Key Highlights

• Iran and the U.S. once again exchange fire as peace talks continue.
• Indonesian assets rebound sharply as the government and central bank step up intervention.
• BOJ Governor Ueda is hospitalized and expected to miss the upcoming policy meeting.

Chart of the Day

CAD flows pre-BOC

^{Source: BNY}

The CAD has fully reversed its flow situation heading into the June decision compared to April, when flows were generally bid. The macro environment has shifted, and we believe several factors have undermined the currency. First, the supply shock has hurt real rates globally, but Canada never had strong nominal rates to begin with. With the BOC expected to be among the most dovish in G10, the lack of interest is understandable. Second, there was a scramble for currencies which could have benefited from a positive terms-of-trade shock in energy during the first weeks of the conflict, but Canada’s ranking among these names proved disappointing, and any idiosyncratic support swiftly fell away. Finally, and perhaps most importantly in the near term, Fed expectations have shifted materially as well. Our data do not indicate a strong reaction to last Friday’s payrolls figures, but the general shift in pricing for the Fed is immediately transferable to change in hedging preferences for CAD and other currencies in the Americas. We may even have to wait for the Fed decision next week before a clearer flow picture emerges. Surprisingly, cross-border investors have been more willing to capture CAD exposures compared to CAD-denominated accounts. We note that this is also the opposite of the flow situation before the April meeting, when CAD performance was more a domestic feature, whereas cross-border investors took off exposures. Measured against underlying asset flows, it’s hard to also attribute these flows to asset liquidation, so there could be a fundamental aspect back in play, especially with holdings levels remaining favorable on top of good valuations.

What's Changed?

Ongoing conflict in the Middle East has less impact on oil but remains important to investor mood. The tit-for-tat attacks threaten the fragile ceasefire and path toward a peace deal. A 0.5% decline in oil did nothing to relieve the heaviness in equities or the pressure on yields from supply shock concerns. Volatility in technology shares continues to roil markets, with chip stocks the main driver – with KOSPI -4.5%, Taiex -3.3% and U.S. Nasdaq futures -1.2%. The U.S. CPI is seen as a key factor for risk reduction, along with BOC decision and guidance. Bonds are reflecting ongoing concerns about inflation and policy globally. The USD is flat, with only IDR and KRW showing gains. AUD and ZAR are lower.

• Intervention risk. The actions of Indonesia and Korea over the last 48 hours are working to cap USD strength. FX markets are turning attention to JPY, where dollar/yen has broken through 160, raising the question of BOJ and Ministry of Finance intervention ahead. Weaker demand at the 30y JGB sale today – the worst since June 2025 – links to fears about U.S. CPI and the ECB rate hike expectations, along with doubts about BOJ guidance. While the market expects a rate hike to 1%, negative real rates remain insufficient to anchor inflation, with JPY weakness adding to import costs.
• Gold. The role of gold and other FX alternatives to store value is clearly being tapped for liquidity. Since the conflict with Iran, gold is down 20%. The risk of a stronger USD linked to higher rates adds to the selling. Gold weakness isn’t a signal of carry trades returning but does reflect the ongoing tensions in oil and technology.
• AI debt. Tech companies have issued $236bn in AI-related global debt so far this year, fourfold more than the same period in 2025. Issuance is on pace to exceed $500b, out of the $2tn in IG supply expected this year. Non-USD issuance is now a key focus as AI capex is expected to reach $700bn for 2026 and $1tn for 2027. Whether this supply crowds out government borrowing will be a key concern for rebalancing risk into H2 2026.

Bottom Line: There is a gravity to the ongoing escalation of the conflict with Iran. The fatigue for trading risk stands out in rising volatility. Bond-equity correlation across global markets is triggering a risk-parity reversal. The CPI today will set the course for investors as they look at who pays for the supply shocks now and going forward. CAD’s role today may be underappreciated as a barometer of how much policymakers matter for market stability. The USD down, stocks up narrative looks vulnerable to reinterpretation. Forward guidance matters more than ever in a world of rising uncertainty and falling confidence.

What You Need to Know

U.S. forces launched strikes against Iranian air defense, radar and command facilities near the Strait of Hormuz after President Donald Trump accused Tehran of being responsible for the downing of a U.S. Apache helicopter off Oman. Washington described the operation as a limited and proportional response aimed at protecting U.S. forces and commercial shipping, signaling an attempt to contain tensions rather than resume full-scale conflict. Iran responded by claiming attacks on several U.S. military facilities in the region, including targets in Bahrain, Jordan and Kuwait, and warned that any further threats would be met with retaliation. The escalation tests the fragile ceasefire and ongoing peace negotiations that Trump has repeatedly said are close to completion. Oil prices rose modestly, with Brent crude trading near USD 93/bbl, while diplomatic efforts continued behind the scenes despite renewed military exchanges. Brent +0.318% to 91.74, WTI +0.205% to 88.38, Omani Crude -4.09% to 88.66, Dubai Crude -1.956% to 89.387.

The rupiah recorded its biggest gain in more than a year as Indonesian assets rebounded following efforts by policymakers to restore investor confidence after a sharp market selloff. The currency strengthened as much as 0.9%, while the benchmark stock index rose 3.4% and the 10y government bond yield fell 15bp. The recovery followed direct engagement with foreign investors by central bank Governor Perry Warjiyo and assurances from Finance Minister Purbaya Yudhi Sadewa that the government would maintain fiscal discipline. Markets were also supported by Bank Indonesia’s surprise interest rate increase and expectations of further tightening to support the currency. Despite the rebound, investors remain cautious amid concerns over government economic policies, elevated oil prices, capital outflows and broader risks to Indonesia's fiscal and external position. JCI +3.06% to 5,923, USDIDR -0.593% to 17953, 10y IDGB -9.7bp to 7.317%.

Governments have raised a record USD 504bn through syndicated bond sales so far in 2026, surpassing even the pace seen during the first half of the pandemic. The surge reflects growing funding needs driven by higher spending on defense, infrastructure, energy transition projects and measures to cushion households from energy price shocks linked to the Iran conflict. Refinancing requirements are also increasing as large volumes of debt issued during the Covid period begin to mature. Italy remains the largest syndicated borrower, while Germany, the U.K. and several other European governments have significantly increased issuance. Despite rising yields and uncertainty over the interest rate outlook, investor demand for sovereign debt remains strong, enabling governments to lock in funding and manage elevated borrowing needs. Market participants expect issuance to remain heavy through the second half of 2026 as refinancing pressures continue. Euro Stoxx 50 +0.17% to 6,060, EURUSD +0.087% to 1.1553, BBG AGG Euro Government High Grade EUR -1.6bp to 3.325%.

China’s Ministry of Industry and Information Technology released a 2026 to 2028 action plan to accelerate the integration of AI and telecommunications infrastructure. The plan aims to build more than 30 high-value AI applications, improve network autonomy, and expand computing infrastructure, with city level computing networks targeting at least 75% coverage within a one millisecond latency radius by 2028. Key priorities include embedding AI into advanced 5G and 6G networks, developing telecom-specific large language models and intelligent agents, expanding edge computing capabilities, and strengthening cloud-based AI services. The strategy also promotes AI enabled network operations, industrial digitalization, smart consumer devices and public services. Authorities are targeting major breakthroughs in AI and communications technologies by 2030, with integrated computing, sensing and networking capabilities becoming a core part of China's digital infrastructure and industrial ecosystem. CSI 300 -1.11% to 4,749, USDCNY +0.034% to 6.7769, 10y CGB +0.6bp to 1.744%.

What We're Watching

Bank of Canada is expected to hold its policy unchanged at 2.25%.

U.S. May CPI forecast at 0.5% m/m, 4.2% y/y vs. 0.6% m/m, 3.8% y/y in April. Core CPI is expected at 0.3% m/m, 2.9% y/y vs. 0.4% m/m, 2.8% y/y in April.

U.S. May Federal Budget Balance is expected to widen to -$282bn vs. $215bn.

U.S. Treasury sells 17-week bills and $39bn of 10y notes reopening.

What iFlow is Showing Us

Mood: iFlow Mood stabilized at -0.322, with equity outflows offset by continued demand for core government bonds as markets await the next catalyst.

FX: BRL, USD and CAD recorded the largest outflows, while broad-based inflows favored the rest of the iFlow universe, led by CHF, SEK and EUR. BRL positioning has normalized significantly, with scored holdings approaching neutral levels.

FI: Demand remained strongest for LatAm government bonds, followed by Canada and the Eurozone. Flows in EMEA and APAC were skewed toward selling, particularly in South Africa and China. Indonesian government bonds continued to face moderate outflow pressure.

Equities: APAC flows remained highly divergent, with strong buying in China and Thailand offset by continued selling in South Korea and Indonesia. Elsewhere, EMEA and LatAm equities saw outflows, led by Chile and Mexico. G10 equity flows were mixed, with notable selling in the U.K. and buying interest concentrated in Australia.

Quotes of the Day

“Because there is a law such as gravity, the universe can and will create itself from nothing.” - Stephen Hawking

“Strings of gravity vibrate at a different frequency than strings of light.” - Roy H. William

Economic Details

Italy’s industrial production in April 2026 increased by 0.5% m/m, marking a third consecutive monthly gain and pointing to a gradual improvement in manufacturing activity. Growth was driven by capital goods, up 1.0%, and intermediate goods, up 0.8%, while consumer goods and energy output declined slightly. On a three-month basis, industrial production rose 0.2% compared with the previous three-month period. Compared with April 2025, industrial output increased 1.3% after adjusting for calendar effects. Capital goods production led the annual gains, rising 6.4%, followed by intermediate goods at 1.8%, while consumer goods fell 4.1% and energy output declined 2.7%. By sector, transport equipment recorded the strongest growth at 17.8%, followed by pharmaceuticals at 7.9% and machinery production at 6.1%, highlighting continued strength in investment related manufacturing industries. FTSEMIB +0.76% to 50,647, EURUSD +0.087% to 1.1553, 10y BTP +0.6bp to 3.807%.

Sweden industrial orders for April 2026 rose 5.1% m/m in seasonally adjusted terms and increased 6.3% from a year earlier in calendar adjusted terms. Statistics Sweden said the monthly gain was driven by stronger export demand, while domestic orders fell 2.4% from March. On an annual basis, orders from customers abroad climbed 9.8%, while domestic orders were up only 0.5%. For January to April 2026, total orders were still 1.6% below the same period in 2025, with export market orders down 3.9% despite a 2.5% rise at home. March figures were also revised, showing a smaller monthly decline. OMX +0.29% to 3,079, EURSEK +0.149% to 10.9466, 10y Swedish GB +0.1bp to 2.874%.

Sweden household consumption for May 2026 rose 3.4% y/y and 0.7% from April, after a 0.8% monthly decline in April and a 1.8% annual gain. The official statistics showed that spending was measured in constant prices and adjusted for calendar and seasonal effects, while the weekly indicator signaled a 0.6% increase in week 19 to 22 vs. week 15 to 18. On a y/y basis, food and nonalcoholic beverages, furnishings, and information and communication led gains, while health and personal care were weaker. The broad improvement suggests consumption momentum firmed into May.

Sweden in April saw monthly GDP rise 0.5% seasonally adjusted, while calendar adjusted GDP was 2.4% higher than a year earlier, according to Statistics Sweden. The agency said the economy continued to expand, though at a slower pace than in March, with growth broad based across general government, goods producing industries and services, and especially strong industrial production. Before reconciliation, production side GDP showed 2.9% y/y growth and the use side 2.0%, which were balanced to the final estimate. April had the same number of working days as a year earlier.

Sweden private sector production for April 2026 rose 1.7% from March in seasonally adjusted terms and increased 4.1% from a year earlier in calendar-adjusted terms. Industrial output led the gain, climbing 4.2% m/m and 7.1% y/y, while services production rose 0.5% on the month and 3.9% on the year. Construction lagged, falling 1.0% from March, though it still increased 2.3% vs. April 2025. The data suggest broad-based annual growth, with industry providing the strongest momentum and services posting a more moderate contribution.

Norway inflation for May 2026 came in at 3.1% y/y, while the core CPI adjusted for taxes and excluding energy, KPI JAE, rose 3.4%. The headline rate was 0.3 percentage points lower than in April, as weaker energy prices again eased price growth. Fuel and lubricants fell 6.2% from April to May, and electricity including grid fees declined 1.0%, helping slow the annual pace. Food inflation also cooled to 3.4% from 6.1% in April, after Easter-related effects faded. At the same time, imported goods, especially information and communications equipment, pushed core inflation higher. OSE -0.61% to 1,978, EURNOK -0.186% to 10.9598, 10y NGB +1.8bp to 4.395%.

Czechia consumer prices in May rose 0.1% m/m and 2.1% y/y, down 0.4 percentage points from April. Monthly inflation was driven mainly by higher prices for food and nonalcoholic beverages, especially fruits and potatoes, and by housing costs, while package holidays fell. The annual rate eased as food prices deepened their decline and alcohol and tobacco inflation slowed. Transport remained the largest upward force, with fuel and lubricants up sharply, while housing costs also added pressure. Services inflation stayed elevated, goods prices were broadly flat, and the HICP rose 1.8% y/y. Prague SE -0.44% to 2,538, EURCZK +0.009% to 24.159, 10y CZGB +0.8bp to 4.889%.

Japan’s May 2026 Corporate Goods Price Index report showed producer prices rose 0.9% m/m, accelerating to 6.3% y/y from upwardly revised 5.3% y/y in April. Export prices increased 0.7% m/m and 20.6% y/y, while import prices climbed 3.0% m/m and 15.5% y/y. Upward pressure on producer prices came mainly from petroleum and coal products, electric power, gas and water, chemicals, and nonferrous metals, while agriculture, forestry and fishery products were a drag. Export prices were lifted by electric and electronic products and chemicals, partly offset by weaker transportation equipment and machinery. Import prices were driven by petroleum, coal and natural gas, metals, and chemicals, with food-related imports a slight negative. The yen basis also showed broad price gains, suggesting stronger domestic pass-through from higher import costs. Nikkei -1.89% to 64,179, USDJPY +0.013% to 160.38, 10y JGB +0.8bp to 2.69%.

China’s May 2026 CPI rose 1.2% y/y, or 1.0% YTD y/y, while falling 0.1% m/m. The headline increase was driven by higher non-food prices, which rose 1.9% y/y, and services, up 0.8% y/y. Food prices fell 1.7% y/y, led by lower livestock prices, especially pork, which dropped 16.1% y/y. Other notable drags included fresh fruit, down 2.2% y/y, while eggs, fresh vegetables and fish posted modest gains. On a monthly basis, food prices fell 0.4% m/m, with fresh vegetables and livestock weaker, though eggs and fruit rose. Core CPI-excluding food and energy rose 1.1% y/y and fell 0.1% m/m. Transportation and communication prices remained a key contributor, rising 5.4% y/y, mainly due to transport energy costs. CSI 300 -1.11% to 4,749, USDCNY +0.034% to 6.7769, 10y CGB +0.6bp to 1.744%.

China’s May 2026 producer price data showed stronger industrial inflation. The PPI rose 3.9% y/y, the highest since July 2022 vs 2.8% y/y in April, while rising 0.5% m/m vs 1.7% m/m in April. Producer purchase prices increased 5.8% y/y and 1.3% m/m. On a y/y basis, gains were led by production materials, up 5.2%, with sharp increases in mining and raw materials prices, while consumer goods prices fell 0.8%, weighed by food, clothing and daily-use items. On a monthly basis, production materials rose 0.7%, while consumer goods were flat, with food slightly lower. Among purchase prices, chemical raw materials, fuel and power, and nonferrous metals saw notable increases. For January-May, PPI averaged 1.0% y/y and purchase prices 1.6% y/y.

South Korean retail investors have reached borrowing limits at local brokerages, according to the Korea Capital Market Institute, as the KOSPI’s AI-led rally continues to fuel leveraged stock buying. The think tank said brokerage caps on retail margin borrowing have been reached, making it difficult for investors to borrow more. Retail participation has been a major driver of the KOSPI’s surge, while foreigners have taken profits and sold heavily. Borrowed investments by retail investors in the KOSPI market hit a record KRW 29tn as of Tuesday, up sharply from the end of 2025. The report highlights stretched financing capacity among domestic brokerages amid strong demand for chip stocks such as Samsung Electronics and SK Hynix. KOSPI -4.52% to 7,731, USDKRW -0.076% to 1526.6, 10y KTB -7.3bp to 4.272%.

Taiwan central bank Governor Yang Chin-long said that pre-emptive rate hikes can be appropriate if inflation expectations are likely to stay above 2% for the next six months, as they may reduce the cost of later policy tightening. He said the central bank will discuss the outlook carefully at its June 18 board meeting, taking into account domestic and global financial conditions. Yang added that if inflation is only temporary and expected to ease quickly, an early hike may not be necessary. He also praised government anti-inflation measures such as freezing fuel and electricity prices, saying they have been very effective in stabilizing prices, especially during the Russia–Ukraine war. He noted that supply-side inflation from energy costs is limited in what monetary policy alone can solve. TAIEX -3.31% to 43,226, USDTWD +0.136% to 31.681, 10y TGB -0.8bp to 1.77%.

Bank Indonesia’s Consumer Survey for May 2026 showed consumer confidence remained strong, with the Consumer Confidence Index (IKK) staying in optimistic territory at 120.9. The result was supported by the Consumer Expectation Index (IEK), which edged up to 129.7 from 129.6 in the previous month, indicating stable optimism about future economic conditions. Meanwhile, the Current Economic Conditions Index (IKE) remained in optimistic territory at 112.2, though it eased from 116.5 a month earlier, suggesting a modest softening in assessments of present conditions. Overall, the survey points to resilient consumer sentiment in Indonesia, with expectations remaining slightly stronger even as views on current conditions moderated somewhat. JCI +3.06% to 5,923, USDIDR -0.593% to 17953, 10y IDGB -9.7bp to 7.317%.