risk beyond the 3-year+ part of the curve is a gamble that the U.S. economy will not suffer longer-term effects from recent changes. Should the data prove this view incorrect, duration could move quite aggressively, especially the 5- to 10-year part of the curve, which will have a knock-on impact on U.S. and global risk appetites.

What's Changed?

Risk sentiment positive, with U.S. futures pointing to another strong weekly gain matching Europe while APAC is mixed. Weaker Japan GDP and the ongoing lack of Japan trade deals didn’t help, while China trade talks may pivot on chipmakers being blacklisted. The G7 meeting next week in Canada could become the key focus for trade deal discussions with U.S. Treasury Secretary Bessent, with Trump overnight warning many nations will just get a letter on new tariffs given the lack of time for fuller discussions. Oil is set for a weekly gain even with an eye on Iran nuclear deals, while gold is set for a 3% drop. The Friday price action is about anchoring inflation and the risks of tariff surprises driving all other markets. Note that the USD isn’t higher, with the gains in Asia continuing to be led by IDR and NZD. Rates drive both stories as New Zealand inflation expectations for Q2 may temper further RBNZ easing while BI next week is seen as holding rates high. For EMEA, tame inflation and ECB comments suggest further easing room will help stocks, while bonds will likely rally as well. The U.S. session faces another set of key datapoints with the focus on consumer sentiment and inflation expectations. While Fed Chair Powell’s comments yesterday didn’t move the markets, today’s University of Michigan survey on inflation expectations matters to the Fed’s credibility. Bond yields in the U.S. have skirted the 4.50% breakout risk with weaker data, leaving today important to setting the weekly trend. Unlike other Fridays over the last six weeks, the balance of weekend news surprises and fears shifts from international to domestic headlines, with the tax bill in Congress key.

What You Need to Know

Japan’s GDP contracted by an annualized 0.7% in Q1 2025, marking the first decline in a year and falling short of expectations of a 0.2% drop. On a quarterly basis, GDP fell by 0.2%. The decline was driven by flat private consumption and a drag of 0.8 percentage points on net exports, which in turn was due to a 0.6% decrease in exports, while imports rose 2.9%. In contrast, capital expenditure increased by 1.4%, contributing positively to domestic demand. Overall domestic demand added 0.7 percentage points to growth. The GDP deflator rose by 3.3% y/y, reflecting continued price pressure. Q4 2024 growth was revised up to 2.4% from 2.2%, but the latest data indicate Japan’s recovery momentum has weakened, with external demand now a significant headwind. Nikkei -0.005% to 37753.72, USDJPY +0.248% to 145.31, 10y JGB -1.8bp to 1.463%.

The RBNZ highlighted in a new research note that a 1% appreciation in the NZD Trade Weighted Index (TWI) will reduce ex-oil import prices by 0.7%-1.0% in the long run and by about 0.7% within a quarter. However, pass-through to ex-fuel tradables CPI prices is smaller: only 0.004%-0.01% in the short run and 0.05%-0.3% in the long run. Pass-through is generally stronger when the economy is operating above capacity and inflation volatility is higher. Asymmetries (e.g., differing effects for appreciations vs. depreciations) were not statistically significant. These findings align with those from other inflation-targeting economies, suggesting muted exchange rate effects on consumer prices, especially in stable environments. NZX 50 -0.73% to 12786.79, NZDUSD +0.545% to 0.5909, 10y NZGB -3.5bp to 4.605%.

Singapore April non-oil domestic exports surged from 5.4% y/y to 12.4%. Electronic exports came in strong at 23.5% y/y vs. an upwardly revised 12.2% y/y in March. Exports to Indonesia surged to 112.2% y/y. Exports to China recovered on the month, but were still down -17% y/y, while exports to Malaysia were down -1% y/y, and sharply lower to the U.S. at +1.2% y/y from 6.2% y/y in March. Note that exports to Taiwan and South Korea accelerated on the back of exports of specialized machinery and integrated circuits. Specialized machinery exports were up 74% y/y to Taiwan and 84% y/y to South Korea, while IC export growth came in at 21.6% y/y to Taiwan and 160% y/y to South Korea. STI -0.108% to 3887.74, USDSGD -0.016% to 1.2979, 10y SGB +1.9bp to 2.591%.

What We're Watching

National Bank of Romania decision – on hold at 6.50%, with a focus on financial stability expected ahead of Sunday’s presidential election.

U.S. April housing starts expected +3% m/m to 1.365mn after a drop of -11.4% in March, while building permits expected -1.2% m/m to 1.45mn after 1.467mn – housing sector softness and rates in focus.

U.S. April Import Price Index expected -0.3% m/m with ex-oil +0.1% m/m while Export Prices Index expected -0.4% m/m after 0%.

U.S. May University of Michigan Consumer Sentiment flash expected 53.5 from 52.2 with current conditions 59.9 from 59.8 and outlook 48.6 from 47.3, 1-year inflation expectations seen steady at 6.5% while 5-10Y inflation outlook expected steady at 4.4%

What iFlow is Showing

Mood: iFlow Mood normalizes further and is likely to drift into neutral zone soon. Both equities and sovereign bonds were bought.

FX: Broad outflow pressure, most in SEK, AUD and JPY. Notable demand in EUR. APAC FX mostly sold except light inflows in IDR and MYR.

FI: U.S. Treasurys and Eurozone government bonds were bought against light selling in U.K. gilts as well as Canadian and Japanese government bonds.

Equities: APAC, LatAm were bid against mixed flows in G10 and EMEA region. Switzerland, the Eurozone and Sweden posted the most selling against strong buying in Chile, Poland and Taiwan.

Quotes of the Day

“In order to realize the worth of the anchor, we need to feel the stress of the storm.” – Beth K. Vogt

“Children are the anchors that hold a mother to life.” - Sophocles

Economic Details

In March 2025, the euro area recorded a goods trade surplus of €36.8bn, up from €22.8bn in March 2024. Exports to non-euro area countries rose 13.6% y/y to €279.8bn, while imports increased 8.8% to €243.0bn. The surplus was largely driven by chemicals and related products, which posted a €42.8bn surplus – up €19.6bn from a year earlier. Machinery and vehicles also contributed positively. However, energy products showed a slight deficit increase (€0.8bn), while balances for other goods categories declined. For Q1 2025, the euro area posted a €62.0bn trade surplus, up from €55.0bn in Q1 2024, with exports rising 7.8% and imports 7.4%. Intra-euro area trade increased 1.2% to €658.2bn. EuroStoxx 50 +0.453% to 5436.57, EURUSD +0.126% to 1.1201, BBG AGG Euro Government High Grade EUR -0.1bp to 2.813%.

Final April CPI (NIC) for Italy was confirmed at 0.1% m/m and 1.9% y/y, unchanged from March. Core inflation accelerated to 2.1% from 1.7%, while prices net of energy rose 2.2%. Energy price trends diverged: regulated energy rose 31.7% annually, while unregulated energy fell 3.4%. Food prices rose further, with unprocessed up 4.2% and processed up 2.2%. Transport services prices jumped 4.4% annually. Goods inflation slowed to 1.0%, while services rose 3.0%. The “shopping basket” index rose 2.6%. The harmonized index (HICP) increased 0.4% monthly and 2.0% annually, slightly below the flash estimate. FTSEMIB +0.514% to 40626.77, EURUSD +0.126% to 1.1201, 10y BTP  
-3.5bp to 3.592%.

In Q1 2025, Switzerland’s employed population grew by 0.7% y/y to 5.34 million, with female employment rising 1.0% and male employment 0.5%. Seasonally adjusted, employment increased 0.3% from Q4 2024. Foreign employment rose 2.4%, while domestic employment fell 0.1%. The ILO unemployment rate rose to 4.7% (from 4.3% a year earlier), while youth unemployment climbed to 8.0%. Long-term unemployment rose slightly to 79,000 people, though its share declined to 33%. The underemployment rate increased to 5.2%, with 263,000 part-time workers wanting more hours. SMI +0.895% to 12336.72, EURCHF -0.043% to 0.93537, 10y Swiss GB -1.5bp to 0.335%.

The Q1 French ILO unemployment rate held steady at 7.4%, up 0.1 percentage point from the previous quarter but down 0.1 percentage point y/y. The number of unemployed rose by 64,000 to 2.4mn. Youth unemployment (ages 15-24) was stable at 19.2% but up 1.1 percentage point y/y. For ages 25-49, the rate was 6.7%, and for those 50 and over, it was 4.7%, down 0.3 points from a year earlier. Women’s unemployment rose 0.3 points to match men’s at 7.4%. The new full employment law had a minimal impact. CAC40 +0.515% to 7893.88, EURUSD +0.126% to 1.1201, 10y OAT -3.5bp to 3.26%.

Japan’s industrial production in March 2025 rose 0.2% from the previous month, with gains in the chemical and production machinery industries. Shipments fell by 1.8%, mainly due to declines in the automobile and electrical machinery sectors. Inventories increased 1.2%, led by electric equipment and metals, while inventory ratios were revised downward. Compared to the preliminary report, production, shipments, and inventories were revised up. Year on year, production rose 1.0% and shipments grew 0.3%, while inventories increased 4.4%, indicating stock buildup amid weak shipment trends. Nikkei -0.005% to 37753.72, USDJPY +0.248% to 145.31, 10y JGB -1.8bp to 1.463%.

South Korea April Import Price Index fell -1.9% m/m, the sharpest drop since September 2024 (-2.6% m/m), driven by lower crude oil prices. On a year-on-year basis, the import price index declined by -2.3%. The export price index eased from 6.4% y/y to 0.7% y/y. Lowering import price is likely to exert downside pressure on domestic inflation. Elsewhere, foreign investors sold South Korean stocks for the ninth consecutive month in April. Offshore investors sold a net KRW 13.59tn ($9.71bn) in local stocks and owned KRW 707tn worth of local stocks, or 26.5% of total market capitalization. KOSPI +0.21% to 2626.87, USDKRW +0.19% to 1395.9, 10y KTB -0.2bp to 2.71%.

Malaysia Q1 GDP came at +0.7% q/q, with substantial upward revision of Q4 2024 data to -0.2% from -1.1% q/q. On a year-on-year basis, Q1 GDP slowed further to 4.4% from 4.9% in Q4 2024, the lowest since Q1 2024, when it was 4.2% y/y.  Looking into the breakdown, government spending increased by 4.3% (4.0% in Q4 2024), while private spending and investment flows rose by 5.0% (Q4 2024: 5.3%) and 9.7% (Q4 2024: 11.8%), respectively. In a separate report, BNM projects 2025 headline inflation to remain within a moderate range of 2.0-3.5%, driven by further moderating global costs and a lack of excessive demand. The overall impact of domestic policy measures is expected to be contained. We continue to believe that BNM will maintain the status quo at its next meeting in early July 2025. The risk might be skewed to the downside, but we don’t think BNM has made a decision yet. KLCI -0.229% to 1569.42, USDMYR +0.014% to 4.2822, 10y MGB +0.3bp to 3.604%.

New Zealand Q2 inflation expectation rises. 1-year out inflation expectation rose from 2.15% to 2.41%, while 2-year out inflation expectation climbed from 2.06% to 2.29%. New Zealand 3-month bill futures up 3-5bp from December 2025 contract out. December 2025 implied rates at 3.03%. Elsewhere in the survey, Official Cash Rate (OCR) is surveyed to be 3.20% by the June 2025 quarter-end and decline further to 2.91% by the March 2026 quarter-end. House price inflation expectations decreased across all time horizons. One-year-ahead house price inflation expectations decreased from 3.85% to 2.78%. Two-year-ahead expectations decreased from 4.56% to 3.52%. NZX 50 -0.73% to 12786.79, NZDUSD +0.545% to 0.5909, 10y NZGB -3.5bp to 4.605%.

New Zealand April PMI rose from 53.2 to 53.9. All of the sub-index values were in expansion territory: production (53.8), new orders (51.4), employment (55), finished stocks (53.2) and deliveries (56.2). Elsewhere, New Zealand April non-resident bond holdings eased from 61.9% to 61.6%.