Key Highlights

• APAC tech stocks rally as President Trump assembles U.S. CEO delegation for summit with China’s President Xi.
• U.S. Treasury Secretary Scott Bessent and Chinese Vice-Premier He Lifeng conclude further trade talks in Seoul.
• ECB’s Olli Rehn and Primož Dolenc highlight that inflation risks may require a policy adjustment.

Chart of the Day

Sector flow in favor of inflation hedges picking up again

^{Source: BNY}

Even if the current ceasefire in the Iran conflict were to be taken off “life support” and move toward convalescence, markets are starting to realize that inflationary pressures are beginning to percolate through the global economy. Data confirmation is increasing in DM and EM alike, though policy responses continue to differ as most central banks hope for a transitory phase. Either way, a repeat of 2022-23 must be avoided at all costs, and significant tightening in financial conditions is a growing risk.

As things stand, our flow data suggest that markets are not fully engaged in hedges but there are some early signs of movement. For example, in our iFlow Styles analysis, we can see that inflation-related flows are starting to pick up in the U.S. We establish this by looking at changes in the regression beta of returns and breakeven inflation correlation on industry group flows. A higher beta implies that sector flows which are highly correlated to changes in breakeven inflation are gaining market traction. We can see that during the early-year “debasement” theme and the first weeks of the conflict, inflation-related flows tracked the move in breakeven inflation well. Even when such flows softened in response to the initial ceasefire, the beta never turned negative which pointed to residual risk. Should price data continue deteriorating, we expect the inflation beta to rise rapidly.

What's Changed?

Risk sentiment changed overnight, as the equity market focused back on AI and technology, linked to the U.S./China talks over the next two days and the news that Nvidia’s CEO would be joining the trip. The usual buy-the-dip process is continuing to work for equity traders. China’s ChiNext index rose to new record highs, while in Europe mining companies led and U.S. Nasdaq futures jumped nearly 1%. Oil prices are down slightly, even with no progress on the Iran conflict. Yesterday’s announcement of higher U.S. CPI did not greatly affect global bonds, except in Japan. What is different today is that USD is bid, with EUR weakness the dominant theme in the G10 and HUF in EM.

Iran: Vessel crossings through the Strait of Hormuz fell back to two today, below the weekend average of five, and far below pre-conflict levels of 160. The NYT has reported that U.S. intelligence assessments see Iran retaining missile capabilities, with 30 of its 33 sites being restored. President Trump has pushed against the report. Adding to expectations of escalation, Reuters reports that Saudi Arabia, like the UAE, has launched retaliatory attacks in Iran.

Oil: The IEA has warned of increasing price spikes as the global inventory drawdown gathers pace. Overnight, the API reported that U.S. crude oil inventories fell by 2.188 million barrels (mb) on the week, more than the 1.65mb expected. Despite that, inventories are still up 35mb YTD. The U.S. tapped the SPR for 8.6mb last week, while production fell to 13.57mb – still up 0.206mb/day compared with last year. Gasoline inventories rose by 0.5mb but remain 4% below average, while distillate fell 0.32mb, remaining 11% below average. Oil stress and curves remain in high-volatility mode.

Japan and JGBs: Japanese 20y bond yields have risen to 1997 highs, up 5bp to 3.495%. Japanese bonds tracked the U.S. move overnight, with a focus on JPY holding below 158 and the ongoing elevated oil prices. This came despite a strong 10y bond sale yesterday. Japan’s current account surplus rose to a record for March, and U.S. Treasury Secretary Scott Bessent told PM Sanae Takaichi that Japan’s economic fundamentals were strong, both of which set the course for the BoJ to hike rates in June. The OECD sees overnight rates of 2% at the end of 2027. Japanese flows and U.S. bonds will be in the spotlight with the U.S. 30y auction today.

Bottom line: The spin around U.S./China talks, the upcoming 30y bond auction and the U.S. PPI release all mix together to make clear U.S. markets are unlikely to shift themes. The China talks are not expected to drive headlines, but they already have unnerved geopolitical analysts, with President Trump planning to talk to China’s President Xi about arms sales to Taiwan. Throw in Nvidia’s CEO joining the discussion on AI chips and you have the makings of some kind of deal with China on Iran, rare earth minerals and more. The U.S. 30y bond sale will highlight the shift in focus from growth back to inflation, with volatility in global bond markets under scrutiny. Data dependence for the Fed will likely be the same for traders today, as PPI will be watched to confirm the upside risks shown from CPI yesterday. The inability to cap inflation is fraying the positive correlation to stocks, with the focus on consumers and demand. For today, the rebound in tech shares may be limited by the cost of borrowing.

What You Need to Know

ECB Governing Council member Olli Rehn has warned that incoming data point to the early stages of a stagflationary shock in the euro area, driven by the Iran conflict and rising energy prices. Speaking in a public address, Rehn highlighted that growth was only marginally positive in Q1, while inflation accelerated to around 3%. This indicates a deterioration from the ECB’s baseline outlook toward a less favorable scenario, particularly for oil prices. He noted that although the scale is smaller than the 2022 energy shock, the combination of weakening growth and elevated inflation is becoming more visible in official data. Policymakers have so far refrained from reacting with rate changes as they assess the persistence and transmission of the shock. Euro Stoxx 50 +0.71% to 5850, EURUSD -0.256% to 1.1709, BBG AGG Euro Government High Grade EUR +5.2bp to 3.354%.

U.K. Prime Minister Sir Keir Starmer has held a brief closed-door meeting with Health Secretary Wes Streeting, a key potential rival, as pressure over his leadership intensifies within the Labour Party. Around 90 MPs and several trade unions have called for him to step aside, while a wave of junior ministerial resignations has so far failed to force his departure. Although speculation of a leadership challenge is mounting, no formal contender has emerged, with allies of potential successors divided on timing. Starmer has resisted discussing his future publicly and continues to govern as normal, leaving the party in a state of paralysis and adding to broader political uncertainty. FTSE 100 +0.92% to 10359, GBPUSD -0.119% to 1.3524, 10y gilt -2.9bp to 5.072%.

India has raised import tariffs on gold and silver to 15%, effective May 13, 2026, reversing the 2024 duty cuts. The basic customs duty on gold and silver imports has increased to 10% from 5%, with an additional 5% agriculture infrastructure and development Cess levy aimed at curbing bullion imports, narrowing the trade deficit and supporting the rupee in the face of external pressures. Customs duties on precious metal findings and recyclable waste were also revised, with gold and silver findings now at 5%, platinum at 5.4% and spent catalysts at 4.35%. The move comes in response to surging bullion imports and a weakening rupee. SENSEX +0.4% to 74858, USDINR -0.055% to 95.6825, 10y INGB -2bp to 7.026%.

The Korea Development Institute (KDI) has upgraded its 2026 forecasts and now projects GDP growth of 2.5% (previously 1.9%) and CPI inflation of 2.7% (previously 2.1%). The revision reflects stronger semiconductor exports and firmer domestic demand. Growth is expected to soften to 1.7% in 2027. Inflation will remain elevated at 2.7% in 2026, driven by higher oil prices and cyclical recovery, easing to 2.2% in 2027. Private consumption and investment, led by the semiconductor cycle, are set to expand, with exports growing 4.6% in 2026. The current account surplus will widen, supported by robust semiconductor exports, while employment is forecast to rise by 170,000 jobs annually. KOSPI +2.63% to 7844, USDKRW +0.313% to 1488.5, 10y KTB +11.5bp to 4.065%.

What We're Watching

U.S. April PPI final demand is forecast at 0.5% m/m, 5.0% y/y vs. 0.5% m/m, 4.0% y/y in March, while PPI ex food and energy is expected at 0.3% m/m, 4.3% y/y vs. 0.1% m/m, 3.8% y/y in March.

Central bank speakers: The Fed’s Susan Collins speaks on the U.S. economy; the Fed’s Neel Kashkari participates in a moderated discussion; BoE rate-setter Catherine Mann speaks at the London School of Economics on the U.K.’s “international exposures and vulnerabilities.”

U.S. Treasury sells $69bn in 17-week bills and $25bn in 30y bonds.

What iFlow is Showing Us

Mood: A sharp equity sell-off alongside steady demand for core government bonds has pushed iFlow Mood deeper into negative territory (-0.079).

FX: USD inflows dominated amid broad-based selling across the rest of the iFlow universe, led by GBP, DKK, CHF and SGD. EUR saw continued outflows, falling further into the underheld zone.

FI: Australian government bonds faced significant selling, with lighter outflows from Canada, Japan and Indonesia. In contrast, inflows were seen in Eurozone, Colombian and Mexican government bonds and U.K. gilts.

Equities: Heavy selling was concentrated in South Korea, Israel, Sweden, Poland, China, Thailand, the U.S. and Australia. Within EM APAC, flows showed selling in IT, consumer staples, industrials and energy, while materials and healthcare attracted buying.

Quotes of the Day

“A setback is a setup for a comeback” – Willie Jolley

“The one thing I do that nobody else does is jump three or four times for one rebound.” – Dennis Rodman

Economic Details

Euro area GDP increased by 0.1% q/q in Q1, slowing from 0.2% in the previous quarter, while y/y growth eased to 0.8% from 1.3%, pointing to a loss of momentum. Employment growth also softened, rising by 0.1% q/q from 0.2% in Q4 2025, with y/y growth softening to 0.5%. Across the EU, GDP rose by 0.2% q/q and 1.0% y/y. The data indicate a broad deceleration in both activity and labor market expansion, with growth remaining positive but subdued, consistent with weakening economic dynamics across the region. Euro Stoxx 50 +0.71% to 5850, EURUSD -0.256% to 1.1709, BBG AGG Euro Government High Grade EUR +5.2bp to 3.354%.

Euro area industrial production rose by 0.2% m/m in March, matching February’s pace, while EU output increased by a stronger 0.8%, indicating modest short-term improvement. On a y/y basis, however, production was down by 2.1% in the euro area and 1.0% in the EU, highlighting ongoing weakness in the industrial sector. M/m gains were driven by increases in capital and intermediate goods, while energy and non-durable consumer goods weighed on output. The data point to a fragile recovery in industrial activity, with underlying trends still negative and uneven across sectors and member states.

Germany’s wholesale price inflation was 6.3% y/y in April, accelerating sharply from 4.1% in March, with prices also increasing by 2.0% on the month. The surge was primarily driven by higher energy and commodity prices emanating from geopolitical tensions in the Middle East, which pushed up wholesale prices for mineral oil products by 37.3% y/y and 12.7% m/m. Non-ferrous metals and semi-finished metal products also recorded strong gains, alongside increases in chemicals and horticultural goods. In contrast, food-related categories such as dairy products, edible fats and beverages saw substantial price falls, partially offsetting broader upward pressures. DAX +0.91% to 24173, EURUSD -0.256% to 1.1709, 10y Bund -1bp to 3.091%.

French CPI inflation rose to 2.2% y/y in April, accelerating from 1.7% in March, while prices increased by 1.0% m/m. The pickup in headline inflation was primarily driven by a sharp acceleration in energy prices, up 14.3% y/y, particularly petroleum products. Services inflation edged up to 1.8%, supported by transport and accommodation, while core inflation also firmed slightly to 1.2%. In contrast, food inflation slowed to 1.2% and manufactured goods prices remained in deflation at -0.6%. Overall, the data point to energy-led inflation pressures, with underlying price dynamics remaining relatively contained despite some modest firming in services. CAC 40 +0.27% to 8002, EURUSD -0.256% to 1.1709, 10y OAT -1.7bp to 3.722%.

France’s hourly wages rose by 1.9% y/y in Q1, marking a slight acceleration from 1.7% in the previous quarter, while hourly labor costs increased by 2.3%, easing from 2.5%. The pickup in wage growth was partly driven by a minimum wage increase in January and higher value-sharing bonus payments. Broken down by sector, wage growth strengthened in services but slowed in construction and industry. In contrast, labor cost growth moderated overall, reflecting changes in social contribution exemptions and policy adjustments, although it accelerated in industry. On a q/q basis, both wages and costs rose modestly, indicating stable but contained labor cost pressures despite the slight firming in wage dynamics.

France’s unemployment rate rose to 8.1% in Q1, up 0.2 percentage points q/q and 0.7 points y/y to its highest level since early 2021. The unemployment count increased by 68,000 to 2.6 million, with the rise concentrated among those aged 25-49, while youth unemployment fell slightly q/q but remained elevated. Male unemployment increased more than the female rate, and long-term unemployment edged up to 2.0%. The employment rate was broadly stable at 69.5%, while the activity rate reached a record 75.6%. Structural factors, including the implementation of labor market reforms, contributed to part of the increase in unemployment.

Swedish CPI inflation came in at -0.1% y/y in April, down from 0.5% in March, with a sharp m/m decline of -0.6%. The CPIF measure eased to 0.8% from 1.6%, while CPIF excluding energy dropped to 0.0%, highlighting broad underlying disinflation. The main driver was a significant fall in food and non-alcoholic beverage prices, down 5.5% m/m and 5.7% y/y, alongside lower electricity, home electronics and package holiday prices. Lower interest expenses also continued to dampen CPI. Offsetting factors included strong fuel price increases and higher costs for rents and hospitality services, though these were insufficient to prevent overall negative inflation. OMX +0.27% to 3055, EURSEK -0.094% to 10.8967, 10y Swedish GB -0.8bp to 2.862%.

Czech CPI rose to 2.5% y/y in April, accelerating from March, while prices were up 0.5% m/m. The pickup in y/y inflation was driven primarily by transport, as fuel prices surged 24.6%, reflecting higher global energy costs. Additional upward pressure came from alcohol and tobacco, housing-related components including rents and maintenance, and services such as restaurants and recreation. However, disinflationary forces persisted in food, with sharp declines in items such as pork, milk, butter and potatoes, alongside continued falls in clothing and footwear. On a m/m basis, rising fuel and housing costs were partly offset by lower food prices. Overall, goods inflation remained moderate while services inflation stayed elevated. Prague SE +0.35% to 2511, EURCZK +0.05% to 24.347, 10y CZGB -0.7bp to 4.949%.

Czech export and import price indices recorded showed modest q/q increases but continued y/y declines in Q1, reflecting easing external price pressures. Export prices rose by 0.8% q/q but fell by 3.4% y/y, while import prices were up 1.0% q/q but down 4.4% y/y. The q/q rise was driven mainly by energy-related components such as electricity and refined petroleum products, whereas y/y declines were broad-based but particularly evident in chemicals and raw materials. Terms of trade were broadly stable q/q at 99.8% but remained positive y/y at 101.0%, as import prices fell faster than export prices, with exchange rate effects contributing to the overall dynamics.

Türkiye’s current account recorded a deficit of $9.7bn in March, with the deficit excluding gold and energy at $3.9bn, reflecting a large trade-driven shortfall. The annualized current account deficit widened to $39.7bn, while the goods trade deficit reached $77.8bn, partly offset by a strong services surplus of $63.1bn, supported by transport and tourism revenues. On the financing side, net portfolio outflows and deposit withdrawals weighed on flows, while loans remained a key source of financing. Official reserves shrank sharply, with a monthly drop of over $43bn, highlighting continued external financing pressures despite ongoing service sector inflows. BI 100 -0.15% to 14758, USDTRY +0.105% to 45.4181, 10y TGB +48bp to 34.3%.

Japan’s current account surplus widened to ¥4.68tn in March from ¥3.93tn in February. The goods and services balance turned positive at ¥573bn from a deficit of ¥17bn the previous month, supported by a trade surplus of ¥831bn (February: ¥268bn). Exports rose to ¥10.82tn (February: ¥9.37tn), while imports increased to ¥9.99tn (February: ¥9.10tn). Primary income remained strong at ¥4.63tn (February: ¥4.24tn), while there was a secondary income deficit of ¥522bn (February: ¥291bn). Nikkei +0.84% to 63272, USDJPY -0.121% to 157.75, 10y JGB +3.1bp to 2.59%.

Japan’s bank lending including trusts rose 5.4% y/y in April, from 4.8% in March. Total bank lending increased by 6.0% y/y (5.2% in March), with major banks leading at 8.0% y/y growth (6.3% in March). Regional banks’ lending grew 4.3% y/y, unchanged from March. Shinkin banks’ lending rose 1.6% y/y (1.4% in March). Foreign banks showed the highest increase at 29.0% y/y, though down from 33.9% in March. Total lending in April was ¥670.6tn.

Japan’s Economy Watchers Survey for April (seasonally adjusted) saw the current conditions DI fall by 1.4 points to 40.8, in a second consecutive m/m decline. Household-related, corporate-related and employment-related DIs all decreased, with the housing and non-manufacturing sectors significantly weaker. The outlook DI rose by 0.7 points to 39.4, supported by improvements in household and employment sentiment despite a decline in corporate outlook. The survey highlights that economic recovery remains fragile, weighed down by uncertainty linked to Middle East tensions, which are affecting sentiment and future expectations.

In Australia, new home loans fell 6.2% q/q to 139,794 in Q1, following strong growth in 2025 and recent cash rate hikes (total loans were 8.6% higher y/y). The value of new loans declined 3.8% q/q to AU$103.0bn but rose 18.5% y/y. The value of new loans to owner-occupiers dropped 3.8% q/q, while the investor loan value was down 3.0% q/q. Annual growth in loan value has outpaced growth in the number of loans since Q4 2023. The average loan size increased by 9.0% y/y to AU$724,415, reflecting rising property prices, especially in Western Australia, Queensland and South Australia. ASX -0.2% to 5510, AUDUSD +0.153% to 0.7236, 10y ACGB +3bp to 5.062%.

Australia’s seasonally adjusted wage price index rose 0.8% in Q1. This marked a third consecutive quarter of growth, but the rate was slightly lower than the 0.9% recorded in Q1 2025. Y/y wage growth was 3.3%, down from 3.4% a year earlier. Private sector wages increased by 0.8% q/q and 3.2% y/y, while public sector wages rose 0.5% q/q and 3.3% y/y, both at slower paces than in previous periods. Health care and social assistance was the largest industry contributor to wage growth this quarter. Enterprise agreements accounted for over half of the quarterly wage increase.

New Zealand’s Q2 CPI inflation expectations surged to 3.41% for one year ahead (vs. Q1: 2.59% y/y) and 2.53% for two years ahead (vs Q1 26: 2.37% y/y). Perceptions of monetary conditions have improved, with net balances rising to -27.5% at the end of the current quarter and 12.5% for one year out. This first positive reading since Q3 2024 suggests expectations of tighter monetary conditions. NZX 50 -0.13% to 13063, NZDUSD -0.169% to 0.5939, 10y NZGB +3.6bp to 4.747%.

South Korea’s economically active population reached 29.813 million in April, up 0.2% y/y (+72,000). The labor force participation rate dipped 0.2 percentage points to 64.9%. The number of employed people increased by 0.3% y/y (+74,000) to 28.961 million, while the employment-to-population ratio fell 0.2 percentage points to 63.0%. The unemployment count edged down by 0.2% y/y (-2,000) to 853,000, with the unemployment rate steady at 2.9% or 2.8% seasonally adjusted. The economically inactive population rose 1.1% y/y (+174,000) to 16.152 million. KOSPI +2.63% to 7844, USDKRW +0.313% to 1488.5, 10y KTB +11.5bp to 4.065%.