Key Highlights

• JPY surges again as MoF’s Atsushi Mimura warns oil markets of intervention risk.
• Bundesbank Chair Joachim Nagel reiterates that a June ECB hike will be needed unless the outlook improves.
• President Trump pledges to maintain a naval blockade of Iran.

Chart of the Day

AUD softens ahead of RBA meeting after strong terms-of-trade run throughout the conflict

^{Source: BNY}

After a very good run throughout much of the conflict, AUD has started to soften ahead of the RBA decision. This is in line with our expectations that currencies and asset classes which had benefited from terms-of-trade repricing throughout the conflict are starting to look stretched, and some pullback is needed.

AUD never reached the heights of some high-yielders in emerging markets and there is still a good valuations case for the long term given positioning and growth factors. However, even with a hawkish RBA in place, marginal gains are probably limited relative to current flows and holdings. Once a new path is established, Australian assets can reprice, repositioning with better entry positions for long-term allocations.

AUDUSD is the main vehicle through which views on AUD are expressed, meaning that the flows generally align well. We can see that over the past two weeks, as AUD moved into a net selling phase, AUDUSD performance has been inferior to the AUD aggregate. Conversely, during inflow phases, AUDUSD strength was also stronger than the aggregate, and the positive gap extends into the upcoming decision (0.12 vs. 0.08). This points to a clear impact through relative-value positions, for which AUD remains a very popular vehicle.

Even though Fed easing expectations have picked up of late, the growth and asset allocation narrative for the U.S. has recovered well and this has likely impacted overall AUDUSD flow. At the same time, RBA rates and Australia’s growth path will outpace much of the G10 and liquid EM, which is helping to support aggregate flows.

What's Changed?

The new month starts with the same old list of concerns about the Iran conflict and its effect on inflation and growth. The new story is about the FX intervention to support JPY yesterday and potentially today; however, that did not move markets much other than to reset the currency against its peers.
Overnight, the May Day holiday was not an emergency but rather a breather in the chasing of the equity rally. Most nations other than Japan, Australia and the U.K. are closed. Those that are open saw mixed stock market performances, higher bond yields and higher oil prices. However, USD is steady except against JPY. The focus remains on oil, with Japan clearly tapping its reserves there as well; with no progress on Iran/U.S. talks, the energy supply shocks continue.

• JPY intervention: The BoJ likely spent $34.5bn intervening to move JPY from 160 to 156 yesterday, in the first intervention since July 2024. “I won’t comment on what we’ll do ahead. But I will tell you that Japan’s Golden Week holidays ​have just started,” Atsushi Mimura told reporters when asked whether Tokyo could intervene in the currency market. The focus for action is now on the 155 and 158 marks after yesterday’s surprise action. JPY’s relationship to CNY and KRW and the easing in USD buying in APAC will be watched into next week.
• Apple: The shortage of chips did not dent the company’s earnings, and that helped to steady U.S. markets after the record S&P 500 close yesterday. Revenue forecasts for the next quarter are strong, with sales growth of 14-17% expected, even with memory chip costs and Mac computer shortages expected for “several months.” Apple also beat expectations on sales, which jumped 17% to $111.2bn, exceeding the company’s +13% guidance and the $109.7bn consensus. The implications for U.S. stocks are that the big tech theme is holding steady despite fears about semiconductor inflation and supply chain shortages.
• EUR volatility: EUR remains bid today after testing three-week lows, as the ECB meeting clearly points to a June rate hike risk. ECB President Christine Lagarde confirmed that the decision to hold rates was unanimous, though a hike had been discussed. Meanwhile, the ECB’s Joachim Nagel has cautioned that the central bank might need to tighten policy as early as June. What is interesting is that the options market in FX has 1m and 3m volatility below the long-term average. This suggests few see any breakdown or breakout for EURUSD in the quarter ahead, despite the rate policy uncertainty in the U.S. and the EU linked to the ongoing energy supply shock from the Iran conflict. Any shift in the FOMC stance or U.S. expectations on rates or hedging will be the new driver for risk.

Bottom line: Today is a global holiday, and while it’s a new month, liquidity and interest in markets are waning. The success of April risk across global markets reflects the relief that – while ongoing – the Iran conflict has mostly shifted from a “hot war” to a “cold truce” in which the only immediate concern is about the flow of ships in and out of the Strait of Hormuz. The U.S. session today will reflect this, with a focus on ISM manufacturing activity against prices. The return of rates as a key driver will be the new risk to consider as yields move higher: watch the 5% mark for 30y and the 10y mark for 4.5% yields for breakout troubles and a potential return to negative correlation for equities and USD.

What You Need to Know

Japanese Deputy Finance Minister Atsushi Mimura has said the ministry is “ready to act regarding crude oil futures transactions.” This latest warning of financial market intervention came as the Japanese yen strengthened further in late Tokyo trading on Friday after an earlier pause, extending gains triggered by suspected government intervention. The currency gained as much as 0.7% to reach around 155.5 per dollar, surpassing levels set during the initial surge. While officials have not formally confirmed any action, authorities are widely believed to have entered the market, with coordination signaled through prior notification to the U.S. The move highlights Japan’s concern over currency weakness, but market participants caution that gains may fade without further intervention, echoing patterns seen in 2024. Nikkei +0.38% to 59513, USDJPY -0.058% to 156.5, 10y JGB -0.7bp to 2.518%.

Japan’s government has begun deploying funds under its $550bn U.S. investment initiative tied to a trade agreement with President Trump, with the Japan Bank for International Cooperation and private lenders announcing initial loans totaling about $2.2bn. The financing is directed at three projects: a natural gas development in Ohio, a synthetic diamond facility in Georgia and an oil transportation project in the Gulf of Mexico. It marks an early but relatively small step compared with U.S. expectations of a larger-scale first wave of investment. The initiative is designed to channel Japanese capital into key U.S. industries, though most funding is expected to take the form of loans and guarantees rather than direct investment, reflecting a gradual implementation approach.

Bundesbank President Joachim Nagel has signaled that the European Central Bank is likely to raise interest rates in June unless the economic outlook improves significantly, emphasizing that current conditions are evolving less favorably than previously expected. His comments follow the ECB’s recent decision to hold rates, with policymakers adopting a cautious wait-and-see stance amid uncertainty linked to the Middle East conflict and elevated energy prices. Nagel stressed that risks to price stability remain prominent and that the ECB is ready to act, noting that even baseline projections already assume tighter policy. Other officials broadly reinforced the hawkish bias, warning that persistent energy-driven inflation could still require further tightening, making the June meeting a key inflection point for monetary policy. DAX +1.41% to 24292, EURUSD +0.103% to 1.1743, 10y Bund -7.3bp to 3.037%.

President Trump has pledged to maintain a naval blockade aimed at cutting Tehran’s oil revenues, while also reviewing further military options, underscoring fragile ceasefire conditions. Iranian officials strongly opposed the move, warning that the blockade must be lifted for negotiations to resume and that it risks pushing global oil prices higher, with crude already rising above $110/barrel. Both sides appear locked in a strategic stalemate, each waiting for concessions, as Iran’s leadership signaled that it would not abandon its nuclear or missile programs. Meanwhile, Washington is seeking allied support for a maritime coalition to secure the Strait of Hormuz, though international backing remains uncertain. Brent +0.97% to 111.47, WTI +0.372% to 105.46, Omani crude -1.93% to 104.17, Dubai crude -1.436% to 104.436.

What We're Watching

U.S. April final S&P Global Manufacturing PMI forecast unchanged at 54.

U.S. April ISM manufacturing forecast to rise to 53.2 vs. 52.7, while prices paid are expected to rise to 80.3vs 78.3 and new orders are expected to rise to 54.5 vs. 53.5, but employment is expected to remain in contraction at 48.8 vs. 48.7.

Central bank speakers: BoE Chief Economist Huw Pill speaks in the national Monetary Policy Committee agency briefing.

What iFlow is Showing Us

Mood: iFlow Mood has eased further to 0.058, driven by stronger demand for core government bonds, while equity buying momentum softened.

FX: Divergent flows, with inflows into APAC and EMEA versus outflows across G10 and LatAm – most notably COP, MXN and NZD. Within the G10, USD and GBP saw buying, while the rest were sold. THB and HUF led inflows.

FI: Continued buying in core markets: U.S. Treasurys, Eurozone and Japanese bonds and U.K. gilts. Selling was concentrated in Chinese and Philippine government bonds, alongside lighter outflows in EMEA.

Equities: Strong buying in China, Brazil, Malaysia and Mexico, with additional inflows into U.S. equities despite an overall outflow bias. Significant selling in Norway, Australia, Sweden, Hungary and South Korea.

Quotes of the Day

“Old and new make the warp and woof of every moment. There is no thread that is not a twist of these two strands.” – Ralph Waldo Emerson

“You are never too old to set another goal or to dream a new dream.” – C.S. Lewis

Economic Details

The Netherlands’ retail turnover increased by 2.9% y/y in March, with sales volumes rising by 3.4%, indicating solid real consumption growth. Growth was broad-based, led by the non-food sector where turnover rose 3.6%, supported by strong gains in furnishings and recreational goods, while food retail sales increasaed a more modest 1.8%. Online retail remained a key driver, with turnover up 7.7% y/y, reflecting continued structural shifts toward e-commerce. Within online categories, consumer electronics and clothing recorded particularly strong gains. Overall, the data suggest resilient household demand and positive retail momentum, although variation across sectors highlights stronger discretionary spending relative to essential goods consumption. AEX +1.7% to 1014, EURUSD +0.103% to 1.1743, 10y NGB -7.7bp to 3.169%.

U.K. house prices strengthened in April, with y/y growth accelerating to 3.0% from 2.2% March, while prices rose 0.4% m/m on a seasonally adjusted basis. The average house price climbed to £278,880, indicating continued recovery in housing market momentum despite softness earlier in the year. This resilience came even as consumer confidence and housing demand indicators weakened, with buyer inquiries falling and sentiment deteriorating. Underlying support stems from relatively strong household balance sheets, low debt-to-income ratios and improved affordability linked to past income growth and lower mortgage rates. However, rising interest rates and external shocks, including higher energy prices, pose downside risks to near-term housing activity. FTSE 100 -0.59% to 10317, GBPUSD +0.037% to 1.3609, 10y gilt +1.6bp to 5.028%.

The U.K.’s manufacturing PMI rose to a 47-month high of 53.7 points in April, signaling continued expansion and a sixth consecutive month above the 50-point threshold. The improvement was driven by stronger output and new orders and a return to employment growth, with demand supported partly by clients bringing forward purchases. However, underlying conditions remain mixed, as supply chain disruptions linked to the Middle East conflict led to significant delivery delays and material shortages. This drove input cost inflation to one of the highest levels in the survey’s history, prompting firms to raise selling prices further. Despite solid activity, business optimism weakened, suggesting that growth may lose steam ahead as temporary demand factors fade and cost pressures persist.

U.K. household and corporate borrowing saw a pickup in credit activity in March. Net mortgage borrowing rose to £6.2bn from £5.2bn in February, above recent averages, alongside a modest increase in mortgage approvals for house purchases to 63,500. Remortgaging activity also rebounded strongly. Consumer credit growth eased slightly to £1.9bn but remained marginally above-trend, with stable credit card borrowing and a small decline in other lending. Corporate borrowing strengthened, with private non-financial firms raising GBP 3.6bn, supported by a sharp rise in bank lending. Broad money growth accelerated, with M4ex increasing to £22.1bn, while net lending to the private sector recovered significantly, indicating improved liquidity and stronger credit demand across households and firms.

Switzerland’s retail sales and services activity pointed to soft demand conditions in early 2026. March retail turnover declined by 0.7% y/y in nominal terms and flat in real terms. Within the breakdown, food, beverage and tobacco sales fell more sharply, down 1.5% in nominal terms and 1.6% in real terms, while the non-food sector posted a smaller nominal decline of 0.3% but modest real-terms growth of 0.9%, suggesting some price effects at play. Separately, services activity also weakened, with services turnover down 1.4% y/y in February on a working-day-adjusted basis. Overall, the data indicate subdued consumer and services sector momentum, with real activity broadly stagnating despite mixed dynamics across sectors. SMI +0.8% to 13136, EURCHF +0.124% to 0.91763, 10y Swiss GB -4.6bp to 0.404%.

Japan’s consumer price index (CPI) for May 2026 was up 1.5% y/y (from 1.4% in April), with a 0.5% m/m increase (seasonally adjusted). Core inflation excluding fresh food and energy increased 1.9% y/y but declined 0.1% in seasonally adjusted m/m terms. Key contributors to the y/y headline inflation included food (+4.0%), dining out (+4.1%), confectionery (+8.0%), beverages (+10.4%), fresh fish (+8.9%), meat (+4.3%), housing rent (+1.0%), clothing (+5.0%) and communication (+7.0%). Energy prices fell by 7.5% y/y, driven by lower electricity and city gas costs. Despite heavy exposure to imported fuels, Japan’s current inflation levels are materially softer than for its G10 peers, most of which are struggling to stay below 3% y/y.

In April, Japan’s manufacturing sector recorded the strongest improvement in business conditions since January 2022, with the S&P Global Manufacturing PMI rising to 55.1 points from 51.6 in March. Output expanded at the fastest pace since February 2014, driven by an acceleration in new orders and inventory stockpiling amid Middle East war uncertainties. Input cost inflation surged to a three-and-a-half-year high due to higher raw material, oil and transport prices. Supply chain delays worsened at the steepest rate in 15 years, supporting the IEA’s view that the current supply shock will be larger than in 2022. Employment growth was strong, but optimism for the year ahead deteriorated due to geopolitical risks. Nikkei +0.38% to 59513, USDJPY -0.058% to 156.5, 10y JGB -0.7bp to 2.518%.

The Australian manufacturing sector saw a rise in inflationary pressures in April linked to the Middle East conflict. The S&P Global Australia Manufacturing PMI increased to 51.3 points (March: 49.8), driven mainly by longer supplier delivery times and increased input stocks. Input costs surged at the fastest pace in over four years, led by higher fuel prices, while output price inflation also accelerated sharply. Despite these pressures, manufacturing output and new orders declined for the third consecutive month, with new export orders falling for the first time in four months. Employment contracted for the second successive month, and business confidence hit its lowest ebb since July 2024. ASX -0.55% to 5532, AUDUSD -0.084% to 0.7195, 10y ACGB -4.5bp to 5.019%.

Australia’s producer price indexes for the March quarter showed final demand rising 0.4% q/q and 3.0% y/y, in the weakest quarterly growth since March 2021. Growth was led by construction and services, supported by strong residential property demand, though price increases in most services were lower than last year. The Australian dollar’s appreciation eased price pressures, especially in manufacturing. Key contributors included property operators (+1.0%, due to rising rents), petroleum refining (+10.1% on higher oil prices linked to the Strait of Hormuz closure) and tertiary education (+2.2%, because of annual fee hikes). Air and space transport fell 4.0% q/q due to a seasonal drop in travel.

New Zealand’s ANZ-Roy Morgan Consumer Confidence dropped 11 points to 80.3 in April, the lowest level in three years. It is down 20 points since the Middle East conflict began. The net proportion of households viewing now as a good time to buy major items fell to -25, the lowest level since September 2024. Inflation expectations for two years ahead surged to 6.6%. Current and future economic outlooks weakened sharply, with perceptions of personal finances at their weakest since 2008. Rising petrol prices and cost of living pressures are driving consumer pessimism, posing downside risks for retail sales and economic growth. NZX 50 +1.05% to 13039, NZDUSD -0.22% to 0.5895, 10y NZGB -5.4bp to 4.683%.

New Zealand’s building consents data for March 2026 showed a modest monthly pullback but strong annual growth, with the seasonally adjusted number of new dwellings granted consent falling 1.3% m/m after a prior increase. However, activity remained robust on a y/y basis, with 37,813 new dwellings receiving consent in the year to March, up 11% from the previous year, and consents per 1,000 residents rising to 7.1 from 6.4. Monthly issuance totaled 3,677 units, with a balanced mix of houses and multi-unit developments. By region, growth was led by Auckland and Canterbury, while parts of the North Island lagged. Non-residential construction also edged higher, with annual consent numbers rising 1.2%, indicating continued but uneven construction momentum.

South Korean exports surged to $85.89bn in April, marking the second consecutive month above $80bn and rising 48% y/y, driven primarily by a semiconductor boom. Imports increased by 16.7% to $62.11bn, resulting in a sizable trade surplus of $23.77bn, also the second straight month above $20bn. Semiconductor exports led the expansion, jumping 173.5% on strong demand for AI-related chips and rising memory prices, while computer exports also surged sharply. Petroleum product exports rose in value due to higher oil prices, despite lower volumes. By destination, shipments to China, the U.S. and ASEAN recorded strong gains, while exports bound for the Middle East fell amid the ongoing geopolitical tensions, highlighting both robust external demand and regional divergence. KOSPI -1.38% to 6599, USDKRW -0.796% to 1476.85, 10y KTB +7.3bp to 3.915%.