Global financial markets showed remarkable resilience on Monday despite a continuous escalation in Middle East tensions. Iranian missiles struck Israel’s Tel Aviv and Haifa overnight, prompting an immediate warning from Israel’s defence minister that Tehran would soon “pay the price.” Iran has reportedly rejected ceasefire negotiations while under Israeli attack, communicating its position through mediators in Qatar and Oman. Yet, despite the geopolitical flare-up, European bourses edged higher, following gains in Asia, and US futures suggest a positive open.
Investor focus appears to be shifting from conflict zones back to trade negotiations. A report in Handelsblatt suggests EU negotiators are considering offering the US 10% tariff on all EU exports to prevent harsher measures targeting key sectors like autos, pharmaceuticals, and electronics. The proposal is not permanent and would come with strings attached. In return, Brussels is reportedly open to reducing tariffs on US vehicles and easing legal or technical barriers that have historically limited American car exports to Europe.
Meanwhile, Japanese Prime Minister Shigeru Ishiba is set to meet US President Donald Trump on the sidelines of the G7 summit. Tokyo has been seeking a breakthrough on tariff issues after several inconclusive rounds of negotiations. Monday’s high-level meeting is seen as a potential turning point, although expectations remain cautious.
Currency markets are calm, with most major pairs trading within Friday’s range. Dollar is underperforming, followed by Yen and Canadian Dollar. In contrast, Aussie and Kiwi are leading the pack, benefiting from the mild risk-on mood. Euro is also moderately firmer, while the Swiss franc and Aussie are positioned in the middle of the board.
BoJ’s rate decision is the key focus in the upcoming Asian session. The central bank is widely expected to leave its policy rate unchanged at 0.50%. Amid lingering trade uncertainty and weak external demand, expectations for further tightening have diminished. A Reuters poll shows 52% of economists now see no additional rate hikes in 2025, with most expecting just one 25-basis-point hike by March 2026. Unless trade dynamics improve meaningfully, BoJ is likely to maintain its cautious stance.
Technically, CHF/JPY’s rally from 165.83 continues today and edged higher to 178.17. Current development suggests that medium term consolidation from 180.05 has already completed with three waves to 165.83, and larger up trend is ready to resume. Still, the main hurdle for this bullish case lies is resistance zone between 61.8% projection of 165.83 to 176.45 from 173.06 at 179.62 and 180.05. Or in short, 180 psychological level is the key.
In Europe, at the time of writing, FTSE is up 0.47%. DAX is up 0.36%. CAC is up 0.74%. UK 10-year yield is up 0.007 at 4.564. Germany 10-year yield is up 0.02 at 2.558. Earlier in Asia, Nikkei rose 1.26%. Hong Kong HSI rose 0.70%. China Shanghai SSE rose 0.35%. Singapore Straight Times fell -0.08%. Japan 10-year JGB yield rose 0.051 to 1.454.
Swiss government cuts GDP forecast, warns of below-average growth in 2025–26
Switzerland’s Federal Government Expert Group has lowered its economic growth forecasts, citing persistent global trade uncertainty and weaker investment momentum. GDP, adjusted for sporting events, is now projected to grow just 1.3% in 2025 and 1.2% in 2026, down from March’s forecasts of 1.4% and 1.6%, respectively.
These figures imply a period of significantly below-average growth for the Swiss economy, even under the assumption that the recent US import tariffs remain capped at current levels and that the trade conflict does not escalate further.
The inflation forecast for 2025 has been revised down to just 0.1%. In 2026, inflation is projected to pick up to 0.5%.
ECB’s Nagel warns against premature policy commitment
German ECB Governing Council member Joachim Nagel struck a cautious tone at a conference today, warning against locking in any specific policy path amid persistent global uncertainty.
Markets currently price in only one more rate cut by year-end. But Nagel resisted endorsing that outlook, stressing that rapidly evolving conditions make it unwise to pre-commit.
“We must keep our eyes and ears open for the risks to price stability,” he said, pointing specifically to current developments in the Middle East as a source of heightened uncertainty.
Nagel also offered a downbeat assessment of Germany’s near-term prospects, forecasting stagnation in Q2 and flagging the global trade war as a significant drag. He estimated that escalating trade tensions could shave as much as 0.75 percentage points off German growth over the medium term.
ECB’s de Guindos sees inflation risks balanced, Euro strength not a concern
In a Reuters interview, ECB Vice President Luis de Guindos downplayed concerns over a return to the ultra-low inflation era of the 2010s, despite the recent strengthening of Euro. De Guindos acknowledged that these developments could weigh on headline inflation but emphasized that “the risk of undershooting is very limited.” He maintained that inflation risks are now “balanced”. Euro’s recent appreciation was neither rapid nor volatile, and therefore “not going to be a big obstacle” at 1.15 level.
De Guindos expressed confidence that inflation will rebound after dipping to 1.4% in Q1 2026, citing a still-tight labor market and sustained wage pressures. Compensation growth, supported by union demands, is expected to remain near 3%. This aligns with ECB’s medium-term outlook of returning inflation to its 2% target.
While stopping short of explicitly endorsing a pause, de Guindos indicated that market pricing for just one more rate cut, potentially later this year, was consistent with ECB President Christine Lagarde’s latest messaging.
“Markets have understood perfectly well what the President said about being in a good position,” he noted, adding that investors now correctly anticipate that the ECB is nearing the end of its easing cycle.
NZ BNZ services slumps to 44.0, economy returning to recession
New Zealand’s services sector took a steep turn downward in May, with the BusinessNZ Performance of Services Index plunging from 48.1 to 44.0, the lowest reading since June 2024. Activity and new orders led the decline, falling from 46.7 and 50.2 to 40.1 and 43.2 respectively, as businesses reported broad-based weakness in demand. Employment also edged down from 47.9 to 47.2.
Sentiment on the ground paints an equally grim picture. Negative commentary from survey respondents rose to 65.6%, up from 61.8% in April. Businesses cited reduced consumer spending, revenue declines, and heightened uncertainty over inflation, interest rates, and the economic outlook. Many reported that customers are delaying decisions and becoming more cautious in their spending—mirroring trends typically seen during periods of economic stress.
BNZ Senior Economist Doug Steel noted that the PSI collapse closely follows the earlier fall in the Performance of Manufacturing Index, reinforcing signs of widespread economic fragility. With both key sectors now contracting, concerns are rising that New Zealand may be “returning to recession”.
China’s retail sales shine with 6.4% yoy growth, but production and investment drag continues
China’s latest economic data for May paints a mixed picture. Industrial production rose 5.8% yoy, falling short of the expected 6.0% and reflecting lingering weakness in external demand. This comes on the heels of a sharp -34.5% yoy drop in exports to the US, despite the mid-May rollback of some tariffs. The full impact of reduced tariffs is expected to emerge more clearly in June though.
In contrast, retail sales provided a bright spot, jumping 6.4% yoy and beating forecasts of 5.0% yoy. The rebound was supported by the government’s aggressive push to boost consumer spending through its appliance and vehicle trade-in program. The Ministry of Commerce reported that the campaign has already generated over CNY 1.1m in sales this year.
However, fixed asset investment remains a drag, growing only 3.7% ytd yoy versus expectations of 3.9%. The persistent weakness in property investment, down 10.7% in the first five months of the year, highlights ongoing strain in the real estate sector.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1491; (P) 1.1552; (R1) 1.1616; More…
Intraday bias in EUR/USD remains neutral and more consolidations could be seen below 1.1630 temporary top. Further rise is expected as long as 1.1372 support holds. Break of 1.1572 will extend the rally from 1.0176. Next target is 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. However, break of 1.1372 support will indicate short term topping, and turn bias to the downside for deeper pullback.
In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will now remain the favored case as long as 1.1604 support holds.
