The S&P500 traded within 3% of February’s record high in Thursday trading. To be sure, the rally off April lows has been nothing short of spectacular. Like the “old days” (aka September to February). Nvidia. MAG7. Manic AI and crypto. Heck, the Broker/Dealer Index traded to record highs a week ago. Junk bond and leveraged loan prices have recovered along with equities. The month saw record ($153bn) month of May investment-grade bond issuance. Financial conditions have loosened significantly.
Looks too much like a set-up. Risk markets have quickly settled back to their baseline: disregard myriad risks until one strikes between the eyes. Squeeze the shorts. Buy the dips like you mean it – with options, of course, offering the best bang for the buck. As they have throughout history, speculative Bubbles are just phenomenal at ensuring no one is spared.
My concerns have not been assuaged. If anything, there is ongoing confirmation of my analytical thesis. I see an equities Bubble incapable of orderly adjustment, which only boosts odds of “disorderly” – market disorder beyond last month and last August. Quick policy responses reversed both nascent de-leveraging episodes. But all the speculative leverage remains – festering and susceptible. Meanwhile, looming economic and Credit Cycle days of reckoning are closing in.
Extraordinary late-cycle resilience is only fitting of history’s greatest Bubble. Explanations include Credit system might that comes from steadfast $2 TN or so of annual federal debt growth – the reckless expansion of money-like Treasury debt. What’s more, Trillions of Treasury/Agency market speculative leverage create a hardier market structure than, say, levered positions in more suspect corporate debt or risky mortgages. And it’s worth noting the recent comments of the robustness of private Credit and private markets more generally.
Indeed, April’s instability and quick recovery showcased the trumpeted “private market” advantage of being insulated from the whims of the public marketplace. No need to fret volatility, sinking market prices or illiquidity – for a marketplace that doesn’t do a lot of asset pricing or trading.
In another extraordinary late-cycle Bubble twist, some of the most levered players are making money hand over fist from booming market trading.
May 27 – Bloomberg (Katherine Doherty and Carmen Arroyo): “Citadel Securities reported record profit and trading revenue in the first three months of the year, buoyed by market volatility that’s continued since President Donald Trump took office. The market-making giant posted $3.4 billion in net trading revenue in the first three months of the year, up roughly 45% from the same period last year… Net income surged 70% to $1.7 billion, the people said… The firm took in $9.7 billion in net trading revenue last year, its largest haul since the company was founded in 2002.”One of these days, deleveraging will careen from “nascent” – easily rectified by timely policy responses – to a full-fledged market crisis posing extreme challenges for global policymakers. For starters, if hedge funds (massive levered “basis trades” and such) panic in concert with foreign holders (i.e., Asian insurance companies and levered institutions), buyers would need to materialize for potentially Trillions of Treasury and debt securities. Such a liquidity challenge would blow holes in critical derivatives market assumptions (liquid and continuous markets), along with premises for scores of investment strategies. It would unmask major structural shortcomings throughout the “private markets.”
In short, structural issues these days create acute vulnerability to a spiraling crisis of confidence in Treasuries, derivatives, risk markets and the dollar.
Market rallies, tariff pauses, and China deals and “resets” notwithstanding, the Trump administration presents clear and present market turmoil risk. My worries of trade wars and worse with superpower rival China were not allayed by the Geneva “deal” or the President’s talk of “total reset.” I assumed it was a mere tactical retreat by an administration petrified by market fragilities and mounting economic risks. I doubted there would be any softening of Beijing’s resolve to “fight to the end” in an ongoing test of wills between fierce adversaries battling on multiple fronts.
I did not expect President Trump would respond kindly to the outpouring of scorn and mockery (at home and abroad), of what the Wall Street Journal editorial board called the “The Great Trump Tariff Rollback.” “‘Trump Chickens Out’ Goes Viral In China Over Tariffs!”
From the Financial Times’ Robert Armstrong:
“Can I just say one very important thing, which is, you know, obviously I didn’t expect this to happen, and the outcome I really, really hope does not happen is that this has anything to do with the President stopping his habitual chickening out. Let us state clearly, chickening out is good and something to be celebrated. Bad policy chickening out, hooray. So, this is an unintended consequences thing if, as I think is quite unlikely by the way, given that I am an unimportant person and the President is an important person, if this gets into his head and he digs in his heels about some of this stuff. That is really a disaster for which I am very, very sorry.”“Quite likely” would be a better bet. Robert Armstrong coined TACO – Trump Always Chickens Out - in a piece discussing Wall Street traders keen to wager on the President’s propensity to lose his nerve. The memes and media attention can’t be sitting well in the Oval Office.
May 28 – Associated Press (Josh Boak): “President Donald Trump wants the world to know he’s no ‘chicken’ just because he’s repeatedly backed off high tariff threats. The U.S. Republican president’s tendency to levy extremely high import taxes and then retreat has created what’s known as the ‘TACO’ trade… Markets generally sell off when Trump makes his tariff threats and then recover after he backs down. Trump was visibly offended when asked about the phrase… and rejected the idea that he’s ‘chickening out,’ saying that the reporter’s inquiry was ‘nasty.’ ‘You call that chickening out?’ Trump said. ‘It’s called negotiation,’ adding that he sets a ‘ridiculous high number and I go down a little bit, you know, a little bit’ until the figure is more reasonable.”Concluding his rambling response, the President scolded the reporter:
“Don’t ever say what you said. That’s a nasty question. Go ahead. To me, that’s the nastiest question.” My thoughts returned to the September Trump/Harris debate, when the President should have laughed it off and not taken the bait: “People start leaving his rallies early out of exhaustion and boredom.”
The President absolutely revels in being the world’s most powerful specimen. Aspirations to cozy up to Putin, Xi and the Nobel Peace Prize are slipping away. I suspect he will struggle mightily adjusting to waning power, much less jeers and taunts. “Trump Warns Putin is 'Playing With Fire' After Declaring the Russian President has ‘Gone Absolutely CRAZY’.” “Kremlin Muses About 'Emotional Overload’ After Trump Asks if Putin is ‘Crazy.’” “Iran Calls Trump Wish for Deal That Lets US ‘Blow Up’ Nuclear Sites a Fantasy.” “‘Sleazebag’: Trump Attacks Former Federalist Society Chair Over Court’s Tariff Ruling.” “Trump Declares War on His Own Judicial Legacy.” “Supreme Court Walks a Tightrope as it Confronts Trump’s Power Moves.”
President Trump (Truth Social 5/30/25):
“Two weeks ago China was in grave economic danger! The very high Tariffs I set made it virtually impossible for China to TRADE into the United States marketplace which is, by far, number one in the World. We went, in effect, COLD TURKEY with China, and it was devastating for them. Many factories closed and there was, to put it mildly, ‘civil unrest.’ I saw what was happening and didn’t like it, for them, not for us. I made a FAST DEAL with China in order to save them from what I thought was going to be a very bad situation, and I didn’t want to see that happen. Because of this deal, everything quickly stabilized and China got back to business as usual. Everybody was happy! That is the good news!!! The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!”Drudge: “Trump Serves Taco Friday! Talks ‘Tough on China.’ Wall St Yawns.”
Wall Street may yawn, but in Beijing, the President’s comments are fighting words. Invoking “civil unrest” was no accident. Few issues carry such sensitivity for Xi Jinping and the Chinese communist party. It’s a disturbing post. Neither the tone nor content will be well-received by the Chinese. Both are disrespectful and threatening. Ain’t Gonna Work.
To the reasonably well-informed, the post lacks all credibility to the point of bordering on irrationality. Caved “for them, not for us”? And I fear this is the type of lashing out we can expect from a President agitated by - and compelled to aggressively respond to - a world skeptical of his power and fortitude. In today’s tinderbox geopolitical landscape, it’s a dangerous dynamic.
May 30 - Bloomberg (Jennifer A. Dlouhy): “US President Donald Trump expressed confidence a talk with Chinese President Xi Jinping could ease fresh trade tensions, after White House officials vented anger over Beijing’s pace of issuing promised export licenses. The dust-up threatened to again upend trade relations between the world’s two largest economies, which have been held together by a fragile, weeks-old tariff truce. ‘They violated a big part of the agreement we made,’ Trump told reporters Friday... ‘But I’m sure that I’ll speak to President Xi, and hopefully we’ll work that out.’” For Beijing, it’s surely “those who live in glass houses…” This week’s developments wouldn’t seem to encourage Xi Jinping to pick up the phone.
May 29 – New York Times (Keith Bradsher): “After stepping back this month from an escalating and dangerous war of tariffs, the United States and China are now threatening to undermine their uneasy truce. On May 12, the countries announced after weekend meetings in Geneva that they would suspend most of their recently imposed tariffs. Since then, however, both governments have shown that they are still prepared to wield controls over critical exports as weapons against one another, with moves that are potentially even more damaging to trade and global supply chains. China has restricted its exports of rare earth magnets, which are crucial for cars, semiconductors, aircraft and many other applications. Close to 90% of the world’s rare earth metals, including magnets, are produced in China. And the United States on May 13 banned the latest semiconductors from Huawei, a Chinese electronics giant. Then on Wednesday, President Trump suspended the shipment of American semiconductors and some aerospace equipment needed for China’s commercial aircraft, the C919, a signature project in China’s push toward economic self-reliance.”
May 29 – Bloomberg: “The US plans to start ‘aggressively’ revoking visas for Chinese students, Secretary of State Marco Rubio said, escalating the Trump administration’s push for greater scrutiny of foreigners attending American universities. Rubio said… students affected would include ‘those with connections to the Chinese Communist Party or studying in critical fields.’ The US will also enhance scrutiny ‘of all future visa applications from the People’s Republic of China and Hong Kong,’ he added… Chinese Foreign Ministry spokeswoman Mao Ning accused the US of taking its decision ‘under the pretext of ideology and national security’…, adding that it would harm people-to-people relations. ‘Such a politicized and discriminatory move lays bare the US lie behind the so-called freedom and openness that the US touts… It will only further undermine its image in the world and national reputation’.”The administration’s move against Chinese students is an alarming escalation. Perhaps it’s a trade negotiation ploy that will be reversed. But throwing 270,000 existing - and many thousands of prospective - students’ futures into turmoil is not damage (to students, families, and universities) easily rectified. For me, it signaled a hard-line approach in the middle of already fraught negotiations that, following a ratcheting up of export controls, will stoke only stronger resolve from Beijing and the Chinese people. As for Chinese nationalism and Xi’s domestic popularity, Trump is the ultimate gift that keeps giving.
The Geneva “total reset” was merely an offramp allowing the resumption of (higher priced) Chinese exports to the U.S. – with little expectation in Washington for a resolution to trade and other critical issues with Beijing. It’s difficult not to be pessimistic. The unfolding U.S./China trade war remains a major problem, with especially broad ramifications, knowing the President will be determined to quash all the TACO talk.
The U.S./China trade “deal” quieted April’s fears of Chinese Treasury selling. Hardly missing a beat, concerns shifted to Taiwan and Japan.
May 29 – Financial Times (Bertrand Benoit): “A closely watched auction of 40-year Japanese government debt has drawn the lowest demand in 10 months as concerns mount over the world’s third-biggest bond market. Demand for the government’s offer on Wednesday of about $3.5bn of 40-year notes attracted a bid-to-cover ratio… of 2.2, the lowest level since July 2024 and a reflection of what some traders have called a ‘buyers’ strike’ among Japanese life insurers and other domestic participants… If this had been a Japan-only story then it might be easy to ignore, but the JGB sell-off was a major factor in the recent global duration wobble, and today’s renewed weakness seems to once again be infecting the long end of the yield curve pretty much everywhere. The Japanese government bond market is one of the largest in the world, so it has always exerted some influence elsewhere. The Bank of Japan’s ‘yield curve control’ programme certainly seems to have acted as an anchor for global bond yields for much of the past decade. But the way JGBs now seem to be actively driving other developed bond markets is interesting. As Ajay Rajadhyaksha wrote on FTAV last week, the core problem is an acute imbalance between supply and demand.”May 28 – CNBC (Lee Ying Shan): “Japan's 40-year government bonds yields hit an all-time high of 3.689% Thursday… Yields on 30-year government debt are up more than 60 bps this year at 2.914%, also not too far from all-time highs… Higher Japan government bond yields could spark a wave of capital repatriation with Japanese investors pulling funds from the U.S. There could be a ‘trigger point’ where Japan’s investors suddenly move their capital from the U.S. back home, Macquarie's analysts said… Should Japanese government bond yields continue to climb, the move could ‘trigger a global financial market Armageddon,’ said Albert Edwards, global strategist at Societe Generale… As higher yields strengthen the yen, it will impact domestic appetite to invest abroad… With the Bank of Japan scaling back bond purchases in a seminal monetary policy shift last year, and private players not stepping up, the demand-supply mismatch is likely to fuel higher yields. ‘If sharply higher JGB yields entice Japanese investors to return home, the unwinding of the carry trade could cause a loud sucking sound in U.S. financial assets,’ Edwards said.”May 27 – Reuters (Takaya Yamaguchi and Leika Kihara): “Japan will consider trimming issuance of super-long bonds in the wake of recent sharp rises in yields for the notes, two sources told Reuters…, as policymakers seek to soothe market concerns about worsening government finances. Super-long bond yields slumped on the report, pushing down the Japanese yen and U.S. Treasury yields along the way, as markets cheered Tokyo's readiness to arrest spikes in long-term interest rates.”Ending the week down 11 bps at 4.40%, one could have missed that 10-year Treasury yields traded at 4.54% Thursday morning following the rough 40-year Japanese bond auction. JGBs, Treasuries and global bonds remain vulnerable. By the end of the week, signals that Japan would cut the size of long-bond issuance had done the trick – for JGBs, Treasuries, derivative “swaps,” and global bonds more generally. Curiously, the dollar rallied versus the yen on the news. Bond, currency, and swaps markets these days seem one big, highly correlated, volatile, and fragile (highly levered) “trade”.
On the subject of elevated market yields – and in the context of looming economic and Credit Cycle days of reckoning noted above – it’s time to keep a watchful eye on increasingly vulnerable housing markets. Pricing data from earlier in the week were noteworthy. The FHFA House Price Index (March data) posted a weaker-than-expected 0.1% decline, the first negative print since August 2022. S&P CoreLogic (March) prices were reported at a much weaker-than-expected negative 0.12%, the first decline since January 2023.
May 30 – Bloomberg (Conor Sen): “House prices are falling, and it’s no longer just a Florida and Texas story. Rising inventory across the country and still reluctant buyers mean that those looking to sell face the prospect of more competition and lower prices next spring if they don’t close on a deal soon. For buyers, holding out can mean a better price. This shift in market psychology should finally break the impasse that has choked transactions for the past few years… But the enormous cost of homeownership has continued to turn off buyers, leading to a steady grind higher in the number of existing homes for sale. These increased 40% over the past two years and, in April, were at the highest level since 2020. There are now nearly 500,000 more home sellers than buyers, according to Redfin Corp., the biggest differential since the company began tracking the data in 2013.” For the Week:
The S&P500 rallied 1.9% (up 0.5% y-t-d), and the Dow gained 1.6% (down 0.6%). The Utilities increased 1.3% (up 8.2%). The Banks gained 1.5% (unchanged), and the Broker/Dealers added 1.2% (up 13.9%). The Transports advanced 1.0% (down 7.6%). The S&P 400 Midcaps increased 0.8% (down 3.8%), and the small cap Russell 2000 gained 1.3% (down 7.3%). The Nasdaq100 rose 2.0% (up 1.6%). The Semiconductors recovered 1.2% (down 4.5%). The Biotechs gained 0.8% (down 2.8%). While bullion dipped $23, the HUI gold index was little changed (up 44.5%).
Three-month Treasury bill rates ended the week at 4.23%. Two-year government yields fell 10 bps to 3.90% (down 34bps y-t-d). Five-year T-note yields dropped 12 bps to 3.96% (down 42bps). Ten-year Treasury yields fell 11 bps to 4.40% (down 17bps). Long bond yields dropped 11 bps to 4.93% (up 15bps). Benchmark Fannie Mae MBS yields sank 14 bps to 5.73% (down 11bps).
Italian 10-year yields dropped 10 bps to 3.48% (down 4bps y-t-d). Greek 10-year yields fell eight bps to 3.24% (up 2bps). Spain's 10-year yields dropped 10 bps to 3.09% (up 3bps). German bund yields fell seven bps to 2.50% (up 13bps). French yields dropped 10 bps to 3.16% (down 3bps). The French to German 10-year bond spread narrowed three to 66 bps. U.K. 10-year gilt yields slipped three bps to 4.65% (up 8bps). U.K.'s FTSE equities index added 0.6% (up 7.3% y-t-d).
Japan's Nikkei 225 Equities Index rallied 2.2% (down 4.8% y-t-d). Japanese 10-year "JGB" yields declined three bps to 1.50% (up 40bps y-t-d). France's CAC40 added 0.2% (up 5.0%). The German DAX equities index gained 1.6% (up 20.5%). Spain's IBEX 35 equities index increased 0.3% (up 22.1%). Italy's FTSE MIB index rose 1.6% (up 17.3%). EM equities were mixed. Brazil's Bovespa index dipped 0.6% (up 13.9%), and Mexico's Bolsa index fell 1.0% (up 16.8%). South Korea's Kospi rallied 4.1% (up 12.4%). India's Sensex equities index slipped 0.3% (up 3.7%). China's Shanghai Exchange Index was unchanged (unchanged). Turkey's Borsa Istanbul National 100 index dropped 3.6% (down 8.2%).
Federal Reserve Credit slipped $6.4 billion last week to $6.637 TN. Fed Credit was down $2.252 TN from the June 22, 2022, peak. Over the past 298 weeks, Fed Credit expanded $2.911 TN, or 78%. Fed Credit inflated $3.826 TN, or 136%, over the past 655 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt recovered $7.2 billion last week to $3.260 TN. "Custody holdings" were down $62 billion y-o-y, or 1.1%.
Total money market fund assets declined $19.8 billion to $6.949 TN. Money funds were up $883 billion, or 14.6% y-o-y.
Total Commercial Paper gained $6.3 billion to a new 16-year high $1.449 TN. CP has expanded $361 billion y-t-d and $169 billion, or 13.2%, y-o-y.
Freddie Mac 30-year fixed mortgage rates increased three bps this week to a four-month high 6.89% (down 14bps y-o-y). Fifteen-year rates added two bps to 6.03% (down 33bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up three bps to 7.02% (down 39bps).
Currency Watch:
May 27 – Bloomberg: “The dollar’s extended slide has prompted China’s central bank to change tack in managing its currency, as it pivots from supporting the yuan to guarding against the risk of a rapid appreciation. The People’s Bank of China fixed the yuan’s daily reference rate at a slightly weaker level than market forecasts on Monday and Tuesday, after setting it stronger for most of the past six months.”
For the week, the U.S. Dollar Index increased 0.2% to 99.329 (down 8.4% y-t-d). For the week on the downside, the Brazilian real declined 1.3%, the South Korean won 1.2%, the Mexican peso 1.0%, the Japanese yen 1.0%, the Norwegian krone 0.9%, the South African rand 0.9%, the Australian dollar 0.9%, the Swedish krona 0.7%, the British pound 0.6%, the Singapore dollar 0.5%, the New Zealand dollar 0.4%, the Swiss franc 0.2%, the euro 0.1%, and the Canadian dollar 0.1%. The Chinese (onshore) renminbi declined 0.25% versus the dollar (up 1.39% y-t-d).
Commodities Watch:
The Bloomberg Commodities Index dropped 2.6% (up 1.2% y-t-d). Spot Gold fell 2.0% to $3,289 (up 25.3%). Silver declined 1.5% to $32.9832 (up 14.1%). WTI crude dipped 74 cents, or 1.2%, to $60.79 (down 15%). Gasoline lost 1.8% (up 1%), and Natural Gas sank 7.5% $3.447 (down 5%). Copper fell 3.3% (up 16%). Wheat declined 1.6% (down 3%), and Corn dropped 3.4% (down 3%). Bitcoin lost $4,250, or 3.9%, to $104,000 (up 11.0%).
Market Instability Watch:
May 28 – Bloomberg (Edward Bolingbroke): “Traders rattled by the rout in long-dated Treasuries are turning more bearish as yields continue to oscillate around a key 5% psychological threshold. A JPMorgan… survey of traders released… spotlighted that investors expect the selloff to worsen, keeping yields elevated in the $29 trillion Treasury market… The bearish sentiment comes on the tail of a decline in global long-dated bonds as investors grow concerned about widening government fiscal deficits… ‘This is a global steepening of the yield curve,’ said Leah Traub, a portfolio manager at Lord Abbett & Co. ‘There are a lot of different nuances to the same story, which is that demand for longer-term securities is diminishing at the same time as supply is growing. That’s going to put pressure on the long end of all these curves.’”
May 28 – Bloomberg (Nour Al Ali): “Weak demand at Japan’s latest long-dated bond sales is putting fresh focus on how high-debt governments will cope as investors grow more discerning, especially in the absence of central bank support… Japan’s public debt is more than twice the size of its economy, the highest among developed economies, and the BOJ still holds over 50% of the market. For years, that anchor helped suppress yields… But now the central bank is gradually tapering and long-end auctions are showing cracks… And it also goes beyond Japan. In the UK, debt-to-GDP is near 100%... In the US, the figure is near 120%, and the Fed is reducing its balance sheet even as Treasury issuance ramps up. The euro area is also grappling with rising financing needs.”
May 28 – Bloomberg (Mia Glass): “Global bond jitters are spilling into Japan, a corner of the market that for decades experienced barely any volatility — and it’s worrying investors already spooked by frictions in US Treasuries. Japan’s central bank… seen as a ‘whale’ of the domestic bond market because it owns more than half the nation’s sovereign notes, has been gradually trimming its balance sheet and scaling back... But the question is: Who else is interested in buying? On May 20, a sale for 20-year notes fizzled out with demand at its weakest in more than a decade. The auction of 40-year bonds on May 28 was met with the weakest demand in 10 months. The rout in Japan’s $7.8 trillion government bond market has been building since US President Donald Trump unveiled his ‘Liberation Day’ tariffs in April.”
Global Credit and Financial Bubble Watch:
May 26 – Reuters (Leika Kihara): “Governments across the globe must curb their ‘relentless’ rise in public debt as higher interest rates make fiscal paths for some countries unsustainable, Agustin Carstens, General Manager of the Bank for International Settlements said… Large deficits and high debt appeared sustainable when interest rates were kept low after the global financial crisis, allowing fiscal authorities to avoid making hard choices such as cutting spending or raising tax, he said. ‘But the days of ultra-low rates are over. Fiscal authorities have a narrow window to put their house in order before the public's trust in their commitments starts to fray,’ Carstens said... ‘Markets are already waking up to the fact that some paths are not sustainable,’ he said, warning that financial markets could suddenly destabilise in the face of large imbalances. ‘That is why fiscal consolidation in many economies needs to start now. Muddling through is not enough.’”
May 29 – Bloomberg (Caleb Mutua): “The US investment-grade primary bond market is having its busiest May since 2020 as easing tariff pressure has spurred companies to borrow while they can, a trend that could continue next month. Six firms are raising $4.9 billion on Thursday, bringing this month’s volume to roughly $153 billion… That’s the most for the month since May 2020, when the Federal Reserve slashed interest rates to help bolster the economy during the pandemic and high-grade firms issued a record $243 billion.”
May 29 – Bloomberg (Carmen Arroyo and Yizhu Wang): “Wall Street banks have emerged as the staunchest financial supporters of the $1.7 trillion private credit industry, with the volume of their loans to private debt funds soaring 145% over the past five years. US banks, typically in fierce competition with private credit firms, are enabling their rivals’ boom. Bank exposure to both business development companies (BDCs) — which pool direct loans — and other types of private debt vehicles reached about $95 billion by the end of 2024… Domestic banks were lenders on 50% of loans to BDCs as of the first quarter of last year, with JPMorgan… being the largest lead arranger… Blackstone Inc. BDC, Ares Capital Corp. and FS KKR Capital Corp. were among the largest borrowers… ‘Banks are facilitating the growth of private credit by lending to private credit funds,’ said David Scharfstein, a professor of finance and banking at Harvard… ‘They get better capital treatment on these highly secured loans and earn healthy returns.’”
May 28 – Financial Times (Robin Wigglesworth): “US banks are lending less and less to companies these days. But the business of lending to so-called shadow banks — such as private credit funds, insurers, asset managers and credit hedge funds — is booming. On the face of it, bank lending to ‘commercial and industrial’ companies (C&I loans) has merely stagnated in recent years, at about $2.8tn at the end of March. However, as a percentage of bank assets and relative to the size of the US economy, C&I loans have now been shrinking for half a decade. That’s not because US companies have suddenly discovered the virtues of resilient balance sheets and begun to borrow less. No, it’s because banks have begun to lend indirectly to many of the same companies by instead making loans to ‘non-bank financial institutions’… According to… Barclays’ macro, credit and bank research analysts, US bank lending to these NBFIs has quintupled over the past decade to well over $1tn, and now accounts for more than 10% of all US banking loans (and nearly 5% of all assets) In other words, as banks are making fewer direct loans to customers, their indirect lending via NBFIs has grown. Banks are now increasingly ‘lending to lenders,’ as they replace C&I loans with NBFI loans.”
May 24 – Financial Times (Will Schmitt, George Steer and Lee Harris): “Two US credit rating agencies have become embroiled in a rare public dispute over the reliability of scores for insurance companies’ growing stash of private credit investments. The dispute involves a study, since withdrawn by its publisher, purporting to find that small credit rating agencies assign more generous scores to private credit investments than the larger and more established ones… ‘There’s a build-up of risk in the insurance industry and also potentially in the collateralised loan sector that is not being properly monitored,’ said Ann Rutledge, a former senior Moody’s analyst and now chief executive of rating agency CreditSpectrum. ‘The opacity and the risk are both attributable to the fact that there are cracks in the foundation of the current SEC-regulated credit rating industry.’”
May 28 – Bloomberg (Amanda Albright and Elizabeth Rembert): “Elite American universities have taken on more than $4 billion in additional debt since March that will help protect their finances as the Trump administration takes aim at their budgets. Harvard University… has boosted its debt load 16% after a bond sale in April. The Massachusetts Institute of Technology just ramped up its liabilities 18% to $5.2 billion. Top-tier schools have sold taxable bonds, taken out private loans, and increased capacity for commercial paper…”
May 23 – Bloomberg (Hannah Benjamin-Cook): “Debt sales in Europe have soared this month amid relief over easing trade tensions, with deal volume for May reaching the highest on record. Bond sales arranged by bankers across Europe surged past €1 trillion for the year in the quickest time ever. Nearly €160 billion in deals have priced in the last two weeks alone… Investor orders in this period have averaged almost 3.5 times deal sizes, suggesting there’s plenty of appetite for this issuance.”
Trump Administration Watch:
May 30 – Bloomberg (Courtney McBride, Philip J. Heijmans and Josh Xiao): “US Defense Secretary Pete Hegseth pressed US partners in Asia to boost defense spending toward 5% of gross domestic product, warning that more urgency is needed to prepare for a potential Chinese invasion of Taiwan. Speaking in Singapore, Hegseth acknowledged that many Asian nations try to balance economic ties with China and defense ties with the US. But he said those relationships complicate decisions during times of tension. And he made clear that President Donald Trump’s administration would apply the NATO model to the region — aggressively demanding countries spend more to defend themselves.”
May 28 – Bloomberg (Derek Wallbank): “President Donald Trump said that the US government would retain guarantees and an oversight role over Fannie Mae and Freddie Mac even as he pursues a public offering for the mortgage giants. ‘I am working on TAKING THESE AMAZING COMPANIES PUBLIC, but I want to be clear, the US Government will keep its implicit GUARANTEES, and I will stay strong in my position on overseeing them as President,’ Trump wrote…”
May 26 – Bloomberg (Lionel Laurent): “Donald Trump has delayed his 50% tariffs on the European Union just days after first threatening them. Perhaps by breakfast, he’ll have changed his mind again. We’re seeing the limits of the madman negotiating strategy: The longer it lasts, the more it has the effect of crying wolf. Financial markets are reacting somewhat soberly and looking past the bluster. Europeans should do the same and avoid the trap of giving in to a bully — however dominant and well-armed he may be.”
May 29 – Financial Times (Editorial Board): “Donald Trump has been on quite a journey since the days when he said bitcoin ‘seems like a scam’. This week, the Trump family media company said it was raising $2.5bn from investors to buy up the cryptocurrency. His sons Eric and Donald Jr promised thousands of orange-clad bitcoin investors in Las Vegas a bonanza, in part because, as his vice-president JD Vance told the same conference, ‘crypto finally has a champion and an ally in the White House’. Bitcoin has hit a recent record high on optimism that US lawmakers will soon agree their first crypto regulations — for stablecoins, or digital tokens pegged to the dollar or another currency.”
May 25 – Axios (Emily Peck): “President Trump may paint China as the enemy, but lately he’s been awfully fond of their command-economy playbook. Trump’s extraordinary interventions — which dovetail with what some critics have labeled ‘MAGA Maoism’ — are rattling businesses, consumers and investors, and throwing global markets into turmoil. Trump has already stretched the power of the presidency to remake the government in his image. Now he’s trying to do the same with Corporate America.”
China Trade War Watch:
May 29 – Bloomberg: “Just weeks after US President Donald Trump declared a ‘total reset’ with China following a trade truce in Geneva, tensions are rising again… Trump’s administration on Wednesday announced it would start revoking Chinese student visas, while also introducing new restrictions on the sales of chip design software and reportedly some jet engine parts to China. That came shortly after it sought to block Huawei Technologies Co. from selling advanced AI chips anywhere in the world, prompting an angry rebuke from Beijing. ‘Geneva was positive because both sides are officially talking to each other,’ said Alfredo Montufar-Helu, senior adviser to the China Center at the Conference Board. ‘But the negotiations didn’t really deal with the core issues that are driving competition between the two sides. Chief of them all — technological dominance.’”
May 28 – New York Times (Ana Swanson): “The Trump administration has suspended some sales to China of critical U.S. technologies, including those related to jet engines, semiconductors and certain chemicals and machinery. The move is a response to China’s recent restrictions on exports of critical minerals to the United States, a decision by Beijing that has threatened to cripple U.S. company supply chains… The new limits are pushing the world’s largest economies a step closer toward supply chain warfare, as Washington and Beijing try to flex their power over essential economic components in an attempt to gain the upper hand in an intensifying trade conflict. A growing standoff over critical supply chains could have significant implications for companies that depend on foreign technologies, including makers of airplanes, robots, cars and semiconductors.”
May 29 – Reuters (Karen Freifeld): “The United States has ordered a broad swathe of companies to stop shipping goods to China without a license and revoked licenses already granted to certain suppliers, said three people familiar with the matter. The new restrictions - which are likely to escalate tensions with Beijing - appear aimed at choke points to prevent China from getting products necessary for key sectors… Products affected include design software and chemicals for semiconductors, butane and ethane, machine tools, and aviation equipment, the people said. Many companies received letters from the U.S. Department of Commerce over the last few days informing them of the new restrictions.”
May 28 – Financial Times (Owen Walker): “Addressing south-east Asian and Middle Eastern leaders in Kuala Lumpur this week, Chinese Premier Li Qiang had a clear message: at a time when US President Donald Trump is shaking the global trading system, Beijing wants to do business. At a gala dinner following summit meetings with the Association of Southeast Asian Nations and the Gulf Cooperation Council, Li pointed out that the assembled countries together accounted for nearly a quarter of the world’s economy and population… ‘Amid heightened geopolitical conflict, rivalry and confrontation, we can create long-term strategic opportunities when we deepen mutual trust,’ he said. ‘Amid rising protectionism and unilateralism, we can unleash enormous market opportunities when we continue to open wider.’ It is a message with particular resonance for many of the assembled leaders…”
May 27 – Bloomberg (Josh Xiao and Kok Leong Chan): “Chinese Premier Li Qiang rallied a group of Southeast Asian and Gulf states to deepen cooperation and touted his country’s economic strength, as Beijing ramps up its charm offensive abroad to counter US efforts to isolate the economy. ‘We should firmly expand regional opening up and develop a big market,’ Li said at a meeting with leaders from Southeast Asia and the Middle East... ‘We should effectively manage differences in the spirit of mutual understanding.’ The inaugural joint summit offers Beijing yet another chance to sway countries caught between the world’s two largest economies.”
Trade War Watch:
May 29 – Wall Street Journal (Editorial Board): “In a ruling heard ’round the world, the U.S. Court of International Trade… blocked President Trump’s sweeping tariffs. This is an important moment for the rule of law as much as for the economy, proving again that America doesn’t have a king who can rule by decree. The Trump tariffs have created enormous costs and uncertainty, but now we know they’re illegal. As the three-judge panel explains in its detailed 52-page ruling, the President exceeded his emergency powers and bypassed discrete tariff authorities delegated to him by Congress. The ruling erases his April 2 tariffs as well as those on Canada and Mexico.”
May 29 – Bloomberg (Erik Larson): “A federal appeals court temporarily paused a sweeping ruling against President Donald Trump’s global tariffs while it takes more time to consider the administration’s request for a longer-lasting hold. A brief order granting a so-called administrative stay was issued Thursday by the US Court of Appeals for the Federal Circuit… It pauses an order that had blocked the tariffs and given the administration 10 days to unwind the levies. The new order, which didn’t include an explanation, creates fresh uncertainty about the fate of Trump’s tariffs.”
May 29 – Bloomberg (Katia Dmitrieva and Christopher Anstey): “Two of Wall Street’s top investment banks cautioned that the impact of a court ruling striking down many of President Donald Trump’s tariff measures may prove limited, given that the administration has other avenues to impose import duties. ‘The tariff levels that we had yesterday are probably going to be the tariff levels that we have tomorrow, because there are so many different authorities the administration can reach into to put it back together,’ Michael Zezas, Morgan Stanley’s global head of fixed income and thematic research, said… Goldman Sachs Group Inc.’s Alec Phillips wrote in a note to clients… that ‘this ruling represents a setback for the administration’s tariff plans and increases uncertainty but might not change the final outcome for most major US trading partners.’”
May 25 – Financial Times (Henry Foy, Andy Bounds and Alex Rogers): “Donald Trump has agreed to delay his threatened 50% tariffs on the EU and extend trade negotiations until July 9, after a conversation on Sunday with European Commission president Ursula von der Leyen. Trump told reporters that von der Leyen had asked for an extension, two days after the US president said he would impose the steep tariffs on EU imports from June 1… ‘She said she wants to get down to serious negotiation,’ Trump told reporters. ‘We had a very nice call… and I agreed to move [the date].’ ‘She said we will rapidly get together and see if we can work something out.’”
May 26 – Bloomberg (Michael Nienaber): “The European Union could retaliate against US technology companies if the trade conflict with Donald Trump’s administration escalates, German Chancellor Friedrich Merz said... ‘At the moment, we strongly protect US tech companies — also on taxes,’ Merz said… ‘That can be changed, but I don’t want to escalate this conflict. I want to solve it together.’”
May 29 – Financial Times (Olaf Storbeck): “The German government is drawing up plans for a 10% tax on global internet giants such as Meta and Google in a move that could further fuel transatlantic trade tensions. Germany’s federal commissioner for media and culture, Wolfram Weimer, told Stern magazine… the new government is drafting a digital levy on global internet platforms, although alternatives such as a voluntary commitment by the affected tech companies to pay more tax in Germany are also still under consideration... ‘We are serious about this,’ the former editor of Axel Springer-owned title Die Welt, said…”
May 29 – Associated Press (Ayaka McGill and Mari Yamaguchi): “Japanese Prime Minister Shigeru Ishiba expressed determination… to defend rules-based, free and multilateral trade systems and work on expanding the main Asia-Pacific trade group at a time of tension over U.S. tariffs. ‘High tariffs will not bring economic prosperity,’ Ishiba told a global forum in Tokyo. ‘A prosperity built on sacrifices by someone or another country will not make a strong economy.’ Japan seeks to work with the U.S. on investment, job creation and manufacturing high quality products for the prosperity of America and the rest of the world, he said.”
Budget Watch:
May 29 – Bloomberg (Justin Fox): “Amid the layoffs, canceled programs and other cutbacks in Washington since Donald Trump moved back into the White House in January, one thing hasn’t changed: Federal spending has just kept going up. Spending since Jan. 21 is up 8.7% over the equivalent period in 2024, 7.2% over 2023. Some kinds of federal spending are irregular and intermittent, and any comparison like this can be affected by the timing of payments, but the Congressional Budget Office’s latest monthly budget review made adjustments for timing shifts and estimated that spending in the 2025 fiscal year, which began in October, was up 7% through April over the same period a year earlier. The increase appears to be real.”
May 25 – New York Times (Catie Edmondson and Minho Kim): “Two of the Senate’s staunchest fiscal conservatives said… they would try to force significant changes to the bill passed by the House last week to deliver President Trump’s domestic agenda, signaling a precarious path ahead for the legislation. Senator Ron Johnson of Wisconsin said on CNN that he saw the opportunity Republicans now have — with control of the House, Senate and White House — as ‘our only chance’ to reset to ‘a reasonable prepandemic level of spending.’ Mr. Johnson accused the House of rushing through the process of putting the bill together and of approving legislation that would ultimately add to the deficit... ‘I think we have enough to stop the process until the president gets serious about spending reduction and reducing the deficit,’ Mr. Johnson said.”
May 24 – The Hill (Mike Lillis, Mychael Schnell and Emily Brooks): “House Republicans are sending a clear and early warning to their Senate allies as the bill encompassing President Trump’s domestic priorities heads to the upper chamber: Don’t water it down. As the massive package heads to the Senate, the critical voices of the House debate — blue-state Republicans, hardliners and party leaders — are cautioning their upper-chamber counterparts not to alter their design too severely, or it will never get through the House on its return. The warnings forecast a coming clash between Republicans in the two chambers, since many senators are already saying they can’t support the package without substantial changes.”
May 30 – Financial Times (Gillian Tett): “Thirty years ago, when I was a rookie reporter, a veteran writer offered me sage advice: whenever presented with a government or corporate document that is more than 100 pages long, hunt for hidden bombs. Donald Trump’s thousand-page (plus) ‘big, beautiful bill’ is a case in point. Since the House of Representatives passed it last week, this fiscal act has been (rightly) lambasted for many reasons… But what investors should also fret about, if they care about the state of Treasuries or are a non-American entity holding US assets, is a clause buried in the bowels of this behemoth called section 899. This would enable the US Treasury to impose penalties on ‘applicable persons’ from ‘discriminatory foreign countries’ by increasing US federal income tax and withholding rates by up to 20 percentage points on their US investments, on a variable scale… ‘Section 899 is toxic [and] a potential game-changer for foreign investment,’ Larson Gross, a tax advisory group, told clients this week. Or as Neil Bass, a Canadian lawyer wrote in his own missive: ‘The US just declared a tax war and it’s targeting allies.’”
Constitution Watch:
May 24 – New York Times (Laurel Rosenhall, Isabelle Taft, Steven Rich and Stephanie Saul): “If it happened to Harvard University, could it happen anywhere? The Trump administration’s surprising bid to end Harvard’s international enrollment put the higher education world on edge this week, looming as a larger threat against academic autonomy. Well beyond the halls of Harvard this week, college leaders were shocked that one swift move by the federal government could eliminate their ability to serve students from abroad, a growing population that has infused their campuses with cachet and wealth. ‘This is a grave moment,’ Sally Kornbluth, the president of the Massachusetts Institute of Technology, wrote in a message to her campus.”
May 26 – Financial Times (Jack Pitcher): “Donald Trump escalated his campaign against Harvard University on Monday, threatening to take away $3bn in grants and lashing out at some of its foreign students as ‘radicalized lunatics’. Trump said he would consider removing the money from Harvard and giving it to trade schools in the US. ‘What a great investment that would be for the USA, and so badly needed!!’ he wrote… In a separate post he railed against the university’s international students, saying he was waiting on Harvard to supply ‘foreign student lists’ so that the US government could determine ‘how many radicalized lunatics, troublemakers all, should not be let back into our Country’. The comments intensify Trump’s attacks on Harvard since his inauguration as US president in January, including a freeze of more than $2.2bn in federal funding for grants at the university.”
May 27 – Financial Times (Lauren Fedor and Andrew Jack): “The US government says it will use ‘every tool’ to evaluate visa applicants, amid reports that the Trump administration will restrict applications from foreigners seeking to study in the country. Secretary of state Marco Rubio sent a diplomatic cable on Tuesday ordering US embassies to halt scheduling interviews for new student visa applicants... ‘Effective immediately, in preparation for an expansion of required social media screening and vetting, consular sections should not add any additional student or exchange visitor (F, M and J) visa appointment capacity until further guidance is issued,’ the cable reportedly said.”
May 29 – NBC (Kimmy Yam): “Chinese students say they’re questioning their decision to study in the U.S. after Secretary of State Marco Rubio announced that the federal government will attempt to ‘aggressively’ revoke their visas. Rubio said Wednesday that Chinese students ‘with connections to the Chinese Communist Party or studying in critical fields’ would be targeted. Chinese students who spoke to NBC… said they came to the U.S. for freedoms that they felt they did not have back in China, but now say that the Trump administration is starting to resemble the strict regime they left behind. ‘USA stands for freedom. It stands for democracy… That’s why we come here to chase our dreams,’ said one Chinese Ph.D. student at a New Jersey university… ‘In China, the government can control education, high schools, colleges, universities. We thought that the USA could be different.’”
May 29 – Associated Press (Fu Ting, Kanis Leung and Huizhong Wu): “Chinese students studying in the U.S. are scrambling to figure out their futures after Secretary of State Marco Rubio announced… some of them would have their visas revoked… Rubio’s announcement was a ‘new version of the Chinese Exclusion Act,’ said Liqin, a Chinese student at Johns Hopkins University, who asked to be identified only by his first name out of fear of retaliation. He was referring to a 19th-century law that prohibited Chinese from immigrating to the U.S. and banned Chinese people already in the U.S. from getting citizenship.”
May 28 – Axios (Sam Baker): “Only a few law firms chose to fight President Trump’s threats in court — but those decisions are paying off. A federal judge today blocked Trump's executive order targeting the firm WilmerHale over its relationship with former special counsel Robert Mueller. ‘This Order must be struck down in its entirety as unconstitutional,’ Judge Richard Leon wrote... ‘Indeed, to rule otherwise would be unfaithful to the judgment and vision of the Founding Fathers!’ Trump is now 0-3 in suits involving the handful of firms that opted to defend themselves in court after Trump targeted them with executive orders that threatened to cripple their businesses. Judges previously ruled against Trump’s efforts to punish Perkins Coie and Jenner & Block for their past work. A fourth case is still awaiting a ruling.”
Canada Friend and Ally Watch:
May 27 – BBC (Jessica Murphy): “King Charles III has given a major speech at the opening of parliament in Canada in which he sought to define its place in an uncertain world and its relationship with the US… The speech opened with an appeal to patriotism as a trade war looms with the US, Canada’s largest economic partner. The King spoke of the ‘pleasure and pride’ of being in the country at a time of renewed ‘national pride, unity, and hope’. He expressed his ‘admiration for Canada's unique identity’ and its growth since the last time a sovereign opened parliament - Queen Elizabeth II in 1957… It has become ‘a bold, ambitious, innovative country,’ he said. ‘The Crown has for so long been a symbol of unity for Canada… It also represents stability and continuity from the past to the present. As it should, it stands proudly as a symbol of Canada today, in all her richness and dynamism.’ The speech concluded on a similar note: ‘As the anthem reminds us: The True North is indeed strong and free!’”
May 27 – Wall Street Journal (Paul Vieira): “Canadian Prime Minister Mark Carney said officials in Ottawa and Washington are engaged in intensive negotiations on a new bilateral economic-and-security deal, and it’s neither in President Trump’s or his interest to let talks drag on through the fall. ‘We’ve got more that we need to do before we’re satisfied that we have a partnership that is in Canada’s interest,’ Carney said… ‘We’ve made a lot of progress.’”
May 27 – Financial Times (Steff Chávez in Washington and Ilya Gridneff): “Donald Trump has said it would cost Canada $61bn to be part of his ambitious ‘Golden Dome’ missile defence shield, but that it would be free if Ottawa gave up its sovereignty to become the 51st US state. ‘I told Canada, which very much wants to be part of our fabulous Golden Dome System, that it will cost $61 Billion Dollars if they remain a separate, but unequal, Nation, but will cost ZERO DOLLARS if they become our cherished 51st State,’ the US president wrote…”
New World Order Watch:
May 28 – Financial Times (Katie Martin): “The bond vigilantes are growling and baring their teeth, and authorities around the world (most of it, anyhow) are doing the right thing, and backing away. But the risk of bond wobbles spiralling in to a broader outbreak of nerves across markets is high. From the US to the UK and Japan, bond investors are making it clear they are unwilling to be used as a low-cost cash machine for government spending for ever. The circumstances for each country vary but the underlying force is the same: the world has changed. Inflation is higher, central banks are not soaking up bonds as they once did, and yet governments still want to borrow like it’s going out of fashion. Now, bond investors want to be rewarded properly for the risks.”
May 27 – Bloomberg (Ruth Carson, Masaki Kondo, Rebecca Choong Wilkins and Diana Li): “For decades, Asia’s export powerhouses had a simple financial strategy: Sell goods to the US, then invest the proceeds in American assets. That model is now facing its biggest threat since the 2008 global financial crisis as Donald Trump tries to remake global trade and the US economy — upending the logic behind $7.5 trillion of investments from Asia. Some of the world’s biggest money managers say an unwind is just getting started… Asian investors have a long list of reasons to look for alternatives to US-based assets: there’s a growing budget deficit, widening political polarization and worries about the country’s aging infrastructure.”
May 26 – Bloomberg (Alastair Marsh): “Inside one of Europe’s biggest asset managers, there’s growing concern that Republican efforts to gut legislation supporting key industries such as clean energy may result in the US losing its status as a destination for investor capital. ‘For investors, the message is clear: The US may no longer offer the reliable investment runway it did just months ago,’ said Alex Bibani, a… senior portfolio manager at Allianz Global Investors, which oversees some $650 billion in assets… ‘Project economics, supply-chain commitments, and capital flows may now pivot toward more stable jurisdictions like Canada or the EU, unless clarity is quickly restored,’ he said.”
U.S./Russia/China/Europe/Iran Watch:
May 25 – Financial Times (Christopher Miller): “Donald Trump called Russian President Vladimir Putin ‘crazy’ in a rare rebuke of Moscow after a wave of aerial attacks on Ukraine. The US president said… he was ‘not happy with what Putin is doing’ after Russia hit dozens of Ukrainian cities, shattering any hopes that a record prisoner exchange completed on Sunday could lead to a cessation of hostilities. ‘He is killing a lot of people. I don’t know what the hell happened to Putin,’ Trump told reporters. ‘We’re in the middle of talking and he’s shooting rockets into Kyiv and other cities… I don’t like it at all.’ Later in a Truth Social post, Trump repeated his criticism of Russia’s leader and said if Putin attempted to conquer all of Ukraine, it would lead to ‘the downfall of Russia’.”
May 27 – Politico (Giselle Ruhiyyih Ewing): “President Donald Trump… accused Russian President Vladimir Putin of ‘playing with fire,’ as Moscow continues battering Ukraine in the face of Trump’s attempts to broker a peace deal to end the war. ‘What Vladimir Putin doesn’t realize is that if it weren’t for me, lots of really bad things would have already happened to Russia, and I mean REALLY BAD. He’s playing with fire!’ Trump wrote…”
May 28 – Reuters (Steve Holland, Guy Faulconbridge and Max Hunder): “U.S. President Donald Trump again expressed frustration… with Russian President Vladimir Putin… But Trump also told reporters in the Oval Office that he was not yet prepared to impose new sanctions on Russia because he did not want the penalties to scuttle a potential peace deal… Asked whether the Russian leader might be intentionally delaying negotiations, Trump said, ‘We’re going to find out whether or not he’s tapping us along or not, and if he is, we'll respond a little differently.’”
May 26 – BBC (Laura Gozzi & Jaroslav Lukiv): “The Kremlin claimed Donald Trump was showing signs of ‘emotional overload’ after he called Vladimir Putin ‘absolutely crazy’ following Moscow’s largest aerial assault on Ukraine… Dmitry Peskov, Putin's spokesman, said the comments were ‘connected to an emotional overload of everyone involved’.”
May 29 – Bloomberg (Hadriana Lowenkron and Jonathan Tirone): “US President Donald Trump said he envisions a nuclear deal with Iran that would allow the destruction of ‘whatever we want’ in the country including labs, a version of an inspections regime that is likely to be rejected by Tehran… Trump briefly outlined his vision of a deal that is ‘very strong, where we can go in with inspectors. We can take whatever we want. We can blow up whatever we want. But nobody getting killed,’ he said.”
Ukraine War Watch:
May 28 – Bloomberg (Michael Nienaber and Olesia Safronova): “Germany agreed to provide Ukraine with €5 billion ($5.7bn) in military aid as part of Chancellor Friedrich Merz’s pledge to help Kyiv build long-range weapons to hit targets on Russian territory. The German funds will flow to the war-battered nation’s production infrastructure, with a ‘significant’ number of weapons to be built this year… The first systems will be operational in the coming weeks. Berlin will also step up deliveries of components for weapons systems in addition to badly needed artillery. Merz, who this week said there were ‘absolutely no range limits’ on Ukrainian forces making deep strikes into Russian territory…”
May 28 – Wall Street Journal (Bertrand Benoit): “Germany will step up financial and military aid to Ukraine, German Chancellor Friedrich Merz said…, the latest sign that Europe is moving to replace the U.S. as Kyiv’s key military supporter in its war with Russia. Germany will ‘maintain and expand’ its military support to Ukraine and the two countries will start a joint program to produce long-range weapons that Kyiv can use against Russian targets.... ‘This is the start of a new form of military-industrial cooperation between our two countries and one that has huge potential,’ he said.”
Taiwan Watch:
May 25 – Financial Times (Kathrin Hille and Demetri Sevastopulo): “China has increased its ability to launch a sudden attack on Taiwan with faster-paced air and operations, new artillery systems and more alert amphibious and air assault units, according to Taiwanese and US officials and experts. One senior Taiwanese military official said Chinese air force and missile units that would play a role in a Taiwan invasion had improved to a point where they could ‘switch from peacetime to war operations any time’. Other Taiwanese defence officials said People’s Liberation Army operations now included continuous training of amphibious forces near departure ports for a Taiwan invasion…”
Bubble and Mania Watch:
May 25 – Wall Street Journal (Jack Pitcher): “This year’s volatile, trade war-obsessed market didn’t shake American investors’ fondness for exchange-traded funds. In fact, it only made them love them more. Investors have plowed a record $437 billion into U.S. ETFs so far this year… And if inflows maintain the current pace… it will mark the second straight record year for U.S. ETF flows... ‘Investors are seeing selloffs as buying opportunities,’ said Todd Rosenbluth, head of research at data provider VettaFi.”
May 27 – Bloomberg (Leonard Kehnscherper): “Private equity firms have seen a sharp drop in fundraising this year, the latest sign of how a slowdown in dealmaking and initial public offerings has hurt an industry that’s struggling to return capital to investors amid high borrowing costs. PE fundraising plunged 35% to $116 billion globally in the three months through March compared to the same period in 2024, according to… Pitchbook. The researcher said it ‘positions the annualized fundraising total to fall below 2024 levels’ of $531 billion, which was already weaker than years past.”
May 29 – Associated Press (Mae Anderson and Paul Harloff): “The typical compensation package for chief executives who run companies in the S&P 500 jumped nearly 10% in 2024 as the stock market enjoyed another banner year and corporate profits rose sharply… The median pay package for CEOs rose to $17.1 million, up 9.7%. Meanwhile, the median employee at companies in the survey earned $85,419, reflecting a 1.7% increase year over year.”
May 29 – Bloomberg (Esha Dey): “The riskiest corners of the US stock market are on pace for the biggest gain since November relative to larger and more stable peers… A UBS Group AG basket of 100 stocks with low scores on measures including financial health or efficiency — names like AMC Entertainment Holdings Inc. and GameStop Corp. — is up 11% in May, triple the advance of the blue-chip Dow Jones Industrial Average and almost double that of the S&P 500 Index.”
AI Bubble Watch:
May 29 – Bloomberg (Ian King and Ed Ludlow): “Nvidia Corp. Chief Executive Officer Jensen Huang said that Chinese AI rivals are filling the void left by the departure of US companies from that market, and their technology is becoming more powerful. ‘The Chinese competitors have evolved,’ he said… Huawei Technologies Co., a Chinese tech company blacklisted by the US government, has become ‘quite formidable,’ he said.”
Federal Reserve Watch:
May 29 – Financial Times (James Politi): “Donald Trump told the head of the Federal Reserve that he was making a ‘mistake’ by not loosening US monetary policy, in their first meeting of Trump’s second term. Fed chair Jay Powell had been invited by the president to the White House… to discuss, according to the US central bank, ‘economic developments including for growth, employment, and inflation’… Following the private meeting, White House press secretary Karoline Leavitt said Trump told Powell he believed the Fed chair was ‘making a mistake by not lowering interest rates, which is putting us at an economic disadvantage to China and other countries’.”
May 25 – Financial Times (Claire Jones): “Federal Reserve chair Jay Powell called on students to protect democracy while praising American universities as ‘a crucial national asset’, days after the Trump administration escalated its attacks on higher education. ‘We lead the world in so many ways, including in scientific innovation and economic dynamism,’ the US’s central banker told students in a commencement address at Princeton... ‘Our great universities are the envy of the world and a crucial national asset’… While extolling American universities, Powell… urged Princeton graduates ‘to take none of this for granted’. ‘When you look back in 50 years, you will want to know that you have done whatever it takes to preserve and strengthen our democracy, and bring us ever closer to the Founders’ timeless ideals’…”
May 27 – Bloomberg (Maria Eloisa Capurro and Toru Fujioka): “Federal Reserve Bank of New York President John Williams said pandemic-era price shocks changed American consumers’ inflation perceptions, and policymakers can’t take for granted that people’s estimates of future price increases will remain anchored. ‘The past five years have, I think, changed people’s perceptions of inflation,’ Williams said… Policymakers should aim to anchor not only longer-term estimates of future consumer price increases, but ‘the whole curve,’ he added. ‘The thing you want to avoid is allowing inflation to become highly persistent, because highly persistent can kind of become permanent,’ he said.”
May 27 – Reuters (Leika Kihara): “New York Federal Reserve President John Williams said… central banks must ‘respond relatively strongly’ when inflation begins to deviate from their target. Given high uncertainty around the economic impact of U.S. tariffs and trade policy, central banks should focus on avoiding taking steps where the ‘cost of getting it wrong far outweighs the benefits,’ rather than aiming for the perfect solution to the problem, he said… ‘You want to avoid inflation becoming highly persistent because that could become permanent,’ Williams said. ‘And the way to do that is to respond relatively strongly’ when inflation begins to deviate from the central bank’s target, he added.”
May 28 – Financial Times (Claire Jones): “Federal Reserve officials have warned that the loss of the US’s safe-haven status triggered by President Donald Trump’s global trade war could have ‘long-lasting’ effects on the country’s economy. Minutes from the Federal Open Market Committee’s early May vote… indicated that some rate-setters focused on the fall in prices for US government debt, equities and the dollar in the weeks after the president announced sweeping tariffs on trading partners. ‘These participants noted that a durable shift in such correlations or a diminution of the perceived safe-haven status of US assets could have long-lasting implications for the economy,’ the minutes said.”
May 28 – Associated Press (Christopher Rugaber): “Federal Reserve officials agreed earlier this month to hold off on any interest-rate moves while they evaluated the impact of President Donald Trump’s tariffs… According to minutes from their May 6-7 meeting…, ‘almost all’ of the 19 officials that participate in the Fed’s meetings on policy saw a risk that ‘inflation could prove to be more persistent than expected’… Officials ‘judged that downside risks to employment and ... upside risks to inflation had risen, primarily reflecting the potential effects of tariff increases,’ the minutes said. Since the meeting, many officials have underscored that the Fed may have to wait for some time before making any further moves with interest rates. Policymakers said there was ‘considerable uncertainty surrounding the evolution of trade policy’ and its impacts on the economy... ‘Taken together, (officials) saw the uncertainty about their economic outlooks as unusually elevated,’ the minutes said. At the same time, at least some Fed officials expressed a range of concerns that tariffs would likely raise prices in the months ahead.”
May 29 – Reuters (Michael S. Derby): “Federal Reserve Governor Adriana Kugler said… she’s closely watching markets amid substantial shifts in trade policy and possible diminished investor desire to hold U.S. dollar assets. ‘I have been paying attention to the possible interaction between the financial vulnerabilities of firms and their exposure to trade,’ Kugler said. ‘As global economic tensions rise and supply chains evolve, understanding how a company’s financial health intersects with its international trade exposure becomes increasingly crucial’ amid what the Fed official called ‘an uncertain global economic landscape.’”
May 29 – Bloomberg (Jonnelle Marte): “Federal Reserve Bank of Chicago President Austan Goolsbee said a resolution in trade policy could push the US economy back toward its pre-tariff trajectory, allowing officials to lower interest rates. ‘If on the back end of this thing, either we don’t put the tariffs in, or they reach some deals that allow us to avoid doing that, we could go back to what we were prior to April 2,’ Goolsbee said… ‘If you have stable full employment and inflation going to target, rates can come down to where they would eventually settle.’”
May 28 – Bloomberg (Alastair Marsh): “The Federal Reserve has disbanded a number of internal groups set up to help the US central bank identify and respond to financial stability threats posed by climate change. Among those dismantled are the Supervision Climate Committee and the Financial Stability Climate Committee, which were established in early 2021. That’s around the time the Fed… began to speak more openly about the financial implications of a hotter planet and increasingly erratic weather patterns.”
U.S. Economic Bubble Watch:
May 30 – New York Times (Andrew Ross Sorkin, Bernhard Warner, Sarah Kessler, Michael J. de la Merced, Danielle Kaye and Grady McGregor): “For months, economists have warned that consumers faced an affordability crunch… Now, new data suggests that there’s a credit crisis brewing: a rising number of defaults for ‘buy now, pay later’ loans, the typically zero-interest debt used for things like sneaker purchases and DoorDash deliveries… Pay-later borrowing in the United States has soared rapidly, with American consumers taking out more than $75 billion worth of these loans in 2023. But as household finances deteriorate, buy-now-pay-never fears have grown… In January… the consumer bureau released a study that found that nearly two-thirds of pay-later loans went to borrowers with risky credit scores. ‘Americans were using ‘buy now, pay later’ as a Band-Aid on top of their credit card debt,’ said Julie Margetta Morgan, a former bureau official who is now president of the Century Foundation… ‘We look at it as a kind of bellwether of risks to the overall economy,’ she added.”
May 27 – Associated Press (Matt Ott): “Americans’ views of the economy improved in May after five straight months of declines sent consumer confidence to its lowest level since the onset of the COVID-19 pandemic, largely driven by anxiety over the impact of President Donald Trump’s tariffs. The Conference Board said… its consumer confidence index rose 12.3 points in May to 98, up from April’s 85.7, its lowest reading since May 2020. A measure of Americans’ short-term expectations for their income, business conditions and the job market jumped 17.4 points to 72.8, but remained below 80, which can signal a recession ahead.”
May 29 – Reuters (Lucia Mutikani): “U.S. corporate profits fell sharply in the first quarter and could continue to be squeezed this year by higher costs from tariffs that are threatening to undercut the economic expansion. Profits from current production with inventory valuation and capital consumption adjustments dropped $118.1 billion last quarter, the Commerce Department's Bureau of Economic Analysis (BEA) said... Profits surged $204.7 billion in the October-December quarter.”
May 29 – Associated Press (Matt Ott): “Filings for U.S. jobless aid jumped last week but American workers broadly remain secure in their jobs despite economic uncertainty over global trade. Jobless benefits applications rose by 14,000 to 240,000 for the week ending May 24… Analysts had forecast 226,000 new applications… The total number of Americans receiving unemployment benefits for the week of May 17 increased by 26,000 to 1.92 million, the most since November of 2021.”
May 27 – Reuters (Lucia Mutikani): “New orders for key U.S.-manufactured capital goods plunged by the most in six months in April amid mounting uncertainty over the economy because of tariffs… The report… also showed shipments of these goods falling last month… ‘I have predicted for months that business investment will be the main driver of a softer economic performance this year, as executives postpone their capital projects until they have more clarity on policy,’ said Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets. ‘These data offer the first confirming evidence of that hypothesis.’ Non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, tumbled 1.3% last month.”
May 28 – CNBC (Diana Olick): “Mortgage rates rose for the third straight week last week to the highest level since January, but some homebuyers were undeterred. Mortgage applications to purchase a home climbed 2% compared with the previous week and were 18% percent higher than the same week one year ago… ‘Purchase applications were up over the week and continue to run ahead of last year’s pace as increased housing inventory in many markets has been supporting some transaction volume, despite the economic uncertainty,’ said Joel Kan, an MBA economist.”
May 28 – Reuters (Saeed Azhar): “U.S. homeowners and prospective buyers are feeling the most uncertain about the real estate market since 2023, a Bank of America survey showed… Of the 2,000 respondents to BofA’s poll, 60% said they could not tell whether it was a good time to buy a home… That is up from 57% last year and 48% in 2023… The sluggish start to a spring season contrasts with the first quarter, when BofA saw an 80% jump in mortgage applications as buyers were tempted by increasing home inventory and lower long-term bond yields.”
May 29 – Yahoo Finance (Claire Boston): “Home contract signings took a nosedive in April as high mortgage rates and tariff uncertainty weighed on prospective buyers. The Pending Home Sales Index fell 6.3% in April from a month earlier to 71.3... A reading of 100 is equal to the level of housing contract activity in 2001. Year over year, pending contracts were down 2.5% nationwide. Contract activity was down month over month in all parts of the country… The latest drop in activity comes even as homebuyers have more to choose from in most markets. According to Realtor.com, nearly 1 million homes were active on the market in April, up more than 30% from a year earlier.”
May 25 – Financial Times (Kristina Shevory and Jamie Smyth): “US oil companies are cutting spending and idling drilling rigs, as Donald Trump’s tariffs push up costs and falling crude prices squeeze profits, prompting executives to warn that a decade-long shale boom is ending. Surprise decisions by the Opec+ cartel to pump more oil have compounded the gloom across the US oil patch, sparking fears of a new price war and prompting analysts to cut output forecasts. ‘We’re on high alert at this point,’ Clay Gaspar, chief executive officer at Devon Energy…, told investors... ‘Everything is on the table as we move into a more distressed environment.’”
China Watch:
May 25 – Bloomberg: “President Xi Jinping’s government is considering a new version of its master plan to boost production of high-end technological goods, according to people familiar…, signaling its intention to keep a firm grip on manufacturing as President Donald Trump looks to bring more factories back to the US. Officials are drawing up plans for a future iteration of Xi’s flagship ‘Made in China 2025’ campaign… The plan over the next decade would prioritize technology including chip-making equipment, one of the people said, adding that it may not carry a similar name to avoid drawing criticism from Western countries.”
Central Bank Watch:
May 30 – Bloomberg (Nicholas Comfort, Esteban Duarte, Claudia Cohen, and Jorge Zuloaga): “The European Central Bank is escalating its scrutiny of lenders’ exposures to private markets amid concerns that the fast ascent of related asset classes raises substantial new risks. The watchdog has signaled that it’s sending letters to executives at certain banks cautioning them on their practices in financing private funds… In another indication of the ECB’s determination, it plans to conduct on-site investigations on the matter at several major European banks… The regulator’s staff recently visited Societe Generale SA in one of the first such exercises… Regulators around the world have been alarmed by the rapid expansion of private credit as investors pour money into funds that aren’t subject to the same strict oversight as banks.”
Europe Watch:
May 26 – Financial Times (Martin Arnold): “EU regulators are planning their first stress test to look for vulnerabilities in the financial system outside of banks, reflecting fears about the rapid growth of less regulated groups such as hedge funds and private equity. The plans by European authorities to examine the impact on the wider financial system of a potential market crisis… follow a similar debut exercise by the Bank of England last year… The move is likely to raise serious concerns among hedge funds, private credit groups and money market funds that they could be subjected to greater scrutiny and restrictions by European regulators in the future.”
Japan Watch:
May 28 – New York Times (River Akira Davis and Hisako Ueno): “Japan, which has the highest government debt among leading economies, is finding it difficult to spend like it used to. Debt-fueled public spending, enabled by low interest rates, has long been a way to address the country’s problems. Struggling farmers and emptying countrysides received generous payments from the central government. Relief aid during the Covid-19 pandemic morphed into new outlays for defense and subsidies to help consumers weather inflation. The spending continued even as more social security funding was needed for Japan’s growing number of seniors. Government debt has ballooned to nearly $9 trillion — more than double the size of the economy. Now, ahead of a heavily contested summer election, Japan’s ruling party is facing pressure to add even more debt.”
May 27 – Bloomberg (Yoshiaki Nohara and Toru Fujioka): “Bank of Japan Governor Kazuo Ueda vowed to monitor the impact that rising yields on super long bonds may have on debt with a shorter maturity, hinting at concern a day after the government signaled its intention to address growing market distress. ‘If super long-term interest rates fluctuate significantly, we will keep in mind the possibility that such fluctuations could affect long-term or even short-to-medium-term interest rates,’ Ueda said… The governor explained that authorities prioritizes their attention on shorter term rates because they have a more direct impact on economic activity…”
May 28 – Bloomberg (Toru Fujioka): “The Bank of Japan amassed the largest amount of unrealized losses on record from its government bond holdings in the year ended March, highlighting the challenges it faces in unwinding more than a decade of extraordinary monetary easing. The paper losses from government bonds tripled from the previous year to ¥28.6 trillion ($198bn) at the end of the fiscal year 2024…”
May 26 – Bloomberg (Erica Yokoyama): “Japan lost its position as the world’s largest creditor nation for the first time in 34 years, giving up the title to Germany despite posting a record amount of overseas assets. Japan’s net external assets reached ¥533.05 trillion ($3.7 trillion) at the end of 2024… While the figure marked an all-time high, it was overtaken by Germany, whose net external assets totaled ¥569.7 trillion. China stayed in third place with net assets of ¥516.3 trillion. Japan began its streak at the top by overtaking Germany in 1991.”
May 25 – Bloomberg (Sakura Murakami): “Japan will sell additional stockpiles of rice at a fixed price with an aim to halve soaring costs, newly-appointed agriculture minister Shinjiro Koizumi said… The government aims to release an additional 300,000 metric tons of its stockpiled rice… That should halve the retail price… The cost of Japan’s staple food jumped 98.4% last month, the most in data going back to the 1970s.”
Leveraged Speculation Watch:
May 29 – Bloomberg (Beril Akman): “The most successful carry trade in the world looks vulnerable as Turkey’s central bank allows the lira to drop, says Goldman Sachs… Turkey’s monetary authority is allowing the lira to depreciate against the dollar at a faster pace than usual, possibly to limit hot money inflows and counter exporters’ complaints that the currency is overvalued, Goldman economists Clemens Grafe and Basak Edizgil said… ‘It is plausible that the bank has decided not to focus on a rebuild of reserves on carry-driven foreign inflows,’ Goldman said. ‘Hence depreciating the lira might be partially a policy aimed at keeping that money out.’”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 28 – Associated Press (Seth Borenstein): “Get ready for several years of even more record-breaking heat that pushes Earth to more deadly, fiery and uncomfortable extremes, two of the world’s top weather agencies forecast. There’s an 80% chance the world will break another annual temperature record in the next five years, and it’s even more probable that the world will again exceed the international temperature threshold set 10 years ago, according to a five-year forecast… by the World Meteorological Organization and the U.K. Meteorological Office. ‘Higher global mean temperatures may sound abstract, but it translates in real life to a higher chance of extreme weather: stronger hurricanes, stronger precipitation, droughts,’ said Cornell University climate scientist Natalie Mahowald…”
May 27 – Financial Times (Kenza Bryan and Steven Bernard): “The global average temperature could rise to almost 2C above pre-industrial levels in the next five years for the first time, the World Meteorological Organization has forecast. Scientists expect a range of knock-on effects from such a climb to near the 2C mark, including a fall in crop yields and more than a third of the world’s population being exposed to extreme heat… Annual temperatures between 2025 and 2029 would be between 1.2C and 1.9C higher than the 1850-to-1900 average, the report said, with the five-year mean likely to exceed 1.5C.”
May 24 – Bloomberg (Mark Chediak): “The troubled, $20 billion US residential solar market’s future rests on whether Senate Republicans will challenge their brethren in the House of Representatives and change provisions of the massive tax and spending bill that executives and analysts alike say would devastate the industry. The bill passed by the House this week would strip away tax credits for companies that lease rooftop solar systems as well as homeowners who buy them outright. The industry is already reeling from tariffs on imported equipment, high interest rates and reduced state incentives in California…”
Geopolitical Watch:
May 27 – Reuters (Sarah Marsh, Matthias Williams and Rachel More): “Germany’s foreign minister threatened unspecified measures against Israel… and said Berlin would not export weapons used to break humanitarian law, as he and Chancellor Friedrich Merz delivered their most severe rebuke yet over Gaza. Germany, along with the United States, had long remained in support of Israel’s conduct since the October 7, 2023 attacks by Hamas, even as Israel became increasingly isolated internationally. Its about-turn comes as the European Union is reviewing its Israel policy and Britain, France and Canada also threatened ‘concrete actions’ over Gaza.”
