Cash Transfers
Start of the Week previews activities across global financial markets, providing useful charts, links, data and a calendar of key events to help with more informed asset allocation and trading decisions.
Key Highlights
- Downside clarity lifted markets in Q2, with Q3 hopes linked to steady U.S. and world growth
- U.S. jobs, global PMIs, ECB Sintra meeting, more trade deals and ongoing geopolitical tensions will test equities and bonds
- FOMO, demographic wealth transfers and cash being put to work are key to extending the risk rally
What you need to know
The ability of markets to see beyond the current uncertainty hinges on the hopes of growth linked to AI investments, government spending in Europe, stable trade between the U.S. and China, and ongoing wealth transfers from baby boomers to their children. The dynamic tension involved in putting cash to work in a new month will revolve around how much old worries are offset by new hopes. These hopes may come from the clarity provided by economic data, and geopolitical events like the ceasefire in the Middle East and trade deals. There is also some stability stemming from financial conditions, with momentum beating value as we head into the known risks of a July 9 return of reciprocal tariffs along with Q2 earnings reports.
This week’s reversal started with the U.S. bombing of Iranian nuclear sites, which led to a ceasefire in the two-week Iran-Israel conflict and sharply lower global energy prices. The NATO agreement to increase spending to 5% by 2030 and U.S. support added to views that the worst-case scenarios of 2025 have eased, and markets can see more deals than tariff risks as we head toward the July 9 deadline for tariff agreements. The effect on all markets has been to rethink base case models and to put cash to work. The positive risk-on mood into the month- and quarter-end was notable, with the S&P 500 and NASDAQ reaching new record highs and up around 4% on the week, oil fell 12% but remains up 8% on the month, USD was down nearly 2% on the week and is at a three-year low, while U.S. bonds rallied, with the 2y off 5bp and the 10y off 2.5bp. Our flows were still mostly negative in equities and mixed in bonds, while month-end flows were still USD-negative. Chair Powell’s FOMC testimony added to political pressure to ease, with some repricing of odds, as 2.5 cuts are now priced for year-end and the odds for a cut coming in July are 20%. U.S. data was mixed, with higher durable goods, lower personal spending and incomes, and higher core PCE.
Inflation expectations balanced between oil prices and recession risks vs. easy money
EXHIBIT #1: IFLOW U.S. EQUITY BETA FLOWS TO INFLATION, POLYMARKET RECESSION ODDS AND OIL PRICES
Source: BNY, Bloomberg
Our take: The dynamic tension between oil prices declining because of recession fears or because of supply dominated last week. The ceasefire between Iran and Israel has removed oil risk premiums for supply shocks and pushed prices low enough to support growth hopes. The ongoing progress on trade talks added to hopes for growth, with a signed China agreement and with ongoing talks with the EU, South Korea and Japan. The equity flows we have seen in the last three weeks suggest that inflation is not the worry anymore despite the noise of oil prices. There are conflicting signals from the economic data pointing to slower growth and the inflationary risks of a weaker USD and easier financial conditions. The pressure on FOMC to ease from President Trump adds a political dimension to the week as well, with front-end rate moves outsized compared to the oil and recession shifts.
Forward look: Polymarket’s odds of a recession are 31%, still higher than at the start of the year. Getting back to U.S. exceptionalism highs will require something else – either better data in the weeks ahead or further stimulus from either a Fed rate cut or more clarity on trade deals and actual tariff rates. Whether we’ll see more risk-taking “fireworks” at the start of July will depend on the urgency of putting money to work.
EXHIBIT #2: AVERAGE WEALTH IN THE U.S. BY AGE, TOP 1% AND TOP 10%
Source: BNY, Fed SCF
Our take: The cash available to invest in markets has two components. The first component is the transfer of wealth from the baby boom generation to their children. The second is the savings of corporations and households. Baby boomers have over $100tn in wealth to transfer, with most of this in the hands of the top 10% in the U.S. The liquidity of their holdings is mixed, with 45% estimated to be in real estate and private companies – making clear the importance of these markets. The rest is in stocks and bonds. This could be a simple rotational trade story to watch. This money is already being felt by markets, and will continue to be felt for the next 20 years. Money market holdings touched $7tn this year, and this number is generally used as a proxy for how much money could be moved from near cash holdings like deposits to equities or bonds.
Forward look: Seeing cash shift to bonds or stocks would require a shift in rates. Expectations of an FOMC rate cut changed modestly this week, linked to oil prices, modest shifts in Fedspeakers’ tones and outright political pressure. As the Fed Chair clearly stated, it’s the data that matters most and only a weaker jobs report or no signs of tariff-related inflation will deliver a policy shift. The other money to watch is in the great wealth transfer from baby boomers. Any sign of weakness in housing markets or troubles with private credit or equity could keep cash on the sidelines longer than some would like. We see ongoing uncertainty in markets keeping factors like value and momentum fighting for current liquidity rather than a wave of new cash in July.
What We’re Watching
July 4 holiday in the U.S. still poses risks from jobs and ISM
EXHIBIT #3: U.S. JOBS AND THE ROLE OF FOREIGN WORKERS
Source: BNY, Bloomberg
Our take: The first week of the month in the United States is always a busy one, with multiple jobs-related reports released, and often the national ISM surveys. July 2025 will offer no respite from this pattern but indeed compresses a data-heavy week into just four days given the national holiday on Friday. The Friday closure means that the employment report will be released on Thursday, providing anther health check on the labor market.
The NFP data over the last two months have been more moderate, with an average of 130k jobs created and a stable unemployment rate. However, under the surface and in some of the other labor-related data, we are beginning to see some micro fissures emerging. Foreign born works are leaving the labor force at an exceptional pace – over 1 million people in just the last two months. While this actually flatters the unemployment rate, it does so because the labor force is shrinking. We also see the May JOLTS data, and of course the usual ADP and jobless claims data.
Forward look: In addition, on July 1 Chair Powell will appear with ECB chief Lagarde, the BoJ’s Ueda, Governor Baily of the BoE and BoK head Rhee at the ECB’s annual Central Banking Forum. Two Fed governors, Bowman and Waller, have recently suggested that July might not be too soon for rate cuts, while the majority of the Committee has come out in favor of still more patience. For his part, Chair Powell acknowledged that a July cut could be considered one of the many possible paths for rates, although his tone was more in line with the “wait-and-see” approach the Fed has staked out so far this year.
EMEA: Too early for Sintra victory lap as cyclical risk offsets secular strength
EXHIBIT #4: DEVELOPED EMEA EQUITY HOLDINGS
Source: BNY
Our take: For the first time in three years, President Lagarde can give her keynote speech at Sintra with some degree of satisfaction over monetary policy. With Eurozone inflation now fully expected to return to target, but unemployment continuing to fall and growth expected to slightly outperform 2024, the economic outlook is about as rosy as it can get. Stagflation was the biggest concern in 2023 and 2024. Lagarde identified weakness in public-sector productivity as one of the key drivers of the Eurozone’s inability to drive down supply-side inflation. Government spending, where applied, was in relatively unproductive sectors while the most productive sectors had to contend with energy shock. Two years on, perhaps from the unlikeliest of sources, the Eurozone fiscal debate appears to be over, sealed by NATO’s commitment to hit 5% of GDP in defense spending, of which 1.5% will likely be geared toward more general public investment such as infrastructure, where improvements to and returns on productivity growth will be the highest. Buoyed by the rebalancing of the European economy and an emerging preference among global asset allocators for diversification away from the U.S., another iteration of her “euro moment” in history speech will feature heavily. We do not dispute these positives as there is a secular shift in fiscal impulse for the European Union and the Eurozone, led by defense. However, extreme competitiveness in one sector cannot compensate for lack of progress or outright losses elsewhere: the pressure on cyclical industries is growing, and without any competitiveness tailwinds to compensate.
We are closely monitoring the recent dislocation between business sentiment and asset prices, notably in Thailand, where the recovery of sentiment was accompanied by further deterioration of the equity market. We think there is a chance that South Korea’s PMI will surge back into expansion territory given the optimism that growth will recover on the back of fiscal stimulus pledges by the new administration. As of May, India (57.6), Singapore (51.5), Thailand (51.2) and the Philippines (50.1) are in expansion territory, while Indonesia comes in worst in the APAC region at 47.4. Japan’s Q2 Tankan survey, set for release on July 1, will be closely scrutinized, including the near-term inflation outlook.
June inflation releases from South Korea, the Philippines and Indonesia will give an initial indication of the potential impact of higher oil prices over the past few weeks, with oil bottoming out in early May at $57.1 before reaching a high of $75.1 in mid-June and then settling at around $65.8 at the time of writing. The increase in oil prices is likely to exert moderate upside pressure, but not enough to alter the broad lower inflationary trajectory trend.
Similar to May exports for other countries in the region, May exports for Thailand and Indonesia are expected to ease after strong front-loading-related exports in April. Neutral to positive progress on U.S. tariff negotiations is likely to be reflected in the recovery of the June trade data for South Korea.
Elsewhere, Australia data, especially inflation, household spending and retail sales data, will be interesting ahead of the meeting of the Reserve Bank of Australia next week. Japan May household spending and consumer confidence will be interesting to follow though the Bank of Japan is likely to maintain the status quo until there is more clarity on external and global trade conditions.
Forward look: As U.S. equity markets look set to end Q2 near record highs, the U.S. exceptionalism story appears to be resilient for equities. For European asset managers, their U.S. preferences will probably not be as strong as in the past, but where applicable we expect the U.S. to continue retaining much of its allocations. Home bias will continue to rise for savings-heavy exporters, even if there is an acceptable trade deal with the U.S. This represents much more than a reallocation of savings, but concentration risk is becoming extreme. Global investors clearly believe in the secular defense story, where holdings even after a recent adjustment remain close to 45% above last year’s average. However, aerospace and defense belong to the more cyclical capital goods industry group, which is barely ahead of last year’s average, while the traditionally dominant machinery industry is still running below the same benchmark (Exhibit #4). If a cyclical slowdown is helping Eurozone inflation return to target, repricing of Eurozone equities will lead to a reduction in holdings, but by our measures the defense sector is the only place where investors have anything to sell. At least, the “European exceptionalism” story should not be overdone, and our flows already show a material pick-up in EUR hedges. This is not to disregard the notion that the secular trends in financial accounts will help the likes of the EUR, CHF, SEK and many APAC peers over the medium term. However, as many central banks in APAC are finding out, excessive gains in nominal effective exchange rates (NEER) could prove very destabilizing, and both official and private-sector investors are now starting to push back, either through intervention or by re-establishing some U.S. allocations. President Lagarde will celebrate key metrics returning to target, but delivering such targets on a consistent basis is a far bigger hurdle and necessary to sustain and broaden the new allocations to the Eurozone and the wider European Union.
APAC: Regional PMI, CPI and exports, Japan Q2 Tankan survey
EXHIBIT #5: SLUGGISH BUSINESS SENTIMENT DESPITE RISK RECOVERY
Source: BNY, Bloomberg
Our take: In the Asia-Pacific region, the focus this week will be on regional June purchasing manager indexes (PMI), June inflation from South Korea, the Philippines and Indonesia, May exports from Thailand and Indonesia, and June trade data in South Korea. The anticipated recovery of business sentiment might be disrupted by acute crude oil price volatility and the escalation of geopolitical risk in June. We will be closely monitoring the three key subcomponents of China’s May PMI manufacturing, namely new orders, new export orders and imports, all of which were in contraction territory (at 49.8, 47.5 and 47.1, respectively). China’s non-manufacturing PMI was under pressure, with faltering confidence in construction business activities as the index fell from a high of 53.4 in March to 51.0 in May. Sluggish services business activities are a fresh source of concern getting increasing attention, with various targeted measures being implemented in an attempt to boost domestic consumption, including the 19 measures announced recently by the Chinese government.
We are closely monitoring the recent dislocation between business sentiment and asset prices, notably in Thailand, where the recovery of sentiment was accompanied by further deterioration of the equity market. We think there is a chance that South Korea’s PMI will surge back into expansion territory given the optimism that growth will recover on the back of fiscal stimulus pledges by the new administration. As of May, India (57.6), Singapore (51.5), Thailand (51.2) and the Philippines (50.1) are in expansion territory, while Indonesia comes in worst in the APAC region at 47.4. Japan’s Q2 Tankan survey, set for release on July 1, will be closely scrutinized, including the near-term inflation outlook.
June inflation releases from South Korea, the Philippines and Indonesia will give an initial indication of the potential impact of higher oil prices over the past few weeks, with oil bottoming out in early May at $57.1 before reaching a high of $75.1 in mid-June and then settling at around $65.8 at the time of writing. The increase in oil prices is likely to exert moderate upside pressure, but not enough to alter the broad lower inflationary trajectory trend.
Similar to May exports for other countries in the region, May exports for Thailand and Indonesia are expected to ease after strong front-loading-related exports in April. Neutral to positive progress on U.S. tariff negotiations is likely to be reflected in the recovery of the June trade data for South Korea.
Elsewhere, Australia data, especially inflation, household spending and retail sales data, will be interesting ahead of the meeting of the Reserve Bank of Australia next week. Japan May household spending and consumer confidence will be interesting to follow though the Bank of Japan is likely to maintain the status quo until there is more clarity on external and global trade conditions.
Forward look: The short-lived crude oil price volatility and de-escalation of geopolitical tensions in the Middle East provided relief for markets. The trend of a weaker U.S. dollar and momentum of foreign capital inflows are likely to overshadow potentially negative data surprises and keep a risk-on tone for APAC asset prices this week. Looking ahead, the central banks of Indonesia, Malaysia, South Korea, Singapore, Japan, Australia and New Zealand will meet in July.
Bottom line
The second half of 2025 will start with more volatility and likely less certainty than is currently priced by markets, with stocks at record highs, bond yields in the middle of the range, and USD trading a multi-year low. The ability of markets to see beyond current uncertainties hinges on growth hopes tied to AI investments, European government spending, stable U.S.-China trade relations, and wealth transfers from baby boomers to their descendants. The dynamic tension in deploying cash in a new month revolves around the balance between old worries and new hopes, potentially fueled by economic data and geopolitical events like the Middle East ceasefire and trade deals.
Calendar for June 30 – July 4
Central bank decisions
Poland, NBP (Wednesday, July 2) – Poland’s central bank is expected to maintain its benchmark interest rate at 5.25% during the upcoming Monetary Policy Council (MPC) meeting, following a 50bp cut in May – the first cut since October 2023. May’s headline inflation eased to 4.1% y/y, down from 4.3% in April, but remains above the 2.5%±1pp target. Core inflation has also moderated, but the MPC remains cautious due to wage volatility and potential inflationary pressures from expected increases in electricity tariffs post-October. Governor Adam Glapiński emphasized that the May cut did not signal the start of an easing cycle, suggesting that further reductions in June were unlikely. The market consensus aligns with this view, anticipating a hold in July, with a potential resumption of easing in the third quarter contingent on sustained disinflation and economic indicators.
Data Calendar
Event Calendar
Chart pack
