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The selloff in US equities eased yesterday as pressure in the bond space declined. But the news is far from reassuring for a sustainable relief: US politicians continue to turn a blind eye to the stress building in the sovereign bond space. The House of Representatives passed Trump’s ‘beautiful’ tax bill yesterday—with just one vote. But one vote is all it takes to send the bill to the Senate, which is narrowly controlled by the same Republicans who proposed it. As such, US yields have eased slightly but the crisis is far from over. The US dollar was better bid during the Thursday session, though selling pressure returned in Asia. In contrast, Europe’s PMI data disappointed but the euro is performing well against a basket of G7 currencies. Lower energy prices and increased issuance of euro-denominated bonds are also supportive of the euro appetite.

In commodities, crude oil prices took another hit yesterday after reports emerged that OPEC+ is considering a sizable production hike in July—reportedly 411,000 barrels per day—to meet growing demand. Any escalation in Middle East tensions could trigger a spike in prices and may present interesting tactical opportunities, but they are likely to be short-lived.

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It’s Thursday, and so far this week, US debt concerns have overshadowed Middle East optimism, trade tensions, and even a fresh all-time high for Bitcoin. The turning point was last Friday’s credit outlook downgrade by Moody’s, which was quickly followed by a political debate around the budget. In this episode we will dive into the guts of the US debt market, why US could afford to push its debt exponentially higher, why it could no longer do so, and what are the risks and alternatives.

In the markets, the surge in yields weighed heavily on equities. The S&P 500 dropped 1.6%, while the Nasdaq retreated 1.34%. On the earnings front, both Home Depot and Lowe’s reported better-than-expected results, and HD said it has no plans to raise prices due to tariffs, as about half of its products are sourced domestically. But other retailers are less shielded. Walmart previously stated it would raise prices in response to tariffs, while Target missed both Q1 revenue and earnings, cut its full-year guidance, and cited tariff uncertainty, weak consumer sentiment, and backlash from rolling back DEI initiatives in January.

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US equities retreated yesterday—ending a six-day rally—and the US dollar weakened as the selloff in long-term US Treasuries continued. Crude oil jumped on reports that Israel is preparing to strike Iranian nuclear facilities. Safe haven assets surged, while the US dollar was left behind in the safe-haven race. Option traders remain pessimistic about the dollar’s prospects for 2025. The one-year risk reversals—a gauge that reflects whether investors are hedging more with calls or puts—have dropped to the most negative level on record, according to Bloomberg. Listen to find out more!

The People’s Bank of China (PBoC) and the Reserve Bank of Australia (RBA) lowered their interest rates today, hoping to tame and counter the negative impact of the global trade war on their economies and job markets. The moves were expected and received mixed reactions across stock markets.

The CSI 300 index and the Hang Seng gained, the latter was boosted by CATL’s IPO, which went according to plan and led to a 14% surge in its Hong Kong debut. Meanwhile, the ASX gave back earlier gains as trade headlines are turning sour.

In Europe, the EU and the UK sealed their most comprehensive deal since Brexit and pledged ‘to discuss British access’ to Europe’s €150 billion defense fund. The Stoxx Europe Aerospace & Defence ETF soared 2% to a fresh high. In the US, investors shrugged off rating downgrade news, yields reversed advance, the S&P500 eked out small gain. Nvidia’s plans to open the door to third-party chips in its AI infrastructure was applauded. Home Depot and Lowe’s earnings are in focus as investors complete the US consumer picture in the midst of trade turmoil.

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The week starts with a jump in US yields and a weaker dollar after Moody’s downgraded the US credit rating from the top Aaa to Aa1, citing concerns about the US’ rapidly rising debt toward the $37 trillion mark. The Treasury Secretary Scott Bessent downplayed the downgrade and attempted to shift attention to the sharp tariff hikes that may be announced in the next two to three weeks.

This means that the market optimism seen just a week ago — following an agreement between the US and China to talk while lowering tariffs during a 90-day window — is losing strength.

In Asia, the week begins with losses across major indices. Gold, franc, yen and euro are up, index futures are under pressure.

On the economic calendar, both China and Australia are expected to cut rates this week to counter the fallout from trade uncertainties. Meanwhile, UK inflation data out Wednesday is expected to show a sharp increase in headline CPI. Flash PMI data on Thursday will offer a sense of field-level sentiment.

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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, while in the US, the data pointed at economic slowdown but sharp decline in producer prices tempered stagflation worries... but Walmart killed joy saying that they will increase the prices of their products according to tariffs.

As such, uncertainties persist, the US dollar index remains under pressure, and the dollar’s weakness and majors recover early-week losses.

In China, Alibaba’s profit missed estimates and led to a 7.5% selloff in the company’s shares yesterday but growth in cloud revenue remained strong and company said that AI-related products see triple-digit growth.

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The news of fresh deals is coming in from the Middle East as Donald Trump seems very successful in getting the oil- and gas-rich countries to buy stuff from the US – including chips and planes – but appetite for trade optimism is starting to show signs of exhaustion. Despite the announcement of a $243bn deal with Qatar on top of the $600bn deal with Saudi Arabia, the S&P500 traded flat on Wednesday.

In China, Tencent announced slightly better-than-expected revenue in Q1. Its net profit grew 82% compared to the same period last year – but still fell short of analyst expectations and Alibaba will announce its own results later today, and the focus will be on AI and cloud revenues. Note that the Chinese AI story is developing and the Chinese Tech companies’ valuations remain cheaper than the US peers.

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Trade news keeps getting better. Yesterday, it was the chipmakers’ turn to lead the rally, as Saudi Crown Prince Mohammad bin Salman pledged to spend as much as $1 trillion in commercial deals with the US, while Jensen Huang announced in Riyadh that the company will be selling chips to the Saudi Arabian AI company Humain for a massive data center project. Chip stocks led a broad-based US equity rally while gains in Europe remained limited.

On the macro side, investors also digested the latest US inflation report — which showed prices rising last month, but less than expected on a monthly basis. On a yearly basis, the headline rate eased to 2.3% — the lowest since spring 2021 — marking the third straight month of a softer-than-expected print. But the news were overshadowed by the tariff fears and didn’t improve Federal Reserve (Fed) expectations.

Across the channel, the surprise rise in the eurozone inflation softens the European Central Bank (ECB) doves’ hands, while in the UK, dovish voices are rising for the Bank of England (BoE) to cut – giving support to sterling against both the US dollar and the single currency.

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