Key Highlights

• Further de-escalation in trade tensions as US Commerce Department lifts export license requirements for chip design software sales in China.

• House Republicans set for full vote on Trump’s tax and spending package after all-night efforts to win over holdouts ahead of July 4 deadline.

• U.K. government bond yields reverse some of yesterday’s gains as the Prime Minister expresses support for Chancellor Reeves.

Chart of the Day

EXHIBIT #1: Q2 SAW A LIMITED FRESH VOLUME SURGE DESPITE SIGNIFICANT EVENT RISK

^{Source: BNY}

Given the tumult throughout Q2, from the immediate volatility that followed “Liberation Day” to significant global geopolitical escalation in June, it may come as a surprise that overall volumes did not generate a structural break in the downward trend. Compared with normal early-quarter volumes, the April to early May period did see above-average activity levels, and the range was consistently in the 1.3-1.5 volume score zone. This period “took away” or “pre-empted” some of the hedging that would otherwise have taken place during the usual June IMM/Fed period, which tends to produce concentrated flow. Furthermore, there were no signs of any incremental interest during the geopolitical stress in the first half of June. We note that even as events were taking place, markets were generally calm, viewing risk exposures mostly in a regional context. For example, our fixed income flows showed very poor performance in the region, which may have generated cross-border liquidation, but there was never enough activity to materially shift flow scores for the broader dollar story. Based on the quarterly IMM peaks, Q2 2025 was the weakest quarter since Q3 2023, though the monthly average score still held at 1.5. That indicates improved performance compared with last year, but not strong enough for a new trend.

What's Changed?

Risk sentiment is modestly positive. Overnight, investors embraced the de-escalation of trade tensions between the U.S. and China. Added to this were rising expectations of higher U.S. growth, with President Trump’s tax and spending bill likely to pass through Congress. Meanwhile, global economic data showed uneven growth, with Japan services higher, but China lower, and with India higher but Germany lower. Inflation was up in Switzerland but still close to zero, while Türkiye saw inflation moderate but remain above 35% y/y. The U.S. markets face an early close preceded by a heavy economic data release, with non-farm payrolls the key headline. ADP’s surprise fall yesterday pushes the “whisper number” for today’s June jobs release to just below 100,000. What seems most important to gaming the FOMC response are wage costs (3.5-4% y/y are the boundaries) and the overall unemployment rate, expected to rise by a modest 0.1 percentage points to 4.3%. In order for the holiday weekend’s worries to change from a soft-landing narrative, NFP would need to be negative, wages weak and unemployment over 4.4%. The other data – from service ISM to the May trade deficit – matter but likely won’t shift the wait-and-see thinking for the tax, tariff and Q2 earnings numbers that will drive next week’s new agenda. The unclear policy and uneven economic data leave little room for positioning errors without significant volatility. For many, the surprise of H1 2025 lay in the stoic calm of market reactions to geopolitical and policy surprises; H2 2025 may bring a delayed but substantial catharsis from uncertainty and fragmentation. Measuring the risks today pivots on the two key drivers from yesterday, i.e., the U.S. dollar and U.K. gilts: as U.K. rates fall, will the dollar follow? There is a limit to breaking correlations, and today may test that unevenness.  

What You Need to Know

In June 2025, the HCOB Eurozone Composite PMI Output Index rose to 50.6 from 50.2 in May, marking a three-month high. This reflected marginal overall growth across manufacturing and services, with output up for the sixth consecutive month and employment rising for the fourth. The Services Business Activity Index climbed to 50.5 from 49.7, also reaching a three-month peak. New orders fell for the thirteenth month in a row, but at the slowest pace over that spell, while business confidence hit its highest level since July 2024. Input price inflation remained at a six-month low, and output charges rose slightly faster than in May. Euro Stoxx 50 +0.09% to 5323.51, EURUSD -0.009% to 1.1798, BBG AGG Euro Government High Grade EUR -283.5bp to 0%.

In June 2025, the HCOB Germany Services PMI Business Activity Index rose to 49.7 from May’s 47.1, marking the weakest contraction in three months. New business fell for a tenth consecutive month but at its joint-slowest pace, while backlogs of work contracted for the fourteenth month, although the pace of depletion eased for the third time in four months. Employment grew modestly for a sixth successive month, and business confidence improved on prospects of government stimulus and lower interest rates. Inflationary pressures continued to abate: input cost inflation was the slowest since March, and output price increases eased for a fourth straight month to their lowest since October 2024. The Composite PMI Output Index also climbed to 50.4 (May: 48.5), a three-month high. DAX +0.269% to 23853.99, EURUSD -0.009% to 1.1798, 10y Bund -4.1bp to 2.623%.

In June 2025, the S&P Global Japan Services PMI Business Activity Index rose from 51.0 to 51.7, marking the third straight monthly increase at a modest pace. Business activity and new orders grew slightly, led by transport & storage, while new export business expanded at its softest pace in 2025 to date. Firms reported another mild build-up of backlogged work. Employment strengthened further, with payrolls rising at the fastest since January. On prices, input cost inflation, though still sharp, dipped to a six-month low, triggering the steepest rise in output charges in 14 months. Nikkei +0.059% to 39785.9, USDJPY +0.119% to 143.83, 10y JGB +0.9bp to 1.442%.

In June 2025, Caixin China General Services PMI’s Business Activity Index eased to 50.6 from 51.1 in May. While this was the slowest expansion since September, it marked the 30th straight month above the 50 no-change threshold. New business growth moderated, while new export orders fell for a second month, at the fastest pace since December 2022. Employment declined marginally for the third time in four months, contributing to the fastest accumulation of backlogs in a year. Input cost inflation slowed to a three-month low, and companies cut output charges for the fifth consecutive month at the steepest rate since April 2022. Overall sentiment remained positive but below its historical average. CSI 300 +0.618% to 3968.07, USDCNY -0.03% to 7.161, 10y CGB 0bp to 1.643%.

The U.S. has lifted export controls on advanced chip-design software to China, marking a significant easing of bilateral trade tensions. The decision follows high-level negotiations, including talks in London and a summit call between the two presidents, and implements an agreement under which China will streamline its review of export applications while the U.S. rescinds a suite of existing technology restrictions. The move restores Chinese access to critical semiconductor tools and underscores a broader willingness on both sides to balance strategic concerns with economic cooperation, even as each seeks to strengthen domestic capabilities in key technology sectors. However, China has also expressed strong reservations over the recent U.S.-Vietnam trade deal, which contains provisions to reduce transshipments from China.

The June 2025 Bank of England Decision Makers’ Panel survey (6-20 June; 2,129 responses) showed realized own-price growth steady at an annualized 3.5%. Firms expect own-price inflation of 3.6% over the next year (-0.1 percentage points), while one-year CPI inflation expectations fell to 3.1% (-0.1 percentage points) and three-year expectations were unchanged at 2.8%. Annual wage growth was 4.6% (-0.1 percentage point), with year-ahead wage growth forecast at 3.6% (-0.1 percentage point) and expected to decline by 1 percentage point over 12 months. Regarding recent U.S. trade policy changes, over two-thirds of firms anticipate no material impact; however, 29% expect lower sales, 24% lower capex, 19% lower prices and 12% higher prices. U.S. trade policy ranked as a top three uncertainty for 14% of firms, while 56% cited high overall uncertainty. FTSE 100 +0.457% to 8814.75, GBPUSD +0.228% to 1.3667, 10y gilt -9.1bp to 4.521%.

What We're Watching

U.S. May trade deficit expected to rise to $71bn after $61.6bn – there will be a keen focus on exports and China imports.

U.S. June non-farm payrolls expected to come in at 110,000 from 139,000, with unemployment expected to rise to 4.3% from 4.2% and with hourly earnings up 0.3% m/m, from 0.4% m/m.

U.S. weekly jobless claims expected up 241k after 236k, with continuing claims down 12k to 1.962mn.

U.S. June final S&P services PMI expected to come in at 53.1, unchanged from flash and down from 53.7 in May.

U.S. June services ISM forecast at 49.9 from 50.7 – the focus will be on prices paid, expected at 68.6 from 68.7.

U.S. May factory orders expected up 8.1% from -3.7%, with final durable goods expected to be unchanged at 16.4%, and capital goods ex defense and air up 0.5%. 

What iFlow is Showing

Mood: Sentiment continues to shift toward neutral, but progress is stalling as equity gains falter.

FI: Carry demand is clear, with Mexico, South Africa, India and Indonesia in the top five best-bought sovereign bond markets.

FX: EUR continues to make gains at the start of the quarter, led by increased hedging of overseas assets. CLP and COP performance is supporting LatAm carry.

Equities: Export-based economies are notably bought, led by Singapore, Poland, Switzerland and Japan.

Quotes of the Day

“Life is a journey that must be traveled no matter how bad the roads and accommodations.” – Oliver Goldsmith

“The world is full of holes and uneven seams, wrinkled places that you can’t make smooth, no matter how hard you try.” – Paula Stokes

Economic Details

In June 2025, the S&P Global UK Services PMI Business Activity Index rose to a ten-month high of 52.8, up from 50.9 in May. New business increased for the first time in three months, driven by improved domestic spending, while export sales contracted. Employment declined for the ninth consecutive month amid elevated payroll costs. Input cost inflation eased to a six-month low, contributing to the slowest rise in output charges since February 2021. Backlogs of work fell for the 13th straight month, reflecting ample capacity. Overall business sentiment remained positive but was tempered by concerns over subdued U.K. economic conditions, U.S. tariffs and geopolitical tensions. The composite PMI also climbed to 52.0, indicating moderate expansion. FTSE 100 +0.457% to 8814.75, GBPUSD +0.228% to 1.3667, 10y gilt -9.1bp to 4.521%.

The Bank of England’s Q2 2025 Bank Liabilities Survey (published July 3) reports that in the three months to end-May total funding volumes increased strongly (net balance +40.4%). This growth was driven by retail deposits (+36.4%) and “other” wholesale funding (+50.2%), and volumes are expected to rise further in Q3. Funding spreads widened in Q2 but are forecast flat in Q3. Household deposit supply climbed, while inflows from private non-financial corporations were flat and are expected to decline. Demand for wholesale debt from both U.K. and non-U.K. investors increased. Total capital levels rose (+29.4%) but are projected to fall, while capital costs were unchanged. The internal transfer price for new loans decreased and is expected to hold steady in Q3.

Switzerland’s consumer price index rose by 0.2% in June 2025 to 107.8 (Dec 2020 = 100), marking a 0.1% y/y increase. Core inflation (excluding fresh seasonal products, energy and fuels) reached 106.1 (+0.1% m/m; +0.6% y/y). Domestic goods prices climbed 0.2% m/m (+0.7% y/y), while import goods held flat m/m but fell 1.9% y/y. The Harmonized Index of Consumer Prices stood at 107.66 (2015 = 100), up 0.2% both m/m and y/y. Key upward contributors included package tours abroad (+0.102 percentage points), hotel stays (+0.048 percentage points), parahotel services and private transport rentals, and higher vegetable prices, while lower airfares and petrol and stone fruit prices weighed on the index. SMI +0.146% to 12009.75, EURCHF -0.054% to 0.93403, 10y Swiss GB -0.1bp to 0.434%.

In June 2025, the seasonally adjusted HCOB France Services PMI Business Activity Index rose to 49.6, up from 48.9 in May, marking the joint-slowest contraction in service output in ten months. New business declined but at its slowest rate since January, while new export orders returned to marginal growth after 15 months of contraction. Employment fell for a seventh consecutive month, with modest job cuts, and outstanding work decreased for the 14th consecutive month though the pace of depletion eased to its slowest since January. Input cost inflation remained muted, easing slightly, and firms raised output charges marginally for the fourth time in five months. Business confidence jumped to an eight-month high. CAC40 +0.101% to 7746.25, EURUSD -0.009% to 1.1798, 10y OAT -4.7bp to 3.275%.

In June 2025, the HCOB Italy Services PMI Business Activity Index eased to 52.1 from May’s 53.2, yet remained above its long-run trend. New business rose again, driven by domestic demand and new service launches, though export sales fell at the fastest rate in five months. Employment expanded for a fifth consecutive month, at its strongest pace in a year, as firms added staff. Outstanding business volumes edged lower, suggesting efficient capacity use. Operating expenses surged due to higher wage, energy and material costs, rising at the steepest rate in three months. Despite elevated input costs, selling price inflation softened, and business sentiment improved to a four-month high. FTSEMIB -0.348% to 39646.69, EURUSD -0.009% to 1.1798, 10y BTP -5.1bp to 3.463%.

In June 2025, the HCOB Spain Services PMI Business Activity Index climbed to 51.9 from May’s 51.3, extending the expansion streak to 22 months, albeit at a modest pace. New work volumes fell slightly, for the first time since November 2023, as both domestic and export demand softened. Employment growth remained solid but was the slowest since late 2023. Backlogs of work decreased for the second month running, indicating ample capacity. Operating expenses continued to rise sharply amid higher supplier and labor-related costs, and firms passed these on by raising output charges at the fastest rate in a year. The Composite PMI® Output Index also strengthened to 52.1, with private sector output rising despite weaker new orders. IBEX 35 +0.171% to 14001, EURUSD -0.009% to 1.1798, 10y Bono -4.6bp to 3.23%.

In June 2025, Türkiye’s consumer price index (CPI, 2003=100) rose by 1.37% m/m and 35.05% y/y. On a cumulative basis since December 2024, inflation reached 16.67%, while the 12-month moving average stood at 43.23%. Food and non-alcoholic beverage prices increased by 30.20% annually (contributing 7.60 percentage points), transport by 27.72% (4.51 percentage points) and housing by 65.54% (9.22 percentage points). Monthly, food prices fell 0.27% (-0.07 percentage points), while transport rose 2.38% (+0.36 percentage points) and housing 2.62% (+0.43 percentage points). Core CPI excluding unprocessed food, energy, alcohol, tobacco and gold rose 1.76% m/m and 34.62% y/y. By contrast, June 2024 saw increases of 1.64% m/m and 71.60% y/y, and June 2023 recorded 3.92% m/m and 38.21% y/y, indicating some moderation from last year’s peak. BI 100 +0.4% to 10229.76, USDTRY +0.295% to 39.8983, 10y TGB +6bp to 30.53%.

In June 2025, South Africa’s private sector PMI fell to 50.1 from 50.8 in May, remaining marginally above the 50-point expansion threshold. Output contracted for the first time in three months and new orders declined, driven by weakening export demand. Business confidence dropped to its lowest level since July 2021, despite firms expanding headcounts at the fastest pace since May 2024 and rebuilding input inventories for a second consecutive month. Supplier delivery conditions improved as port disruptions eased, while input cost inflation picked up – led by higher purchase prices and wages. Selling price increases stayed modest as companies balanced rising costs with competitive and rand-strength pressures. JSE TOP40 +0.585% to 89479.11, USDZAR -0.337% to 17.5064, 10y SAGB -4.3bp to 9.798%.

In June 2025, the S&P Global Australia Services PMI Business Activity Index climbed to 51.8, up from 50.6 in May and marking the fastest expansion since May 2024. The rise was supported by stronger domestic new business, despite exports falling at the steepest pace in over three years. Firms hired additional staff, sustaining employment growth and helping to reduce outstanding work for a second month. Input cost inflation eased to its lowest year-to-date level, leading to only muted increases in output charges, while optimism among service providers reached its highest level since May 2022. ASX +0.488% to 4797.68, AUDUSD -0.061% to 0.658, 10y ACGB +3.1bp to 4.182%.

In May 2025, Australia’s seasonally adjusted goods surplus narrowed by $2,621mn to $2,238mn. Exports fell by $1,168mn (-2.7%) to $42,402mn, driven by general merchandise (-$1,020mn), rural goods (-3.5%, -$226mn) and non-rural goods (-2.4%, -$794mn). Non-monetary gold exports declined by $148mn (-3.4%). Imports rose by $1,453mn (+3.8%) to $40,164mn, led by capital goods (+8.6%, +$806mn), consumption goods (+3.0%, +$373mn) and intermediate and other merchandise goods (+1.8%, +$271mn). Within consumption, non-industrial transport equipment jumped 7.9% (+$263mn) and machinery imports grew 5.7% (+$70mn). These shifts reflect strengthening domestic demand and investment. The data underscores ongoing volatility in trade flows.

In June 2025, the S&P Global Singapore PMI dipped to 51.0 from 51.5 in May, marking a fifth consecutive month of improvement, but at the slowest pace since February. Firms reported business activity matching long-run trends, aided by accelerating new orders. Companies reduced purchasing for the first time in five months, depleting inventories and resulting in shorter supplier lead times – the first improvement in almost two years. Staffing levels declined for a seventh straight month, while cost pressures eased to a five-year low, enabling firms to maintain output charges. Sentiment rose, with confidence at a three-month high. STI -0.05% to 4008.77, USDSGD -0.071% to 1.272, 10y SGB +1.4bp to 2.157%.

Indian service sector growth accelerated in June, with the HSBC India Services PMI Business Activity Index rising from 58.8 in May to a ten-month high of 60.4. New business expanded at its fastest pace since August 2024, driven by strong domestic demand and robust export orders. Employment climbed for the 37th consecutive month. The HSBC India Composite PMI Output Index jumped from 59.3 to 61.0, marking a 14-month peak. Input cost inflation eased to a ten-month low, while output charge inflation slowed to its weakest level in three months. Despite these gains, just 18% of service providers remained optimistic about growth over the next year – the lowest since mid-2022. SENSEX +0.253% to 83620.41, USDINR -0.47% to 85.3087, 10y INGB +0.2bp to 6.291%.

South Korea’s parliament has approved amendments to the Commercial Code designed to strengthen minority shareholder protections. Under the new rules, board directors are legally accountable to all shareholders, rather than primarily to major stakeholders such as founding conglomerate families. Additionally, the voting power of the largest shareholders and their affiliates will be capped at 3% when selecting audit committee members. KOSPI +1.34% to 3116.27, USDKRW +0.24% to 1359.5, 10y KTB +5bp to 2.835%.