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The single currency has a new poster girl. ECB President Lagarde picked her moment. In absence of UK and US investors, she pulled maximum attention with a speech on Europe’s role in a fragmented world. Foundations that seemed unshakeable begin to shift and create the opening for “a global euro moment”. Which has to be earned of course. Current fracturing of the global order caused by the US trade strategy poses short-term economic risks for Europe with exports accounting for close to one fifth of added value. Long term, there could be opportunities with the change landscape questioning the dominant role of the dollar, opening the door for the euro to play a greater international role. In past experiences of shifts in the global FX landscape (suspension of gold convertibility or ending Bretton Woods), a decline in the standing of the dollar pushed investors into gold as on neither occasion, there was a robust alternative currency to take over at short notice. Lagarde points out that things are different now with the euro currently already accounting for 20% of global FX reserves compared with 58% (lowest since 1994) in the case of the US dollar. Investors aren’t convinced yet though, as the share of gold in global FX reserves recently started increasing again, also reaching 20%. For the euro to become cornerstone of the financial system, Europe must first ensure it has a solid and credible geopolitical foundation by maintaining a steadfast commitment to open trade and underpinning it with security capabilities. Lagarde sports the EU’s largest network of trade agreements in the world with the single currency used as invoice currency in around 40% of global trade. The ECB can help the euro’s attractiveness by working on a potential digital euro, pursuing initiatives to enhance cross-border payments in euro And by extending swap and repo lines to key partners. Usage in trade needs to go hand in hand with robust military partnerships. The current USD dominance is not just a product of economic fundamentals, but it is powerfully reinforced by US security guarantees. Investors like assets in regions that can honour alliances with hard power. A major shift on this military part is currently under way in Europe. Second, Europe must reinforce its economic foundation to make Europe a top destination for global capital, enabled by deeper and more liquid capital markets. Simply put: Europe needs a more liquid supply of safe assets to invest in. Lagarde refers to the competitiveness report from her predecessor, Draghi, and warns for self-defeating fragmentation. Economic logic tells us that public goods need to be jointly financed. And this joint financing could provide the basis for Europe to gradually increase its supply of safe assets. Finally, Europe must bolster its legal foundation by defending the rule of law – and by uniting politically so that we can resist external pressures. While Europe can improve by dropping single veto voting systems, she especially takes a swing at the US here by pointing out that investors have significant doubts on the stability of the US legal and institutional framework as witnessed by the highly unusual simulataneaous sell-off in USD, US treasuries and US stocks after “Liberation Day”. Increasing the international role of the euro can have several positive implications for the euro area. It would allow EU governments and businesses to borrow at lower cost, helping boost internal demand when external demand is becoming less certain. It would insulate from FX fluctuations, protecting Europe from more volatile capital flows and it would protect Europe from sanctions or other coercive measures.

News & Views

The head of the UK’s Debt Management Office (DMO) told the Financial Times that the agency is shifting to shorter-term borrowing. The average maturity of UK debt is around 14 years. That’s significantly higher than the US’ +/- 6 years and longer than most other government bond markets. But UK (and global) long-term bond yields are at elevated levels over fiscal concerns and amid waning demand from institutional investors, the pension industry in particular. The UK 30-yr yield hit the highest level since 1998 last week. This is threatening the government compliance to its self-imposed fiscal rules. Chancellor Reeves resultingly tweaked them in the autumn budget of 2024, was forced to cut spending and raise taxes in the spring update of 2025 and will most likely face the issue again in the 2025 autumn budget.

The week started on a slow but hopeful note for European markets, with expectations that Trump’s latest 50% tariff threat on European imports would accelerate negotiations. And that’s what the latest headlines suggest. As a result, the Stoxx 600 rebounded around 1% yesterday, the DAX led gains with a 1.68% advance, the CAC added 1.21%, while the Swiss SMI index also gained 1.21%—on echoes that Switzerland could also ink a deal with the US in the coming weeks – a deal that would bring the 30% tariff rate down to 10%

So, yes, that market optimism fascinates me! European markets are flirting with ATH levels, US futures were also up yesterday, but the reality is that with every piece of incoming information, the collective welfare deteriorates. Today, we are in a worse position than we were a month ago. And a month ago, we were in a worse position than we were three months ago. The global trade negotiation period was supposed to last 90 days, and now, it ends all of a sudden. The tariffs won’t be brought below the 10% ‘universal’ level and market rallies are triggered not by good news, but by the least bad of the options, once Trump or his administration softens a previously crazy stance. Oh well...

Moving forward, fresh deals between the US and major trade partners could further boost market sentiment and send indices on both sides of the Atlantic to fresh ATH levels—but whether that optimism lasts is yet to be seen. The economic data, especially the inflation metrics, will be crucial.

FX rates are crucial for equity valuations, as well, provided that they have a direct impact on companies’ costs and revenues. They reflect monetary policy, and/or they influence policy decisions—hence borrowing costs. As such, European Central Bank (ECB) Chief Lagarde believes that the turmoil in the US dollar and US bonds could strengthen the euro’s position as a reserve currency. The latter would increase sovereign bond demand for the euro area. That additional demand could help lower borrowing costs on top of the ECB’s supportive policy, and help European companies secure cheaper funding. Then, it will be up to the European companies to move and innovate, and up to the European regulators to let them do so.

The US dollar, on the other hand, is better bid this morning, but remains under pressure from trade tensions and the worsening perception of the US’s ballooning debt.

The debt issues are also making the headlines in Japan. The 30- and 40-year JGB yields have recently spiked to the highest levels on record, and the 10-year yield hit the highest since 2009. Political pushes for tax cuts and spending hikes are refocusing investor attention on fiscal cracks, just as the Bank of Japan (BoJ) looks willing to slow purchases and tighten monetary policy. And when you think that the BoJ holds almost half of the outstanding 10-year debt, the fallout could hurt.

On the other hand, higher yields will attract Japanese investors, especially the institutional ones, back to Japanese markets, partly by dumping their UST holdings. That could put further pressure on US debt and weigh further on the dollar. The USDJPY rebounded near 142 on the back of a sudden retreat in Japanese yields before a 40-year auction and a certain rebound in the US dollar—but the trend remains in favour of the Japanese yen.

As per the Japanese bonds, liquidity remains poor in the JGB space, and I’d rather prefer German bonds for diversifying US exposure.

Still in Asia, the latest data revealed that Chinese industrial profits rose 1.4% y/y in the first four months of the year—up from a 0.8% advance in Jan–Mar, thanks to policy support. On the trade front, there’s no fresh news about the US-China trade negotiations, but there is progress on the China-EU front, as policymakers are willing to respond and tame the impact of the deterioration of their relations with the US. The CSI 300 is breaking below the 50-DMA despite encouraging data, while the HSI is retreating from the May peak. On the individual front, BYD dropped almost 15% since last Friday’s peak following reports of significant price cuts in a promotional campaign, raising concerns about margin pressure. But the move showcases the strength of demand as BYD sales accelerate at an impressive speed globally. Therefore, price pullbacks are interesting opportunities to enter—or to strengthen—existing positions.

In focus today

From the US, Conference Board's May consumer confidence survey is due for release in the afternoon. Another preliminary survey from the University of Michigan released earlier pointed towards further weakening in consumer sentiment in early May. That said, Conference Board's surveys' cut-off date is typically around a week later, so we will follow if the US-China trade deal managed to improve consumers' mood.

In the euro area, focus turns to the French inflation data for May. As French inflation has been very low since February due to a publicly related lowering of electricity prices, focus will mainly be on the m/m increases as predictors of the euro area data.

In Sweden, the NIER survey released at 09:00 CET may shed further light on both household sentiment (which we expect to recover) and companies' price plans. While price plans have mainly been elevated due to retail trade and especially by non-durables, it still poses as an upside risk to inflation and should be a concern for the Riksbank. A clear easing in the price plans would be needed to make the case a bit stronger for the Riksbank to ease policy. Additionally, Riksbank board member Per Jansson gives a speech at 08:30-09:30 CET, potentially commenting on the fresh data.

In Hungary, the central bank will announce its policy rate. The market consensus is a for an unchanged decision, with the policy rate kept at 6.50%.

Overnight, the Reserve Bank of New Zealand will have a monetary policy meeting. In line with markets, we expect a 25bp cut to the Official Cash Rate (to 3.25%).

Economic and market news

What happened overnight

In China, industrial profit for the January-April period ticked up 1.4% y/y (January-March: 0.8% y/y), reflecting economic resilience in the face of pressure from trade tensions with the US and lingering deflationary pressures domestically. In isolation, April alone was up 3.0% y/y compared to 2.6% y/y in March. The increase in profits was driven by a government trade-in program that boosted demand for manufactured products.

In Japan, while the BoJ projects that the effects of food inflation will wane, BoJ Governor Ueda emphasized that the central bank should be "careful about how food price inflation will impact underlying inflation" with underlying inflation nearing 2%. Ueda also added that the BoJ continues to expect underlying inflation to gradually move toward 2% over the second half of its forecast horizon, and that the BoJ will "adjust the degree of monetary easing as needed." Currently, the BoJ is expected to stay on hold at its meeting on 17 June. We believe the next BoJ hike is most likely to occur in October this year, followed by a potential additional hike in Q1 2026.

What happened yesterday

In Sweden, PPI for April stood at -1.6% m/m (-2.4% y/y), compared to -3.0% m/m and -0.3% y/y in March, marking the largest decline yearly in 16 months. Electricity prices served as the main driver behind the decrease.

Equities: The tariff induced round trips in equities are truly remarkable. Equities recouped most of the tariff threat losses already Friday and amid the tariff pause on Sunday, equities rallied yesterday. This means that European equities have fully recovered to where they were before the 50% tariff threat. For the stock market, nothing has really happened. After multiple threats by the US administration that have ultimately not been carried out, markets are no longer taking them at face value.

European markets were in risk-on yesterday while the US market was closed for holiday, with Stoxx 600 up 1% (German DAX up 1.7%). Unlike past sessions, this was not a large cap cyclical rally. Instead, investors looked outside the usual bets for new sources of risk: Growth stocks and small-cap stocks. It is a long time since we saw such preference in equity markets. While interesting to observe after years of underperformance, we do not style mix it to be particularly long lasting, given the upward pressure on long-end yields.

FI & FX: EUR/USD continue to experience upwards pressure and traded close to 1.14 yesterday. SEK and NOK held on to recent gains vis-à-vis the EUR on an otherwise quiet day in FX markets. Long-end EUR yields dropped slightly yesterday despite some relief on the tariff front as the market digested the decision by US to postpone the 50% tariff on the EU announced on Friday. Oil market did not react on OPEC+'s call to move its coming meeting, where it will decide on another output hike, forward one day to 31 May.

Germany’s GfK Consumer Sentiment rose for the third straight month, reaching -19.9 in June, its highest reading since November 2024, but slightly below expectations of -19.7. In May, income expectations surged 6.1 pts to 10.4, the best since October last year. Economic expectations climbed 2.9 pts to 13.1, their highest since April 2023.

According to Rolf Bürkl of the NIM, the mood remains "extremely low," with uncertainty still elevated due to global trade tensions, stock market volatility, and persistent fears of another year of economic "stagnation". These concerns are encouraging households to prioritize saving over spending.

Full German Gfk consumer sentiment release here.

Daily Pivots: (S1) 142.35; (P) 142.72; (R1) 143.20; More...

Intraday bias in USD/JPY is turned neutral with current recovery. Some consolidations would be seen above 142.10 temporary low. Further decline is expected as long as 55 D EMA (now at 145.85) holds. Below 142.10 will resume the fall from 146.64 to retest 139.87 low.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low), with fall from 158.86 as the third leg. Strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 0.8191; (P) 0.8212; (R1) 0.8231; More….

Intraday bias in USD/CHF stays mildly on the downside at this point. Fall from 0.8475 is in progress for retesting 0.8038 low. Firm break there will resume larger down trend to 61.8% projection of 0.9200 to 0.8038 from 0.8475 at 0.7757 next. On the upside, above 0.8305 minor resistance will turn intraday bias neutral again.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress and met 61.8% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.8079 already. In any case, outlook will stay bearish as long as 55 W EMA (now at 0.8713) holds. Sustained break of 0.8079 will target 100% projection at 0.7382.

Daily Pivots: (S1) 1.3525; (P) 1.3559; (R1) 1.3597; More...

Intraday bias in GBP/USD is turned neutral first with current retreat, and some consolidations could be seen below 1.3592 temporary top. Downside should be contained well above 1.3138 support to bring another rally. On the upside, firm break of 1.3592 will turn bias back to the upside for 100% projection of 1.2706 to 1.3442 from 1.3138 at 1.3874.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.2870) holds, even in case of deep pullback.

Daily Pivots: (S1) 1.1360; (P) 1.1389; (R1) 1.1417; More...

For now, further rise is expected in EUR/USD with 1.1255 support intact. Correction from 1.1572 should have completed at 1.1064. Rebound from there should target 1.1572 first. Decisive break there will resume larger up trend to 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. On the downside, however, break of 1.1255 will turn bias back to the downside to extend the corrective pattern with another falling leg.

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 55 W EMA (now at 1.0858) holds.

Markets were subdued in the Asian session today, showing little enthusiasm in response to China's better-than-expected industrial profit figures. Profits rose 3.0% yoy in April, following a 2.6% gain in March, pushing year-to-date growth to 1.4%. The data was notably resilient given ongoing trade tensions. Still, the NBS struck a cautious tone, warning of persistent headwinds such as weak domestic demand, price pressures, and heightened global uncertainty stemming from ongoing trade war.

Risk sentiment remains fragile despite US President Trump’s decision to postpone the threatened 50% tariff on EU goods until July 9. This move offers a temporary reprieve, but the lack of a clear path to resolution continues to weigh on investor confidence. US futures are holding up for now, but the news should have already been priced in. The broader concern is that even with paused escalations, the threat of further trade disruptions remain a structural drag on growth and trade.

This cautious backdrop is reflected in persistent Dollar weakness and the steady resilience in Gold. As for today so far, commodity currencies are under mild pressure along with the greenback. Yen and Swiss Franc are the strongest performers, followed by Euro, while Sterling trades mixed.

AUD/CAD is a pair to monitor this week, with Australian monthly CPI due Wednesday and Canadian GDP on Friday. Technically, rebound from 0.8440 stalled after hitting 0.9041. Price actions from there is currently seen as a corrective pattern only. Downside should be contained by 0.8799 support (38.2% retracement of 0.8440 to 0.9041 at 0.8811). Break of 0.9041 will resume the rally through 0.9132 resistance.

In Asia, at the time of writing, Nikkei is down -0.23%. Hong Kong HSI is down -0.21%. China Shanghai SSE is down -0.33%. Singapore Strait Times is up 0.13%. Japan 10-year JGB yield is down -0.019 at 1.478.

Looking ahead, Swiss trade balance and German Gfk consumer sentiment will be released in European session. Later in the day, US will publish durable goods orders, house price index and consumer confidence.

BoJ's Ueda highlights persistent food inflation and trade uncertainty

In his remarks at the BoJ-IMES Conference, BoJ Governor Kazuo Ueda highlighted a fresh wave of price pressures, particularly from food, has emerged in Japan recently. Rice prices nearly doubling year-on-year and broader non-fresh food categories climbing 7%.

While BoJ expects the latest food-driven inflation spike to be transitory, Ueda acknowledged that underlying inflation now hovers closer to the 2% mark than in previous years, warranting heightened vigilance.

BoJ retains its baseline scenario that underlying inflation will gradually return to the 2% target over time. However, given the evolving backdrop of supply-driven shocks and heightened global uncertainty, Ueda reiterated that any adjustment in the degree of monetary easing will hinge on incoming data.

"Considering the extremely high uncertainties, it is important for us to judge whether the outlook will be realized, without any preconceptions," Ueda emphasized.

Japan’s external assets hit record, but top creditor status lost to Germany

Japan’s gross external assets soared to a record JPY 533.05T in 2024, marking a 12.9% increase from the previous year. This seventh consecutive annual rise was driven by a combination of Yen depreciation and continued outbound investment activity, especially in mergers and acquisitions.

The Japanese government, businesses, and individuals collectively benefited from currency effects, as Dollar and Euro appreciated by 11.7% and 5% respectively against Yen, inflating the yen-denominated value of overseas holdings.

Nevertheless, for the first time in 34 years, Germany overtook Japan with external assets totaling JPY 569.65T. China followed closely behind Japan with JPY 516.28T.

While Yen’s depreciation offered valuation support, Japan's position was undercut by Germany’s structurally stronger current account surplus.

EUR/USD Daily Outlook

Daily Pivots: (S1) 1.1360; (P) 1.1389; (R1) 1.1417; More...

For now, further rise is expected in EUR/USD with 1.1255 support intact. Correction from 1.1572 should have completed at 1.1064. Rebound from there should target 1.1572 first. Decisive break there will resume larger up trend to 61.8% projection of 1.0176 to 1.1572 from 1.1064 at 1.1927. On the downside, however, break of 1.1255 will turn bias back to the downside to extend the corrective pattern with another falling leg.

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 55 W EMA (now at 1.0858) holds.

In his remarks at the BoJ-IMES Conference, BoJ Governor Kazuo Ueda highlighted a fresh wave of price pressures, particularly from food, has emerged in Japan recently. Rice prices nearly doubling year-on-year and broader non-fresh food categories climbing 7%.

While BoJ expects the latest food-driven inflation spike to be transitory, Ueda acknowledged that underlying inflation now hovers closer to the 2% mark than in previous years, warranting heightened vigilance.

BoJ retains its baseline scenario that underlying inflation will gradually return to the 2% target over time. However, given the evolving backdrop of supply-driven shocks and heightened global uncertainty, Ueda reiterated that any adjustment in the degree of monetary easing will hinge on incoming data.

"Considering the extremely high uncertainties, it is important for us to judge whether the outlook will be realized, without any preconceptions," Ueda emphasized.

Full speech of BoJ's Ueda here.