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Asian Session Market Wrap

A mixed Asian session for stocks as US Futures struggled after the S&P 500 finished with gains of 0.4% on Thursday. It appears early week optimism around the US-China trade deal may be fading. Will potential trade deal announcements reignite risk appetite?

For now though, it appears concerns continue to linger with yesterday's US data not doing much to allay fears that a global slowdown may still be in offing. The picture around consumers and small businesses remains one of concern.

The NFIB Small Business Optimism Index declined 1.6 points in April, to 95.8, its lowest since October 2024. 6 of the 10 index components decreased, with expected business conditions having the most negative contribution.Over the last 4 months, the index has fallen 9.3 points, the sharpest drop since the 2020 pandemic.

At the same time, the share of small firms expecting better business conditions 6 months from now has plummeted 37 percentage points, to 15%, the lowest since October 2024.

In short, despite the US-China 90 day pause, businesses are getting more pessimistic rather than optimistic about the US economy.

Stocks went up in Taiwan, Australia, and South Korea, while they were volatile in Japan and dropped in China. Alibaba Group shares fell as much as 6.7% in Hong Kong after quarterly revenue disappointed.

Adding to the concerns of a global slowdown, Japan's economy shrank for the first time in a year, showing its weakness even before feeling the effects of US President Donald Trump’s tariffs. Finance Minister Katsunobu Kato said he plans to meet with Scott Bessent next week to discuss currency issues he had previously talked about with the US treasury secretary.

All of the above appear to weigh on sentiment as we head into Friday's European session.

Source: LSEG

The European Open

Heading into the European open, Eurozone government bond yields fell on Friday, moving further down from the multi-week highs reached earlier this week.

The DAX continues to advance with modest gains heading into the open. The Index is up 0.2% following yesterday's gains of around 0.9%.

European shares on the whole are bracing for a subdued open though with little data or events scheduled later in the day to provide a clear catalyst.

Gold prices faltered once more, dropping 0.7% to $3,217 an ounce after jumping 2% the night before. Over the week, they’re down by 3.2%.

Oil prices leveled off after dropping over 2% overnight due to news of a possible U.S.-Iran nuclear deal. However, they’re still up 1% for the week thanks to an improved global economic outlook.

On the FX front, traders resumed selling the dollar on Friday, causing it to drop 0.3% against the Japanese yen and 0.2% against the Swiss franc. Meanwhile, the Australian dollar went up 0.4%, and the New Zealand dollar rose 0.5% on the back of rising inflation expectations.

Currency Power Balance

Source: OANDA Labs

Economic Data Releases

Looking at the economic calendar, it is a quiet end to the week for European markets with a sparse calendar. The major market moving event could come in the US session by means of the US Michigan Consumer Sentiment Preliminary release.

This could provide more insight into consumer expectations moving forward and depending on the numbers could either weigh or boost sentiment ahead of the weekend.

For all market-moving economic releases and events, see the MarketPulse Economic Calendar. (click to enlarge)

Chart of the day - DAX

From a technical standpoint, the DAX held support yesterday and closed as a hammer candlestick on the daily timeframe.

Early European session gains position the index favorably for a retest of the 24000 handle and potentially a break higher.

The fading optimism around the US-China trade pause may halt the rally and is something worth monitoring.

The only concern from a technical aspect comes from the period-14 RSI which is in overbought territory.

The Index does need a break and daily candle close beyond 24000 if bulls are to push on and print fresh all-time highs.

Definitely worth monitoring ahead of the weekend.

Immediate Resistance may be found at 24000, 24250 and potentially 24500.

Immediate support rests at 23750, 23471 and 23212 respectively.

DAX Daily Chart, May 16, 2025

Source: TradingView.com (click to enlarge)

Latvian ECB Governing Council member Martins Kazaks indicated market pricing of a 25bps cut at the June 5 meeting is “relatively appropriate”.

Nevertheless, speaking to CNBC, Kazaks added that inflation developments are "by and large within the baseline scenario". Thus, ECB is “relatively close to the terminal rate” of its easing cycle.

Kazaks' comments argue that ECB may enter a phase of pause after the June rate cut.

Meanwhile, French Governing Council member Francois Villeroy de Galhau, in an interview with a regional French newspapers, acknowledged the risk of a trade war but dismissed the notion that central banks are currently engaged in a currency war.

Villeroy defined a currency war as using interest rates competitively to gain economic advantage. Instead, he said recent currency movements are more reflective of "revisions to economic forecasts."

BoJ board member Toyoaki Nakamura, known for his dovish stance, warned that Japan’s economy is under “mounting downward pressure” and cautioned against "rushing" to interest rate hikes.

Speaking today, Nakamura highlighted the risks of tightening policy while growth slows, noting that higher rates could "curb consumption and investment with a lag".

Nakamura also pointed to growing uncertainty stemming from US tariff policy, which he said is already causing Japanese firms to delay or scale back capital spending plans.

He warned that escalating trade tensions could spark a “vicious cycle of lower demand and prices,” undermining both growth and inflation.

Daily Pivots: (S1) 193.17; (P) 194.08; (R1) 194.73; More...

Intraday bias in GBP/JPY remains neutral and more consolidations could be seen below 196.38. Another rally is in favor as long as 190.22 support holds. Firm break of 195.95 will suggest that whole choppy decline from 199.79 has completed, and target this resistance next. However, decisive break of 190.22 will indicate near term reversal and turn bias back to the downside.

In the bigger picture, price actions from 208.09 are seen as a correction to rally from 123.94 (2020 low). Strong support should be seen from 38.2% retracement of 123.94 to 208.09 at 175.94 to contain downside. However, sustained break of 175.94 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 162.32; (P) 163.35; (R1) 163.94; More...

Intraday bias in EUR/JPY remains neutral and some consolidations could be seen below 165.19. Further rally is in favor as long as 161.57 support holds. Above 165.19 will resume the rally from 154.77 to 166.67 resistance. However, firm break of 161.57 will indicate near term reversal, and turn bias back to the downside.

In the bigger picture, price actions from 175.41 are seen as correction to rally from 114.42 (2020 low). Strong support should be seen from 38.2% retracement of 114.42 to 175.41 at 152.11 to contain downside. However, sustained break of 152.11 will bring deeper fall even still as a correction.

Daily Pivots: (S1) 0.8392; (P) 0.8417; (R1) 0.8430; More...

Intraday bias in EUR/GBP remains neutral and more consolidations could be seen above 1.8401. Another fall is expected as long as 0.8539 resistance holds. As noted before, rebound from 0.8221 might have completed as a corrective move. Break of 0.8401 will target retest of 0.8221/8239 support zone.

In the bigger picture, the extended decline from 0.8737 dampened the original bullish view. While a medium term bottom was in place at 0.8221, price actions from there could be a corrective pattern only. Larger down trend from 0.9267 (2022 high) might still be in progress. Sustained trading below 55 W EMA (now at 0.8438) will turn favor to this bearish case.

Daily Pivots: (S1) 1.7367; (P) 1.7431; (R1) 1.7521; More...

Intraday bias in EUR/AUD remains neutral at this point. Further fall is in favor as long as 1.7628 resistance holds. Below 1.7245 will target 61.8% retracement of 1.5963 to 1.8554 at 1.6953. On the upside, however, firm break of 1.7628 resistance will argue that fall from 1.8854 might be completed, and turn bias back to the upside for stronger rebound.

In the bigger picture, as long as 1.7062 resistance turned support (2023 high) holds, up trend from up trend from 1.4281 (2022 low) should still be in progress. However, sustained break of 1.7062 will confirm medium term topping and bring deeper fall back to 1.5963 support.

Daily Pivots: (S1) 0.9382; (P) 0.9402; (R1) 0.9430; More....

Intraday bias in EUR/CHF remains neutral as range trading continues. Rebound from 0.9218 is either as a corrective move or the third leg of the pattern from 0.9204. On the upside, break of 0.9419 resistance will target 0.9445 and above. Nevertheless, break of 0.9296 support will bring retest of 0.9204/18 support zone.

In the bigger picture, prior rejection by long-term falling channel resistance (now at 0.9548) retains medium term bearishness. That is, down trend from 1.2004 (2018 high) is still in progress. Firm break of 0.9204 (2024 low) will confirm resumption. This will remain the favored case as long as 0.9660 resistance holds.

Markets

The new leg in the ‘reflation rebound’ as triggered by a promising outcome in US-Sino trade talks last weekend ran into resistance. US yields yesterday were closing in on some kind of a technical wall (2-yr 4.05/10% area, 10-y 4.55/60% area, 30-y key 5.0% barrier). Money markets had scaled back expectations on the EoY Fed easing to 50 bps. The debate for sure will remain subject to multiple reassessments, but for now this look a reasonable bet. While unlikely being conclusive for the timing and amount of Fed easing, mildly softer than expected US data in this respect provided a perfect excuse to move to some more neutral positioning. US PPI producer prices printed softer than expected. April retail sales were soft (0.1% M/M, -0.2% control sales), but came on the back of a very strong (and upwardly revised) March reading. Difficult to draw any conclusions on spending going forward. Idem for mixed industry surveys. Even so, it was enough for markets to not further scale back expectations on Fed easing. US yields eased between 11.3 bps (5-y) and 8.3 bps for the 30-y with the latter intraday briefly touching the 5.0% mark. Even without much high profile news, German yields followed in lockstep with yields easing 6.0 bps (2-y) and 8.0 bps (30-y). EMU money markets are now again fully in line with two additional ECB rate cuts towards the end of the year and a low in the ECB easing cycle at 1.75%. The equity rally stalled but with no retracement yet (S&P 500 +0.4%, Eurostoxx 50 +0.16%). USD trading of late mainly was driven by trade-related topics (was/is FX policy a topic in US trade negotiations, in particular with Asian trading partners?). Even so, yesterday’s US data and declining yields at least didn’t help. The dollar eased a bit further with the likes of the won and the yen still outperforming (close USD/JPY 145.7, DXY 100.88, EUR/USD marginally higher at 1.119). Decent UK GDP data kept sterling fairly well bid intraday, with EUR/GBP returning tot the low 0.84 support area.

Asian equities this morning trade modestly lower. US yields tentatively extend yesterday’s setback (minus 1-2 bps) as does the dollar (USD/JPY 145.2, EUR/USD 1.1215). Today’s eco calendar in the EMU is almost empty. In the US housing starts and permits and the U. of Michigan consumer confidence are scheduled for release. Confidence is expected to bottom after a steep setback since the start of the year. Markets will look out for the inflation expectations series after last month’s sharp leap higher, especially in the 1-yr ahead measure (6.5%). Given the repositioning this week, probably a substantial upward surprise is need for yields to change course north again. For now, we favour more consolidation as US yields are probably blocked by above-mentioned technical barriers. The dollar rebound earlier this week apparently has run its course. Especially for the likes of USD/JPY, direction south looks the path of least resistance.

News & Views

Japanese GDP shrank by slightly more than expected in Q1 2025. The -0.2% Q/Q contraction (-0.7% annualized) was the first negative number since Q1 2024. Available details showed consumption failing to contribute (0% Q/Q) following an already weak Q4 2024 (+0.1% Q/Q). Like in yesterday’s UK GDP release, there was a significant increase in business spending (1.4% Q/Q). Net exports cut 0.8 percentage point off Q/Q GDP with inventories adding 0.3 ppt. Rather weak growth was accompanied by rising inflation with the GDP deflator increasing from 2.9% Y/Y to 3.3% Y/Y, the highest levels since Q4 2023, and complicating the BoJ’s policy normalization process. Japanese money markets aren’t positioned for the continuation of the hiking cycle anytime soon, with the market implied probably of another 25 bps rate increase at only 67% by the end of the year.

The central bank of Mexico extended its rate cut cycle with a third consecutive 50 bps rate cut to 8.50%. Banxico stated that “it could continue calibrating the monetary policy stance and consider adjusting it in similar magnitudes.” This clearly hints at similar action at the June meeting. Both headline and core inflation came in at 3.93% Y/Y in April. Inflation forecasts were adjusted upwards in the short term, mainly due to a greater-than-expected increase in merchandise inflation but headline inflation is still expected to converge to the 3%-target in Q3 2026. Although the balance of risks remains biased to the upside, it has improved as global shocks have been fading. The inflation environment allows for a continuation of the rate cutting cycle, albeit maintaining a restrictive stance.

Market sentiment remained tilted toward the upside across the US and European markets yesterday. In Europe, UK growth and eurozone industrial production surprised to the upside, boosting bulls who see the European economies benefiting from lower energy prices and relatively higher currencies to deal with their inflation battle. Combined with government spending prospects, growth in Europe could improve. Yesterday’s numbers somehow supported that view – the Q1 growth in the eurozone was softer than expected, but industrial production made solid progress.

Across the pond, the news was less enchanting, for sure. US retail sales decelerated significantly, factory production declined for the first time in six months, and confidence among homebuilders worsened. The only bright spot was the dramatic easing in producer prices: the yearly figure fell from 3.4% to 2.4%, and the monthly number printed a deflationary reading of 0.5%. Some analysts started saying that the latter numbers point to a slowdown, not stagflation – meaning that the Federal Reserve (Fed) could lower rates and turn the tables. As such, the US 2-year yield was pulled below the 4% mark and brought the possibility of a July rate cut onto the table.

But wait... Walmart – the US retailer known for offering low prices to its customers – said it will be raising the prices of some products in accordance with the tariffs. Not all products will see price increases – the company will try to shield food prices from tariff-led hikes – but for others, depending on their sources, there will be inflation. A 30% tariff, for example, on products from China could lead to double-digit price increases, the company warned. So that aligns with the narrative of both slower spending and higher inflation – a mix the Fed will find hard to deal with.

If you ask me which camp I’m in, I’d say I’m closer to the stagflation camp than the Goldilocks – everything will be fine – camp. And despite the lower recession bets since the US/China de-escalation and the Middle East deals, economic worries for the US will remain.

And the news will continue to be hectic... Trump said yesterday that he had a problem with Tim Cook, that he doesn’t want Apple to move production to India. But Apple has been moving production from China to India to comply with Donald Trump’s will to get out of China. Producing iPhones in the US and selling them for $3000 is not a viable option, so the picture darkens again. Interestingly, Apple fell only 0.41% yesterday on the news, maybe on disbelief, maybe on the lack of alternative scenarios to help Apple get away with the US manufacturing ambitions.

Elsewhere, Nvidia consolidated gains on worries that some people at the White House are concerned that the huge sales to the Middle East would go against national security purposes and benefit China. Overall, the S&P500 started the session with limited appetite but found buyers throughout – hinting that appetite somehow improves despite less-than-ideal news. But gains are certainly at risk of trade news and policies. And the fact that the S&P’s low volatility ETF jumped nearly 2% could be a sign that the winds may be turning in the absence of further good news.

In FX

The US dollar index remains under pressure, and the dollar’s weakness is becoming a serious headache for foreign investors who didn’t previously feel the need to hedge against a weaker dollar – because in times of market turmoil and high volatility, the dollar typically gains on safe-haven flows. But recently, the dollar has been weakening despite rising volatility, and the latter increases hedging costs, leading to an unusual negative correlation between the dollar and volatility. What it ultimately warns is that – given how global portfolios are heavily invested in US companies – increased hedging against the US dollar could further weigh on the dollar’s valuation in the medium run.

In the short run, the dollar’s broad-based retreat helps the majors gain ground. The EURUSD rebounded past the 1.12 level after having tested the 50-DMA to the downside this week. Despite a set of stronger-than-expected inflation readings in major eurozone economies, the shiny industrial production numbers brought euro bulls back to the market. Sterling extended gains against the dollar as well, while the Japanese yen printed a very clear advance against the US dollar this week. The latter may have weighed on the Nikkei index throughout the week, but the Japanese blue-chip index is preparing to close a bearish week – in contrast to European peers – above its 100-DMA.

Chasing cheap deals in China?

In China, Alibaba’s profit missed estimates and led to a 7.5% selloff in the company’s shares yesterday. Part of the reason was gloomy consumer spending due to tariffs, and part was the company’s decision to divest from subsidiaries and the valuation of its equity holdings. But the company’s cloud revenue accelerated – as a sign of growing AI demand – and CEO Eddie Wu said their AI-related product revenue achieved triple-digit growth for the seventh consecutive quarter. They didn’t specify which product. Although investors were discouraged by the actual numbers, the developing AI story, various stimulus measures to boost Chinese consumption, and possible de-escalation of the trade war with the US remain promising factors for Alibaba in the medium run. As such, the price pullbacks could be interesting opportunities to buy dips. From a technical perspective, Alibaba managed to defy the bears into the $100 per share level at the heart of the trade storm and rebounded 40% from dip to peak. The positive trend will remain intact above the $120 per share level.