Key Highlights

• Iran is continuing to discuss a proposed agreement with the U.S.
• Bitcoin falls below $70,000 for the first time in two months.
• EU Parliament’s trade committee paves way for ratification of U.S. trade deal.

Chart of the Day

Broad-based pullback in MENA currencies in May

^{Source: BNY}

If April was a month of relief for MENA assets, that story did not continue in May: the bulk of currencies in the region were net sold, and fixed income continued to underperform. The repeated rounds of peace settlement expectations being raised, only to be followed shortly after by denials have taken their toll on sentiment, and it appears that the market is content with reducing exposures for now and will wait until there is something solid.

May was also a difficult month for frontier markets, as it brought a marked rise in global inflation expectations driven by the conflict. Crucially, the U.S. is seeing rate expectations push ahead. Even under normal conditions this would hurt frontier market currencies, pegged or otherwise. The flow of capital into the Gulf economies and Egypt could become even more sparse if yields in USD cash equivalents pick up. Ultimately, only JOD ended the month net bought, and the levels were mediocre at best. Energy prices are not a solid buffer, and the region’s currencies have been caught up in sustained carry unwinding. Meanwhile, the new “regional safe haven” narrative for OMR was severely curtailed, especially as geopolitical developments began to drive flow interest in addition to geographical advantages.

What's Changed?

The Tuesday turnaround story has continued, with oil lower and technology shares higher in APAC. Profit-taking was dominant in most of the trading overnight, and U.S. futures are pointing lower. The on-again, off-again talks with Iran are continuing to drive volatility, but the key focus on economic data and policy reactions has underscored the second-round effects of the ongoing conflict. EMEA equities have continued to make gains, while bond yields have dropped back. USD is down slightly, with MXN and AUD leading while INR and KRW continue to weaken.

• JGBs: Japan’s 10y government bond auction saw a 3.53 bid/cover, better than the 3.35 average, pushing yields down 11bp to 2.57%. This has taken the market back down from its level matching 1996’s highs. Tomorrow’s speech by Kazuo Ueda of the BoJ will be key in sustaining the JGB gains today, with the market pricing in a 76% chance of a BoJ hike this month. At the same time, JPY continued to trade close to 160 to the USD for a fourth day in a row, despite ongoing warnings of intervention from Finance Minister Satsuki Katayama.
• AI and money: The push to raise more capital is shifting from bonds to stocks in AI. Alphabet (Google/Gemini parent company) plans to raise $80bn in new equity offerings, with $10bn of shares going to Berkshire as a new investor. Alphabet raised its annual capital spending forecast by $5bn to between $180bn and $190bn in ​April, ramping up investments to capture growing AI-driven computing demand with its business AI tools ​and custom chips. Anthropic has filed for an IPO this month. The latest capital round put the company value near $965bn. OpenAI CEO Sam Altman said in a CNBC interview that ‌he is ⁠not focused on the timing of a potential IPO for the maker of ChatGPT, following news of Anthropic’s confidential filing.
• Food inflation and El Niño: The UN World Meteorological Organization has warned of a strong El Niño event that may increase global temperatures and the risks of extreme weather. The heat wave is expected around the world from August to November, bringing increased rainfall in the U.S. and South America, and droughts in Australia, Indonesia and Central America.

Bottom line: For today, JOLTS jobs data and more central bank speakers will drive the topsy-turvy risks for equities and bonds, alongside the ongoing cacophony of conflict headlines from Iran, Israel and the U.S. about the three-month conflict. The focus on liquidity may be the key takeaway today, as new equity issues and rising IPOs will require either a rotation away from current share holdings or more cash to be put to work. The role of bonds remains significant as the offset. What seems important may be in how central banks balance the need for reserves against their battle in FX and fixed income for stability in the face of stagflation. The FT has highlighted the shift in the ECB’s reserves, with gold edging out U.S. bonds in its holdings. While few see USD turning quickly, many think it is overvalued here, with a focus on APAC in particular, starting with JPY, KRW and INR.

What You Need to Know

Iran has not yet replied to the proposed final agreement with the U.S., said a source close to the Iranian negotiating team cited by Mehr News on Tuesday. The source said talks on the final text are continuing in Tehran because Iran remains cautious, pointing to what it sees as a history of U.S. non-compliance and deep mistrust. The message from the Iranian side was that any deal must deliver tangible and real benefits rather than promises. The report suggests negotiations are still open, but progress remains limited as Iran weighs the proposal carefully before deciding whether to accept it. Brent -1.885% to 93.19, WTI -1.726% to 90.57, Omani crude +4.401% to 92.06, Dubai crude +4.462% to 92.322.

EU lawmakers have given their preliminary approval to a U.S. trade deal, moving the pact closer to final ratification before President Trump’s threatened tariff deadline. The European Parliament’s trade committee backed the agreement after negotiators settled outstanding disputes, and a full vote is scheduled for June 16, with member states expected to follow soon after. The deal would remove EU tariffs on U.S. industrial goods in return for a 15% tariff cap on EU exports. The bloc faces pressure to approve it before July 4 or risk new U.S. levies, including a possible 25% tariff on European automobiles. Euro Stoxx 50 +1.19% to 6107, EURUSD +0.138% to 1.1647, BBG AGG Euro Government High Grade EUR 0bp to 3.27%.

The U.S. is in talks to expand nuclear weapons deployments in Europe, according to a report on confidential discussions involving U.S. officials and Nato allies. The talks could extend U.S. nuclear sharing beyond the current six host countries, with possible interest from Poland and some Baltic states as Washington seeks to reassure allies amid fears of reduced U.S. conventional military support. The move would underscore the enduring role of the nuclear umbrella as European members increase defense spending. Any change is not imminent, and no agreement has been reached. Nato Secretary General Mark Rutte said deterrence in Europe must remain strong even as the U.S. pivots more toward other theaters.

What We're Watching

National Bank of Poland is expected to keep rates unchanged at 3.75%.

U.S. April JOLTS job openings are forecast to ease to 6.857 million vs. 6.866 million.

Central bank speakers: The Fed’s Beth Hammack speaks on monetary policy, the ECB’s Boris Vujčić speaks, the ECB’s Olaf Sleijpen speaks in the Dutch parliament, BoE Governor Andrew Bailey participates in a House of Lords hearing, BoE rate-setter Megan Greene delivers a speech on assessing the inflation risks from the recent energy shocks.

U.S. Treasury sells $75bn in 6-week bills.

What iFlow is Showing Us

Mood: Risk sentiment has deteriorated sharply, with the iFlow Mood Index falling to -0.344, driven by accelerating equity outflows and increased demand for core government bonds.

FX: NZD, CAD and DKK were the most heavily sold currencies across the iFlow universe, followed by BRL, CLP and TRY. Inflows were concentrated in the major currencies – USD, EUR, GBP and JPY – while APAC FX flows remained relatively subdued.

Fixed income: Government bond demand was broad-based, led by Eurozone, Chinese and Mexican government bonds and U.S. Treasurys. Modest outflows were observed in Indonesian, New Zealand and Australian government bonds.

Equities: Selling was widespread and sizable across LatAm, EMEA and most APAC markets, with China and Thailand the main exceptions. Within G10, flows were mixed: Australia and New Zealand attracted inflows, while Europe, the U.K. and Japan saw outflows. U.S. equity flows were broadly neutral.

Quotes of the Day

“We’re living in topsy-turvy times, and I think that what causes the topsy-turvy feeling is inadequacy of old forms of thought to deal with new experiences.” – Robert M. Pirsig

“The bat hanging upside down laughs at the topsy-turvy world.” – Japanese proverb

Economic Details

The euro area flash annual inflation estimate for May came in at 3.2%, up from 3.0% in April. The pickup was driven mainly by services, which accelerated to 3.5% from 3.0%, and energy, which remained elevated at 10.9% vs. 10.8% previously. Food, alcohol and tobacco eased to 2.0% from 2.4%, while non-energy industrial goods edged up to 0.9% from 0.8%. Monthly HICP inflation was estimated at 0.1%. The euro area now includes Bulgaria (since January 2026), so the aggregate represents EA21 composition. Euro Stoxx 50 +1.19% to 6107, EURUSD +0.138% to 1.1647, BBG AGG Euro Government High Grade EUR 0bp to 3.27%.

France’s central government budget balance recorded a deficit of €69.6bn in April, slightly larger than the €69.3bn deficit a year earlier. Total expenditure increased by 5.7% y/y to €167.5bn, reflecting higher debt servicing costs, increased military spending, larger energy-related public charges and a rise in transfers to the EU. Net budget revenues rose 8.3% to €112.4bn, supported by stronger VAT receipts, higher personal income tax collections and growth in other tax revenues. Net tax revenues increased by €3.1bn to €102.7bn, while non-tax revenues more than doubled to €9.7bn, largely due to the return of unused investment program funds. The deficit was therefore broadly stable despite a significant increase in spending. CAC 40 +1.14% to 8240, EURUSD +0.138% to 1.1647, 10y OAT -6.5bp to 3.566%.

Spain’s registered unemployment fell by 36,323 people in May, bringing the total to 2,320,721, the lowest May figure since 2007. On a y/y basis, unemployment was down 134,162, or 5.47%. The reduction was broad-based across sectors, led by services, followed by industry, construction and agriculture, while the rate among people without previous employment was broadly stable. Female unemployment fell to 1,404,110 and male unemployment to 916,611, with youth unemployment (under 25s) dropping below 165,000 for the first time in any May. All 17 autonomous communities posted falls, and there were 1,323,719 new contracts, of which 43.22% were permanent. IBEX 35 +1.23% to 18381, EURUSD +0.138% to 1.1647, 10y Bono -6.4bp to 3.363%.

Dutch flash CPI inflation accelerated to 3.5% y/y in May from 2.8% in April, marking a substantial jump in consumer price pressures. On a m/m basis, consumer prices increased by 0.1%. The accompanying breakdown indicates that energy prices, including motor fuels, remained the largest source of inflation, with y/y price growth rising further compared with April, while services inflation also strengthened. Food, beverage and tobacco prices recorded only modest increases, and non-energy industrial goods continued to show relatively subdued inflation. The harmonized measure used for European comparisons also accelerated, with HICP inflation rising to 3.4% from 2.5% in April. The final May CPI figures and full category details will be released on June 9. AEX +0.92% to 1046, EURUSD +0.138% to 1.1647, 10y NGB -5.3bp to 3.071%.

U.K. mortgage and money and credit data for April showed a softer but still resilient lending picture. Net borrowing of mortgage debt by individuals fell to £4.4bn from £6.8bn in March, below the previous six-month average of £5.1bn, while mortgage approvals for house purchases rose to 65,900, above the recent average, and remortgaging approvals were little changed. Consumer credit borrowing was steady at £1.9bn, with higher credit card use offset by weaker other consumer credit. Private non-financial corporations borrowed £5.5bn net, and sterling money growth slowed as M4ex dropped to £9.2bn and M4Lex eased to £11.6bn. FTSE 100 +0.52% to 10393, GBPUSD +0.105% to 1.3468, 10y gilt -5.4bp to 4.844%.

Swiss foreign trade numbers for April showed exports broadly flat at CHF 22.3bn, up 0.1% m/m, while imports fell 3.0% to CHF 19.0bn, lifting the trade surplus to CHF 3.2bn. Export growth came from machinery, electronics and apparatus, and watches, while chemicals and pharmaceuticals weakened after a strong March. On the import side, the main drag was chemicals and pharmaceuticals, which were highly volatile, while jewelry, energy products and vehicles all rose. By region, there were jumps in exports to North America and Asia but a sharp fall in those bound for Europe, especially Slovenia. Imports from Europe declined slightly, while exports from North America and Asia increased. SMI +0.52% to 13375, EURCHF 0% to 0.91483, 10y Swiss GB -3bp to 0.4%.

The second estimate of Hungarian Q1 GDP came in at 1.7% y/y, unchanged from the flash reading. On a q/q seasonally adjusted, calendar-adjusted basis, GDP rose 0.8%. Services were the main growth driver, adding 1.4 percentage points, while industry contributed 0.2 points and construction shaved 0.1 percentage points off growth. Household consumption remained firm, up 4.9%, but external trade was a drag as exports fell 1.8% and imports rose 4.1%. Gross fixed capital formation was broadly flat, down 0.1%. Budapest SI +1.08% to 135244, EURHUF -0.166% to 354.96, 10y HGB +6bp to 5.36%.

Hungary’s external trade in services posted a €2.5bn surplus in Q1, with exports rising to €8.8bn and imports to €6.3bn. On a y/y basis, service exports increased by 4.5% in euro terms and imports by 4.8%, leaving the balance €94mn above the year-earlier level. The strongest contributors to the surplus were transport services, travel services and manufacturing services on physical inputs owned by others. Trade with EU member states remained dominant, accounting for most turnover and generating a €980mn surplus, while Germany was the single biggest partner.

South Africa’s Q2 BER business confidence reading was 39 points, down from 47 in the first quarter and below the 44 recorded in the Q4 2025, signaling a softer business mood in the period. The headline index remained near the levels seen through much of 2025, but weaker readings across most sectors drove the q/q decline. New vehicle dealers fell to 49 from 67, building contractors to 46 from 50, wholesalers to 40 from 50 and retailers to 31 from 36, while manufacturers rose marginally to 31 from 30. Overall, the survey suggests confidence remained subdued despite some pockets of resilience in manufacturing. JSE TOP 40 +2.16% to 106424, USDZAR -0.735% to 16.1957, 10y SAGB -3.3bp to 8.671%.

Australia’s balance of payments for March showed the current account deficit widening to AU$27.1bn from AU$23.0bn in the previous quarter. This was driven mainly by a sharp deterioration in the goods and services balance, which moved from a surplus to a deficit for the first time since December 2017. Net primary income also edged further into deficit at AU$23.7bn. The capital and financial account surplus narrowed to AU$18.6bn. Australia’s net international investment liability position widened substantially to AU$707.6bn at March 31. Terms of trade rose 1.1% to 96.4, while the goods and services balance is expected to detract 0.8 percentage points from quarterly GDP growth. ASX +0.57% to 5598, AUDUSD +0.35% to 0.7184, 10y ACGB -0.2bp to 4.881%.

Australian dwelling approvals fell 3.4% in April to 16,710 on a seasonally adjusted basis. The m/m decline was driven mainly by a 3.6% drop in private dwellings excluding houses, while private house approvals eased 1.0% to 10,088, although they remained elevated and above 10,000 for a third straight month. On a y/y basis, total approvals were still 10.2% higher. The value of total building approvals rose 10.2% to AU$18.64bn, supported by a 29.4% jump in non-residential building value, offsetting weaker residential approvals.

Australian business indicators for the quarter ending March showed a mixed picture, with company gross operating profits falling 1.3% but rising 3.2% y/y. Wages and salaries increased by 1.2% q/q and 5.5% y/y, while inventories rose 0.5% and were broadly flat y/y at -0.3%. Sales of goods and services increased in ten industries and decreased in five, led higher by construction and professional services, while mining was the main drag. The release suggests firm labor income growth despite softer profitability.

Australian government finance statistics for the March quarter indicated a modest improvement in the public finances, with the general government net operating balance rising by AU$1.3bn q/q to -AU$0.4bn. Taxation revenue fell 4.5% to AU$220.6bn, while total general government revenue slipped 3.5% and expenses declined by 4.0%. General government borrowing narrowed to AU$12.7bn. On the spending side, total public demand was unchanged (0.0%) in chain volume terms and is expected to contribute 0.0 percentage points to GDP growth, while total public gross fixed capital formation increased by 0.9% and is forecast to contribute 0.1 percentage points.

South Korean headline inflation rose to 3.1% y/y in May, the highest in 26 months, as higher oil prices and a weaker won lifted import costs and pushed up petroleum product prices, especially gasoline and diesel. The reading was above April’s 2.6% and slightly higher than market expectations of 3.0%. On a m/m basis, consumer prices increased by 0.5%, while core inflation also picked up to 2.5% y/y. The data strengthen the case for the BoK to maintain a hawkish stance and consider rate hikes in the coming months. KOSPI +0.15% to 8801, USDKRW +0.331% to 1518.05, 10y KTB +11.4bp to 4.179%.

Indonesia’s manufacturing PMI edged up to 50.0 points in May from 49.1 in April, signaling broadly stable operating conditions at the start of the second quarter. The improvement was driven by a second straight rise in new orders, which grew at the fastest pace since February, supported mainly by stronger domestic demand. However, output fell for a third consecutive month as higher raw material prices and supply shortages weighed on production. Export sales declined for a third successive month and at the sharpest rate since August 2021. Cost pressures intensified sharply, with input inflation the second-highest on record, while firms raised selling prices at the fastest pace since October 2013. Confidence improved but remained subdued. JCI +0.67% to 6168, USDIDR -0.202% to 17838, 10y IDGB +4bp to 6.76%.

Indonesian inflation was 3.08% y/y in May, up from 2.42% in April and slightly above market expectations, as higher food and transport prices pushed price growth closer to the upper end of Bank Indonesia’s target band. Core inflation also edged up to 2.59%, above the poll forecast. The reading follows a 50bp rate hike by Bank Indonesia in May, which was aimed at containing inflation risks from stronger global oil prices and a weaker rupiah. The central bank has said inflation should remain within target through 2027, even as the currency has recently fallen to record lows. JCI +0.67% to 6168, USDIDR -0.202% to 17838, 10y IDGB +4bp to 6.76%.

Indonesian exports for January-April, measured in USD, rose 5.48% y/y to $92.15bn, while non-oil and gas exports increased by 6.28% to $87.74bn. In April alone, exports jumped 21.98% y/y to $25.30bn, with non-oil and gas exports up 23.36% to $24.15bn. Imports also strengthened, rising 13.40% in the first four months to $86.51bn and 22.49% in April to $25.21bn. As a result, Indonesia posted a trade surplus of $5.64bn, supported by a non-oil and gas surplus of $14.16bn that offset an oil and gas deficit.

Indonesia’s export and import price indexes for Q1 both rose strongly, pointing to firmer external price conditions. The headline export price index climbed 9.06% q/q and 13.71% y/y, driven by gains in both the oil and gas and non-oil and gas sectors. Export prices for oil and gas rose 10.84% q/q and 4.08% y/y, while the non-oil and gas export index advanced by 8.97% q/q and 14.25% y/y. The headline import price index also climbed 8.95% q/q and 9.97% y/y, with non-oil and gas imports up substantially, while oil and gas import prices rose q/q but fell y/y.

Thai manufacturing PMI came in at 52.6 points in May, down slightly from 52.7 in April, indicating continued expansion but the slowest improvement in factory conditions since July 2025. Production growth eased to its weakest pace in 12 months, while new orders rose at a solid and faster rate after April’s eight-month low, supported by resilient demand and stronger sales pipelines. Employment was broadly unchanged, backlogs continued to build for a tenth month and purchasing activity stalled after an 11-month expansion. Supply delays persisted, input cost inflation stabilized and factory gate prices edged higher. Business confidence improved to its strongest since February. SET +1.69% to 1595, USDTHB +0.047% to 32.557, 10y TGN -2.3bp to 2.31%.

Malaysia’s manufacturing PMI for May came in at 49.9 points, down from 51.6 in April, indicating a slight deterioration in operating conditions and a return to near-stagnation. The report showed renewed easing in new orders and output as subdued demand and higher prices weighed on sales, while export orders fell for a third straight month. Employment was broadly unchanged after two months of gains, and firms increased their purchasing only modestly. Input cost inflation remained strong, driven by raw materials and fuel, although selling price inflation slowed sharply as manufacturers tried to stay competitive. Confidence improved slightly but remained subdued by historical standards. KLCI -0.11% to 1683, USDMYR -0.37% to 3.9645, 10y MGB -1.4bp to 3.559%.