Long-bond (30-yr) Treasury yields traded to 5.15% intraday Thursday – the high back to July 2007. This followed on the heels of Wednesday’s spike in Japanese 30-yr JGB yields to a record high (3.19%) for an instrument first issued in 1999. UK 30-year gilt yield surged to a peak of 5.61% in Wednesday trading, the high since just before the LTCM blowup in 1998. At 4.13%, French yields traded Wednesday within two bps of the high back to 2010.
One would expect unfolding crisis of confidence dynamics to be most discernible in longer-term debt instruments. That the debt of high deficit nations is suffering outsized losses provides further evidence of today’s evolving debt market dynamics. The “vigilantes” have gained focus, along with expanding power. While on the subject of crises of confidence, the dollar index dropped 2% this week, the largest weekly decline since the tumultuous week ended April 11th. The Bloomberg dollar index ended the week at the lowest close since December 2023. Gold surged $154, or 4.8%, the largest gain since the week of April 11th.
May 22 – Bloomberg (Michael Mackenzie, Liz Capo McCormick and Ye Xie): “In the world’s biggest bond market, investors are pushing back against President Donald Trump’s tax-cut plan… The concern is that the tax bill would add trillions of dollars in coming years to already bulging budget deficits at a time when investor appetite is waning for US assets across the globe. ‘Make no mistake, the bond market will have its own vote on the terms of the budget bill,’ said George Catrambone, head of fixed income and trading at DWS Americas. ‘It doesn’t seem this president or this Congress is actually going to meaningfully reduce the deficit.’”May 21 – Committee for a Responsible Federal Budget: “The Congressional Budget Office (CBO) released its first comprehensive estimate of the House’s Fiscal Year (FY) 2025 reconciliation bill – the One Big Beautiful Bill Act – finding that before accounting for interactions, the bill would add $2.3 trillion to deficits over the next decade. Incorporating our estimates of interactions and the adjustments announced by House leadership Monday, we estimate the bill would add $3.1 trillion to the debt as written.”Meanwhile…
May 19 – Bloomberg (Alexandra Semenova): “Retail traders went on a record dip buying spree Monday, reversing a 1% decline in the S&P 500 Index triggered by the US credit downgrade… Individual investors purchased a net $4.1 billion in US stocks through 12:30 p.m… the largest level ever for that time of day — and broke the $4 billion threshold by noon for the first time ever, according to… JPMorgan… quantitative and derivative strategist Emma Wu… ‘Retail has learned the hard way, getting left behind during previous stocks recoveries supported by policy puts,’ said Frank Monkam, head of macro trading at Buffalo Bayou Commodities. ‘There is almost an unwavering commitment from retail to never make that mistake again.’”Recent weeks were likely one of the most powerful “buy the dip” episodes ever – following last year’s (and Q1’s) unprecedented ETF inflows. That retail has “learned” so well is evidence of late-cycle dynamics. Similarly, there have been recent articles highlighting the push for retail investors by the major private Credit and private equity firms. When discussing risks associated with prolonging “terminal phase excess” (certainly including speculative risk markets detached from deteriorating prospects), I’ll note the general transfer of risk from the sophisticated to the unsuspecting. Markets are experiencing a major redistribution from the sophisticated players to a household sector absolutely convinced that stocks always recover to ever higher highs. The public – historically exposed to stocks and risk markets more generally - will be left holding the bag. It’s time to heed a flurry of warnings from some of the more astute financial market operators.
“We are entering a new phase of globalization — one less defined by cooperation, and more by strategic self-interest. Long-held assumptions are being challenged, not just by tariff announcements but by a deeper confidence shock. The near-term impact is already being felt, and the long-term trajectory is being rewritten in real time. If you’re looking to markets for clarity, you might be a tad disappointed. But if you’re looking for signals, they’re everywhere. Treasury yields rose even as equity markets wobbled. The U.S. dollar, typically a safe haven, has weakened at moments when it used to rally. That tells us something deeper is going on — investors aren’t just pricing near-term risks; they’re reevaluating the credibility of long-held certainties. It’s showing up in how capital moves. Pensions and asset managers are tilting more towards Japan, India and parts of Europe. Hedge funds are being selective and didn’t chase the April equity bounce. Sovereign wealth funds are diversifying more aggressively. Hedging against the dollar is now at levels we haven’t seen in years.” Citigroup CEO Jane Fraser, May 16, 2025
“You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt. They don’t include the greater risk that the countries in debt will print money to pay their debts, thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting (rather than from the decreased quantity of money they’re getting). Said differently, for those who care about the value of their money, the risks for U.S. government debt are greater than the rating agencies are conveying.” Ray Dalio, May 19, 2025 (from CNBC’s Spencer Kimball)
“I think we should be afraid of the bond market. It’s like… I’m a doctor, and I’m looking at the patient, and I’ve said, you’re having this accumulation, and I can tell you that this is very, very serious, and I can’t tell you the exact time. I would say that if we’re really looking over the next three years to give or take a year or two, that we’re in that type of a critical, critical situation… We will have a deficit of about 6.5% of GDP — that that is more than the market can bear… I’m not optimistic. I have to be realistic.” Ray Dalio, May 22, 2025 (from CNBC’s Yun Li)
Below I’ve extracted from insightful Jamie Dimon JPMorgan Investor Day Q&A comments:
“We have huge deficits. We have, what I consider complacent central banks – almost [so] complacent that central banks think they’re omnipotent. And you all think they can manage through all this. I don’t think they manage all that. They set short-term rates, right… They don’t set the 10-year rate. Who sets the 10-year rate? You do. Foreigners own $35 trillion of U.S. public securities as debt, corporate credit, money market funds and U.S. debt. They’re there to help set that rate. And I look at all the things… including trade, trade in general – not just tariffs. It’s creating a lot of risk out there, and you should be prepared for it.”“My own view is people feel pretty good because you haven’t seen an effect of tariffs. The market came down 10%. It’s back up 10%. I think that’s an extraordinary amount of complacency. That’s my own view - that when I’ve seen all these things adding up that are on the fringes of extreme kinds of things, I don’t think we can predict the outcome, and I think there is a chance of inflation going up and stagflation a little bit higher than other people think. There are too many things out there.”“I’m not going to talk about geopolitical risk. I would not take it off the table. I think there’s an operating assumption inside the room that it’s not a big deal; it’s not going to cause a problem. I don’t know. I think the geopolitical risk is very, very, very high. How it plays out over the next several years, we don’t know. But it will clearly, if it does play out worse than what we have today, it’d clearly affect all the scenarios. So, we do look at the range of potential outcomes. I think the worst one for the bank and for most companies is stagflation which is basically a recession with inflation. I think the odds of that are probably two times what the market thinks… What happens in that is credit losses go up. They will not be like the global financial crisis. I think there have been 15 years of pretty happy-go-lucky credit - a lot of new credit players, different covenants, different leverage ratios, there’s leverage on top of leverage in some of these things. I would expect that credit would be worse than people think when you have a recession…”
“We have the largest peacetime deficit we’ve ever had, almost 7% of GDP. If you go around the world, the other major countries, around 3.5% of GDP. Our debt to GDP is 100%. With Paul Volcker… it was 35% and inflation was 3.5%. The last time we put in 10% tariffs was 1971. Nixon was President. Things were booming. He was winning a landslide in 1972… And he resigned. And 18 months later, inflation had ticked up to 3.5%. They put in price controls. It didn’t work. They got rid of gold convertibility. The market went from 1,000 to 540, down 40% plus in an 18-month period. Things happen out there.” “I never believed we were as exceptional as people were saying. I never believed that Europe was as bad as people were saying. I think those got blown out of proportion. Part of our exceptionalism… is that we borrowed [since 2020] and spent $10 trillion, and that’s a lot of money… If we borrowed another $1 trillion and gave it to you… we gave it to states, cities, we game it to unions, $10 trillion, and that fuels inflation but it fuels growth. Had Europe borrowed and spent another $1 trillion, they would probably have another $1 trillion of GDP too."“We haven’t seen the other side of that mountain yet. And we have to remember it also drives corporate profits. That trillion ends up in the pockets of restaurateurs, corporations, and healthcare companies, and it drives a lot of things that maybe we don’t understand – and it inflates asset prices. So, America’s asset prices, I still think they are kind of high. I’d put that in the risk category too. And credit spreads are kind of low. I’d put that in the risk category too. I think both of those things may change and that will change your psyche a little bit and so.” “I am not a buyer of credit today. I think credit today is a bad risk. I think that people who haven’t been through major downturns are missing the point about what can happen in credit.”This week, warnings had a better shot at resonating: Long-term Treasury yields surging, the dollar sinking, and stock market instability returning. That Treasuries failed to rally as stocks slumped is bad news for myriad levered strategies.
May 22 – Bloomberg (Edward Bolingbroke): “Bond Vigilantes Threaten Popular Hedge-Fund Bet on Swap Spreads: A surge in long-term bond yields is once again threatening to upend a crowded hedge-fund bet that Treasuries will perform better than interest-rate swaps. The trade is at risk of falling apart as borrowing costs for the world’s biggest economies soar, diminishing the returns in US government debt against the swaps. That’s a problem for hedge funds and other traders who piled into the bet in recent weeks, as well as the chorus of Wall Street strategists who’ve been recommending it. Trouble for the trade has come as concern mounts about the ability of governments — including in the US — to cover massive budget deficits, pushing long-term yields higher.”
The derivatives “swaps” market was at the epicenter of April’s acute market instability (i.e., deleveraging). Along with the dollar and Treasury yields, the tepid recovery in swap spreads suggests deep-seated market vulnerability. This week’s move in 30-year swaps was notable, with spreads widening the most since April. Importantly, Treasury market instability (yields, curve steepening, “swaps” volatility) indicates pressure on a highly levered market – corroboration of the thesis of enormous speculative leverage overhanging the marketplace.
I have argued that myriad risks and extreme uncertainty are scourges for an extraordinarily levered Treasury market. The sophisticated players recognize they must de-risk and deleverage, but the enormity of the leverage coupled with marketplace liquidity challenges ensures an arduous deleveraging process.
Stocks and long-term Treasuries have diverged notably. Equities rallied to near record highs, fueled by a big short squeeze, unwind of hedges, and “buy the dip” and FOMO buying. Surging stocks solidified market confidence that President Trump had found religion. The 90-day tariff pause and China surrender were proof that the President would bow to the markets – that the “Trump put” lives. Sure looks overly optimistic.
May 23 – Bloomberg (Jennifer A. Dlouhy, Skylar Woodhouse and Alberto Nardelli): “President Donald Trump dug in on his threat to impose a 50% tariff on the European Union and said a potential 25% charge on smartphones would apply to all foreign-made devices, in the latest escalation of a trade war that is rattling markets and confusing businesses. Trump on Friday reiterated his complaints about the EU, accusing the bloc of slow-walking negotiations and unfairly targeting US companies with lawsuits and regulations. The president downplayed the ability of the EU to broker a lower tariff rate, which he said would hit June 1. ‘We’ve set the deal. It’s at 50%,’ he said. ‘They don’t go about it right,’ Trump told reporters… ‘I just said, it’s time that we play the game the way I know how to play the game.’”
Instead of the “Trump put,” the focus might be better directed at the “Trump call.” After all, market rallies essentially grant the President the right to (cut the crap and) reactivate hardball tactics/antics. And Trump’s hardball instincts these days pose serious market risks. The President loves wielding his incredible power to threaten and intimidate. His MAGA base is even more in love with it all. Meanwhile, the world has major issues with the President’s tactics – and it’s the world that is today questioning the merits of remaining so overweight the dollar, Treasuries, and U.S. securities more generally. Stocks largely dismiss Trump’s tariff threats. The President, post China cave in, likely reckons he must demonstrate his manhood to the world.
May 21 – Axios (Dave Lawler): “Trump on Friday threatened to put a 25% tariff on Apple products if the company failed to move more of its manufacturing back to the U.S., just weeks after publicly scolding Apple CEO Tim Cook over his firm’s reliance on Indian manufacturing. This marks a sharp contrast from the more cordial relationship that Cook managed to maintain with Trump in his first term, when he scored a key tariff exemption. ‘It puts Apple with their back against the wall a little because India was going to be the go-to to navigate the China tariffs,’ Wedbush Securities analyst Dan Ives said, adding, ‘This is putting Apple in an almost impossible spot.’”
That the President would turn on Tim Cook and one of the greatest companies in American history, must be disturbing to both global CEOs and CIOs (chief investment officers). Americans love their iPhones. They care greatly about the phone’s affordability - and hardly at all where its one thousand components are manufactured. Picking a fight today with Apple not only doesn’t instill confidence, but it’s the kind of nonsense that kindles crisis of confidence dynamics. No serious analyst believes it’s realistic to develop and operate colossal (and massively complex) Foxconn complexes here in the U.S. Is there one private sector executive – tech or finance – that gains confidence from the President attempting to dictate Apple manufacturing decisions?
May 21 – Axios (Dave Lawler): “South African President Cyril Ramaphosa got the Zelensky treatment while meeting President Trump…, with added special effects. Visiting the White House is no longer just a coveted opportunity to earn goodwill with the president and credibility back home. Under Trump 2.0, it carries the risk of a presidential ambush. The visit immediately evoked the disastrous Feb. 28 meeting in which Trump and Vice President Vance berated Ukrainian President Volodymyr Zelensky, shocking the world and setting a precedent. Even leaders who avoid a public flogging face prolonged and unpredictable on-camera spectacles, with Trump taking questions from a mix of mainstream and MAGA media and holding the floor for up to an hour. Trump’s premeditated humiliation of Ramaphosa is likely to be on the minds of other leaders before they make plans to visit Washington.”
I doubt the Ramaphosa ambush was much of a factor in this week’s dollar drubbing. But it sure brought back memories of the dollar’s 3.5% plunge the week following President Zelensky’s Oval Office humiliation. This is an especially sensitive time for the so-called “global south.” With new U.S. tariffs, trade wars, and Xi Jinping’s global charm offensive, President Trump’s aggressive approach with President Ramaphosa was ill-advised – if not irrational. A wary world watches, while confidence was chipped away for another week.
Similar to Apple, Harvard is such an iconic American brand. Families all over the world dream of their children studying at Harvard or other world-leading U.S. universities. I’ll assume that President Trump’s unprecedented attack is part of a high-profile strategy to ensure that all U.S. colleges and universities fall in line. It’s certainly a grim assault, worthy of a listing of factors conducive to waning confidence.
May 23 – Bloomberg: “Former US Treasury Secretary Lawrence Summers blasted the Trump administration’s decision to block Harvard University from enrolling international students, calling on the institution to fight back. ‘This is vicious, it is illegal, it is unwise, and it is very damaging,’ Summers, who is president emeritus of Harvard University, told Bloomberg TV. ‘Why does it make any sense at all to stop 6,000 enormously talented young people who want to come to the United States to study from having that opportunity?’ ‘Harvard must start by resisting,’ he said. ‘This is the stuff of tyranny.’”
When Xi Jinping a few years back began cracking down on journalists, academics, and commentators, Bloomberg News stopped including journalists’ names with articles focusing on Chinese developments. That China’s authoritarian turn made such a change necessary was disheartening. After Russia invaded Ukraine, journalist credits disappeared for Bloomberg’s Russia-related news stories. I haven’t communicated with anyone at Bloomberg, and perhaps there’s a reasonable explanation. But I admit to an uncomfortable chill when the above “Summers Slams Trump’s Move Against Harvard as ‘Stuff of Tyranny” went authorless. Some hours later, “Trump Attack on Harvard Students Reverberates Across World” also ran without a byline.
So many things that have made America great for so long are now slipping away. Secretary Bessent is doing his best to hold market confidence together. But it will all be for nought unless the President somehow changes his approach. I titled the March 7th CBB “Train Wreck.” Approaching three months later, things only get worse. A market crisis of confidence is closer. Contemplate the important insights from Fraser, Dalio and Dimon – and don’t say you weren’t warned.
For the Week:
The S&P500 dropped 2.6% (down 1.3% y-t-d), and the Dow fell 2.5% (down 2.2%). The Utilities lost 1.7% (up 6.8%). The Banks slid 4.1% (down 1.4%), and the Broker/Dealers declined 2.3% (up 12.5%). The Transports sank 4.1% (down 8.6%). The S&P 400 Midcaps slumped 3.6% (down 4.6%), and the small cap Russell 2000 dropped 3.5% (down 8.5%). The Nasdaq100 reversed 2.4% lower (down 0.5%). The Semiconductors sank 4.5% (down 5.6%). The Biotechs slipped 0.3% (down 3.5%). With bullion recovering $154, the HUI gold index rallied 8.7% (up 44.3%).
Three-month Treasury bill rates ended the week at 4.23%. Two-year government yields slipped a basis point to 3.99% (down 25bps y-t-d). Five-year T-note yields declined one basis point to 4.08% (down 30bps). Ten-year Treasury yields increased three bps to 4.51% (down 6bps). Long bond yields rose nine bps to 5.04% (up 26bps). Benchmark Fannie Mae MBS yields jumped 10 bps to 5.87% (up 3bps).
Italian 10-year yields slipped a basis point to 3.58% (up 6bps y-t-d). Greek 10-year yields fell three bps to 3.31% (up 10bps). Spain's 10-year yields dipped two bps to 3.19% (up 13bps). German bund yields declined two bps to 2.57% (up 20bps). French yields were unchanged at 3.26% (up 7bps). The French to German 10-year bond spread widened two to 69 bps. U.K. 10-year gilt yields rose three bps to 4.68% (up 11bps). U.K.'s FTSE equities index added 0.4% (up 6.7% y-t-d).
Japan's Nikkei 225 Equities Index fell 1.6% (down 6.9% y-t-d). Japanese 10-year "JGB" yields jumped eight bps to 1.54% (up 44bps y-t-d). France's CAC40 slumped 1.9% (up 4.8%). The German DAX equities index dipped 0.6% (up 18.7%). Spain's IBEX 35 equities index added 0.3% (up 21.6%). Italy's FTSE MIB index dropped 2.9% (up 15.5%). EM equities were mostly lower. Brazil's Bovespa index fell 1.0% (up 14.6%), while Mexico's Bolsa index added 0.7% (up 18.0%). South Korea's Kospi declined 1.3% (up 8.0%). India's Sensex equities index dipped 0.7% (up 4.1%). China's Shanghai Exchange Index slipped 0.6% (unchanged). Turkey's Borsa Istanbul National 100 index sank 3.2% (down 4.8%).
Federal Reserve Credit declined $21.5 billion last week to $6.644 TN. Fed Credit was down $2.257 TN from the June 22, 2022, peak. Over the past 297 weeks, Fed Credit expanded $2.917 TN, or 78%. Fed Credit inflated $3.833 TN, or 136%, over the past 654 weeks. Elsewhere, Fed holdings for foreign owners of Treasury, Agency Debt dropped $13.2 billion last week to a four-month low $3.253 TN. "Custody holdings" were down $71 billion y-o-y, or 2.1%.
Total money market fund assets rose $28 billion to $6.969 TN. Money funds were up $834 billion over 43 weeks (16.1% annualized) and $920 billion y-o-y (15.2%).
Total Commercial Paper jumped $23.6 billion to a new 16-year high $1.443 TN. CP has expanded $355 billion y-t-d and $164 billion, or 12.8%, y-o-y.
Freddie Mac 30-year fixed mortgage rates rose five bps this week to 6.86% (down 8bps y-o-y). Fifteen-year rates jumped nine bps to 6.01% (down 23bps). Bankrate's survey of jumbo mortgage borrowing costs had 30-year fixed rates up four bps to 6.99% (down 41bps).
Currency Watch:
May 20 – Reuters (Saqib Iqbal Ahmed and Laura Matthews): “Trade-related uncertainties, ballooning fiscal debt and weakened confidence about enduring U.S. exceptionalism have weighed on U.S. assets, with the dollar one casualty. Investors see the currency losing more of its luster as the greenback comes back to earth from lofty valuations. The Trump administration’s tariffs salvo this year prompted investors to cut exposure to U.S. assets after a long period of overperformance… ‘There’s plenty of room for further depreciation, purely from a valuation perspective,’ said George Vessey, lead FX and macro strategist at payments firm Convera. The ‘sell America’ trade was back in focus after Moody’s U.S. credit downgrade, he said.”
For the week, the U.S. Dollar Index dropped 2.0% to 99.112 (down 8.6% y-t-d). For the week on the upside, the South Korean won increased 2.6%, the Norwegian krone 2.6%, the Swedish krona 2.5%, the Japanese yen 2.2%, the Swiss franc 2.0%, the British pound 1.9%, the New Zealand dollar 1.8%, the euro 1.8%, the Canadian dollar 1.7%, the Australian dollar 1.3%, the Singapore dollar 1.2%, the Mexican peso 1.2%, the South African rand 1.1%, and the Brazilian real 0.3%. The Chinese (onshore) renminbi gained 0.45% versus the dollar (up 1.65% y-t-d).
Commodities Watch:
May 19 – Bloomberg (Sybilla Gross and Yihui Xie): “Chinese jewelers and investors imported the most platinum in a year last month, as the precious metal’s relative stability enhanced its attractiveness over surging and volatile gold. Imports of platinum into China — the world’s biggest consumer — totaled 11.5 tons in April… Global demand for the metal, which is also used in catalytic converters and laboratory equipment, is expected to outstrip supply for the rest of this decade, according to Bloomberg Intelligence analysts.”
The Bloomberg Commodities Index rallied 1.7% (up 4.0% y-t-d). Spot Gold rallied 4.8% to $3,358 (up 27.9%). Silver recovered 3.7% to $33.477 (up 15.8%). WTI crude fell 96 cents, or 1.5%, to $61.53 (down 14.2%). Gasoline lost 1.5% (up 4%), while Natural Gas was unchanged at $3.334 (down 8%). Copper jumped 5.3% (up 20%). Wheat rose 3.3% (down 2%), and Corn jumped 3.6% (unchanged). Bitcoin rose $5,100, or 4.9%, to $108,560 (up 15.8%).
Market Instability Watch:
May 20 – Financial Times (Leo Lewis and Ian Smith): “Yields on the longest-dated Japanese government bonds surged to record highs on Tuesday after a dismal debt auction added to investor fears of a lack of demand. The yield on the 30-year bond rose as high as 3.14%, while that on the 40-year bond reached an all-time high of 3.61%, rising by as much as 0.17 percentage points… The 20-year bond yield jumped by 0.15 percentage points to as high as 2.56% following an auction in which the gap between the average and lowest prices — known as the tail — was the biggest since the late 1980s.”
May 20 – Bloomberg (Mia Glass): “A slump in Japanese bonds worsened Tuesday after the weakest demand at a government debt auction in more than a decade highlighted worries over the central bank’s retreat from the market. The rout drove up the 20-year yield by about 15 bps to the highest since 2000, while the yield on 30-year bonds climbed to the most since that maturity was first sold in 1999. Yields on the 40-year tenor rose to a record high in a sign of nervousness ahead of a sale of that debt next week.”
May 22 – Financial Times (Ajay Rajadhyaksha): “The Japanese government bond market was already having a bit of a springtime nightmare, but a poor auction of 20-year debt earlier this week has sent long-end yields soaring to their highest levels ever… The 40-year Japanese bond now yields nearly 3.7%, up a full percentage point just since the beginning of April. That hurts. If the duration of the bond is, say, 20 years, investors have lost almost 20% in just a few weeks. In a high grade government bond. That sort of thing just isn’t supposed to happen in the developed markets; bonds are supposed to be the safe asset class… Which brings us to why US investors really should care about the JGB move. Duration is fungible across developed economies. If investors see JGBs or gilt yields rise sharply, they rush to sell duration in similar bond markets. What happens in Japan doesn’t stay in Japan. And then there’s the risk that large allocators might start to change their ways. A portfolio manager sitting in Tokyo could ask himself ‘For decades, the BoJ kept bond yields depressed, which forced me to buy foreign bonds. But now JGB yields are finally at attractive levels as the BoJ backs off. Why am I still taking the currency risk in Treasuries when all my liabilities are in Yen? Maybe I should just buy JGBs. It’s time to come home!!’”
May 18 – Financial Times (Ian Smith, William Sandlund, Kate Duguid and Claire Jones): “US long-term borrowing costs climbed to their highest level since late 2023 as the stripping of the country’s triple A credit rating and progress on President Donald Trump’s massive tax and budget bill fuelled concerns about the government’s mounting debt burden… Nicolas Trindade, a fund manager at Axa’s asset management arm, said the Moody’s downgrade was a ‘stark reminder that the US should not take for granted its ‘exorbitant privilege’ that enabled it to issue debt at a relatively lower cost despite a very high fiscal deficit’… The US and other developed nations such as the UK and France are coming under increasing scrutiny for the pressure that higher interest rates are putting on their finances. ‘It’s another warning for a US administration already on bond vigilante alert,’ said Pooja Kumra at TD Securities.”
May 23 – Bloomberg (Cindy Wang and Chien-Hua Wan): “The Taiwan dollar’s recent surge against the greenback is causing sleepless nights for at least one major insurer in Taipei. ‘A 10 cent gain in the Taiwan dollar means a foreign-exchange loss of about NT$300 million. How can I sleep well?’ Taiwan Life Insurance Co. Chairman Hsu Shu-po said… The Taiwan dollar’s more than 8% surge against the greenback in the past month has hurt local life insurers, who have either had to pay more to hedge against the currency gains or face paper losses on their approximately $780 billion in foreign assets, most of which are in US dollars.”
May 20 – Bloomberg (Paul J. Davies): “Inflation and weak growth are a bad mix for anyone, but especially for banks and even more so for smaller US banks still carrying heavy losses on fixed-rate bonds… Unrealized losses on Treasuries and mortgage bonds became a big worry for lenders during 2022 and 2023 when sharp interest-rate rises helped to spark a handful of failures led by Silicon Valley Bank. Now, bond yields are rising again as fears of a recession grow, too. Market-value losses on securities combined with real hits from commercial property debt or small-business loans would be nasty.”
May 19 – Bloomberg: “Chinese banks helped clients last month offload the most overseas currencies since October, a sign companies and investors have started to shift their dollar holdings into the yuan amid the trade war. Lenders sold 42.5 billion yuan ($5.9bn) of foreign exchange — most of which was the dollar — on behalf of clients in April… The clients include exporters, importers and some investors in overseas financial assets.”
Global Credit and Financial Bubble Watch:
May 19 – Axios (Neil Irwin): “The U.S. government is spending far more than it takes in as revenue, causing ever-rising debt — and there is no sign that will change anytime soon. Those facts are well-known… But Moody's decision to downgrade the U.S. credit rating… is the latest reminder that this precarious fiscal standing comes with real risks. Moody's… is acknowledging that U.S. policymakers may have less room to maneuver in future recessions or crises, in light of the massive existing pile of debt. It is one more sign that an era in which the U.S. government could borrow seemingly limitless amounts, without experiencing the cost of higher interest rates and inflation, may have come to an end.”
May 22 – Bloomberg (Alice Gledhill and Mia Glass): “From the US to Japan, long-term borrowing costs for the world’s biggest economies are surging as investors question the ability of governments to cover massive budget deficits. Thirty-year bond yields this week traded above 5% in the US, not far from their highest since 2007, while those in Japan reached the most since records began in 1999, with auctions in both countries running into tepid demand. Long-dated bonds in the UK, Germany and Australia have also come under selling pressure. Investors are warning that governments can’t keep borrowing at the pace they did when interest rates were close to zero, particularly since trade tensions and sticky inflation have diminished the probability that policymakers will dramatically ease monetary policy. A pullback by central banks and pension funds from bond markets also means a once-dependable source of funding is increasingly absent.”
May 21 – Reuters (Karen Brettell): “The U.S. Treasury Department saw soft demand for a $16 billion sale of 20-year bonds on Wednesday with investors worried about the country's increasing debt burden as Congress wrangles with a tax and spending bill that is expected to worsen the fiscal outlook. The poorly received auction, which saw stocks and the dollar sell off while U.S. Treasury yields rose, shows intensified investor worries about the country's ballooning debt that could spur bond market vigilantes who want more fiscal restraint from Washington.”
May 22 – Bloomberg (Scott Carpenter): “MBS spreads widened early Thursday, after President Donald Trump said he was giving ‘very serious consideration to bringing Fannie Mae and Freddie Mac public.’ Taking the two GSEs public ‘could involve an equity offering of $382 billion if the companies needed to meet current FHFA capital requirements,’ Santander strategist Steven Abrahams wrote… It would also ‘raise a number of issues for the debt markets’ from how MBS is treated under QE and bank capital/liquidity rules to impacts on spreads and volatility.”
May 20 – Financial Times (Lee Harris): “US life insurers have shifted more than $1tn of liabilities offshore, offloading more risk to foreign jurisdictions despite regulators’ concerns about protections for retirement savings and broader financial stability. Private capital-owned groups such as Apollo’s Athene and KKR’s Global Atlantic, as well as traditional insurers such as Prudential and MassMutual, last year moved more than $130bn of liabilities to offshore reinsurers primarily based in Bermuda, according to new figures from S&P Global Market Intelligence. US life insurers’ and annuity providers’ total reserves ceded abroad, including liabilities moved to jurisdictions such as the Cayman Islands and Barbados, reached $1.1tn by the end of 2024… The reinsurance deals come despite regulators and credit rating agencies warning of rising risks, with questions about whether the reinsurers have adequate assets to back up their promises to policyholders.”
May 19 – Reuters (Jaiveer Singh Shekhawat): “Moody’s… downgraded the long-term ratings of top American lenders such as JPMorgan Chase, Bank of America and Wells Fargo, after pushing the U.S. out of top triple-A rating club over its burgeoning $36 trillion debt.”
May 23 – Bloomberg (Nao Sano and Takashi Nakamichi): “Japan’s biggest life insurer said unrealized losses on its domestic bond holdings more than tripled last fiscal year as rising interest rates undercut the value of its portfolio. Nippon Life Insurance Co., which last month outlined plans to reduce its holdings of sovereign debt, said… paper losses on Japanese bonds swelled to about ¥3.6 trillion ($25bn) as of March.”
May 19 – Financial Times (Ortenca Aliaj): “US bank lending to buyout firms and private credit groups has helped fuel a steep rise in loans to non-bank financial institutions, even as regulators fret that growing ties between the two sectors could become a systemic risk. Loans to non-banks reached approximately $1.2tn by the end of March, according to… Fitch…, a 20% increase year on year… Commercial loans were up just 1.5% during the same period. The increase comes as regulators home in on the interconnectedness of banks to private equity and the fast-growing private credit sector, an opaque area of the market that has relatively little regulatory oversight... S&P Global data shows that bank loans to NBFIs have risen since the start of the pandemic, from approximately $600bn at the end of 2019 to over $1tn at the start of this year…”
May 19 – Bloomberg (Greg Ritchie and Echo Wong): “Hong Kong’s pension fund managers have flagged the risk of potential forced selling on their Treasury holdings after a downgrade by Moody’s… Funds operating under the city’s HK$1.3 trillion ($166bn) Mandatory Provident Fund system are only allowed to invest over 10% of their assets in Treasuries if the US has a AAA or equivalent rating from an approved agency.”
May 19 – CNBC (Spencer Kimball): “Bridgewater Associates founder and billionaire Ray Dalio warned… Moody’s downgrade of the U.S. sovereign credit rating understates the threat to U.S. Treasurys, saying the credit agency isn’t taking into account the risk of the federal government simply printing money to pay its debt. ‘You should know that credit ratings understate credit risks because they only rate the risk of the government not paying its debt,’ Dalio said… ‘They don’t include the greater risk that the countries in debt will print money to pay their debts thus causing holders of the bonds to suffer losses from the decreased value of the money they’re getting’…”
May 19 – Financial Times (Kate Duguid, Ian Smith, Claire Jones and Alex Rogers): “President Donald Trump’s ‘big, beautiful’ tax bill risks sharply increasing the US public debt, sparking alarm among investors and fuelling questions over how long the world will finance Washington’s largesse… The bill and credit downgrade have added to anxiety over the sustainability of US public finances at a time when many investors and analysts say the debt and deficit are at uncomfortably high levels. ‘It’s like being on a boat heading for the rocks and having those running the ship arguing over which way to turn,’ Ray Dalio… told the Financial Times. ‘I don’t care whether they turn left or right as much as I care that they turn to get the ship back on course’.”
Trump Administration Watch:
May 19 – Wall Street Journal (Editorial Board): “Which American politician said the following? Item one: ‘Walmart should STOP trying to blame Tariffs as the reason for raising prices throughout the chain. Walmart made BILLIONS OF DOLLARS last year, far more than expected. Between Walmart and China they should… EAT THE TARIFFS, and not charge valued customers ANYTHING. I’ll be watching, and so will your customers!!!’ Item two: ‘After causing catastrophic inflation, Comrade Kamala announced that she wants to institute socialist price controls… Her plan is very dangerous because it may sound good politically… This is Communist; this is Marxist; this is fascist’.”
May 22 – Reuters (Jasper Ward): “U.S. President Donald Trump said… he will make a decision in the near future about taking mortgage finance firms Fannie Mae and Freddie Mac public, saying that he is giving ‘very serious consideration’ to doing so. In a post on Truth Social, Trump said he will speak with Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Federal Housing Finance Director William Pulte. ‘Fannie Mae and Freddie Mac are doing very well, throwing off a lot of CASH, and the time would seem to be right,’ Trump said…”
May 21 – Bloomberg (S'thembile Cele): “President Cyril Ramaphosa came to the White House looking to persuade President Donald Trump to stop floating the conspiracy theory that there’s a genocide against White people in South Africa. Instead, the man who’d helped negotiate the end of apartheid walked into a trap. Ramaphosa had sought the meeting with Trump in a bid to build a relationship… He brought two White South African professional golfers and the country’s White agriculture minister… ‘If there was Afrikaner farmer genocide I can bet you these three gentlemen would not be here,’ he said. That was the cue. Trump asked that the lights be dimmed and teed up a video… Among its images was leftist South African opposition leader Julius Malema chanting ‘kill the Boer,’ which means farmer in Afrikaans. ‘Each one of those white things you see is a cross, and there’s approximately a thousand of them,’ Trump said… ‘You’re taking people’s land away from them and those people in many cases are being executed’… It was ‘definitely an ambush, because the program format was changed at the last minute,’ South African Presidency spokesman Vincent Magwenya said... ‘You could see, standing in inside the Oval Office, that this was a well-planned, well-orchestrated operation.’”
May 20 – Bloomberg (Skylar Woodhouse): “The White House’s chief economist dismissed the idea that tariff increases will have a lasting impact on US inflation, and cited the potential for interest rates to get back down to pre-Covid levels. ‘Imports are only 14% of the economy — the ability of those types of things to move the needle on inflation are limited,’ Stephen Miran, chair of the Council of Economic Advisers, said… ‘We have been introducing tariffs since day-one of this administration. And what we have seen is tariffs have started to come up’ yet there’s ‘been no real meaningful effect on inflation.’”
May 19 – Bloomberg (Maria Luiza Rabello): “The US debt is the safest bet ‘on Earth,’ National Economic Council Director Kevin Hassett says on Fox Business. ‘Moody’s can do what it wants to, as Secretary Bessent said it’s a backward looking thing, penalizing us for all the reckless spending of the Biden administration,’ he says… Hassett also describes US bonds as ‘the best buy’…”
China Trade War Watch:
May 19 – Bloomberg (Olivia Tam and Debby Wu): “The Chinese government accused the Trump administration of undermining recent trade talks in Geneva after it warned that using Huawei Technologies Co.’s artificial-intelligence chips ‘anywhere in the world’ would violate US export controls. The Commerce Department said… it was issuing guidance to make clear the use of Huawei Ascend chips is a breach of the US government’s export controls. The agency said it would also warn the public about ‘the potential consequences of allowing US AI chips to be used for training and inference of Chinese AI models.’ The US Commerce Department’s has since changed its wording… Those updates weren’t enough to appease Beijing, which said Monday it had ‘negotiated and communicated with the US at all levels through the China-US economic and trade consultation mechanism, pointing out that the US’s actions seriously undermined the consensus reached at the high-level talks between China and the US in Geneva.’”
May 20 – Reuters (Liz Lee): “China said it could take legal action against any individual or organisation assisting or implementing U.S. measures that advise companies against using advanced semiconductors from China. The U.S. published guidance last week saying companies risk violating export controls if they use Ascend AI chips from… Huawei. China's commerce ministry said there could be ‘corresponding legal liabilities’ against those involved in the implementation of U.S. measures which it said could constitute ‘discriminatory restrictive measures’ against Chinese firms.”
May 21 – Reuters (Olivia Le Poidevin): “China said… trade talks with the U.S. were an important step toward bridging gaps but what was really needed was ‘indispensable’ multilateralism to find a way out of global trade turmoil. ‘While bilateral talks may sometimes work, China believes multilateralism is the inevitable and ultimate choice to address global challenges,’ China's mission to the World Trade Organization said… ‘We need to find the way out,’ it added… ‘Unilateral tariffs and the threat of 'reciprocal tariffs' are just like adding fuel to the fire, which is simply wrong. An open, stable and rules-based international economic and trade order serves the common interests of all,’ China said.”
Trade War Watch:
May 23 – Financial Times (James Politi, Andy Bounds, Ian Smith and Jonathan Wheatley): “Donald Trump has warned of plans to impose a 50% tariff on imports from the EU from next month, adding that talks with the bloc are ‘going nowhere’ as he increases his threat to upend global trade. The move escalates the trade war with the EU barely two weeks after the US agreed with China to slash tariffs in a pact that comforted global investors. It also highlights the animosity that the Trump administration has shown towards Brussels since the US president’s return to the White House… In a post…, Trump attacked the bloc for ‘Trade Barriers, VAT Taxes, ridiculous Corporate Penalties, Non-Monetary Trade Barriers, Monetary Manipulations, [and] unfair and unjustified lawsuits against Americans Companies’. He added: ‘Our discussions with them are going nowhere! Therefore I am recommending a straight 50% Tariff on the European Union, starting on June 1, 2025.’ Such a level would be more than double the tariff rate the US president announced for the EU on his self-styled ‘liberation day’ on April 2.”
May 18 – Financial Times (Stefania Palma): “The US says it will impose the maximum tariffs it has threatened against countries that do not negotiate ‘in good faith’ as it strikes a more aggressive tone in trade talks. Treasury secretary Scott Bessent… said that tariff rates would go back to the levels that President Donald Trump announced on April 2, when he declared his intention to ‘liberate’ the US from an unfair trade system. Countries would receive letters from Bessent outlining those maximum tariff rates if ‘they’re not negotiating in good faith’… ‘Some countries were at 10%, some were substantially higher,’ he added. If ‘you don’t want to negotiate then it will spring back to the April 2 level’. The harder line illustrates how fraught the tariff negotiations have become, and contrasts with recent boasts by Trump that countries were rushing to negotiate with Washington.”
May 22 – Financial Times (Owen Walker): “The trade war between the US and China is putting south-east Asian countries under increasing pressure to pick sides between the world’s two biggest economies, government ministers have warned. ‘China is looking and watching,’ Malaysian trade minister Zafrul Aziz, who is leading tariff negotiations with Washington on behalf of the Association of Southeast Asian Nations, told the Financial Times. ‘They are saying, ‘Whatever you give to the US, we want the same because whatever you give to the US is at our expense,’’ Zafrul said. Zafrul’s comments, echoed… by a warning from Singapore’s trade minister that neutrality in the region was becoming harder to maintain, highlight the rising tensions between Washington and Beijing since US President Donald Trump unveiled a package of tariffs last month.”
May 19 – Bloomberg (Katia Dmitrieva): “China’s defiant stance in negotiating a tariff truce with the US has convinced some countries they need to take a tougher position in their own trade talks with the Trump administration. The pause reached a week ago gave structure to what promise to be prolonged and difficult rounds of talks between Washington and Beijing, which still faces average US import taxes near 50% when past levies are factored into the 30% rate agreed to in Geneva... Yet US President Donald Trump’s willingness to retreat so much… surprised governments from Seoul to Brussels that have so far stuck with the US’s request to negotiate rather than retaliate against its tariffs… ‘This shifts the negotiating dynamic,’ said Stephen Olson, a former US trade negotiator… ‘Many countries will look at the outcome of the Geneva negotiations and conclude that Trump has begun to realize that he has overplayed his hand.”
May 18 – Bloomberg (Yoshiaki Nohara): “Japan won’t compromise its national interests in trade talks with the US by fixating on time limits, Prime Minister Shigeru Ishiba said, signaling Tokyo isn’t rushing into an agreement. The nation won’t simply be going down the same path after the UK became the first nation to reach a trade agreement with the Trump administration…, and China reached a temporary truce with the US, Ishiba said in parliament... Japan will continue to seek exemptions for all additional tariffs imposed by the US… ‘We will not follow other countries simply because they are moving forward,’ Ishiba said. ‘Of course we will keep time limits in mind during negotiations, but we have no intention of compromising our national interests by becoming overly fixated on them.’”
May 19 – Bloomberg (Leika Kihara): “Japan’s top trade negotiator, Ryosei Akazawa, said… there was no change to Tokyo’s stance of demanding an elimination of U.S. tariffs in bilateral trade negotiations. Tokyo will not rush into clinching a trade deal if doing so risked hurting the country’s interests, he said. ‘The slew of U.S. tariffs including reciprocal tariffs as well as those on automobiles, car parts, steel and aluminium, are regrettable. There’s no change to our stance of seeking a review, which is to say an elimination, of them,’ Akazawa told a regular press conference.”
May 19 – Bloomberg (Laura Curtis): “Inbound shipments to the Port of Los Angeles — the busiest container hub in the US — dropped as much as 30% in early May as President Donald Trump’s tariffs discourage trade. ‘Fewer containers mean less work on the waterfront, from the number of labor gangs that are out there responding to the shift requirements of cargo, to the truckers and warehouse workers,’ Port of Los Angeles Executive Director Gene Seroka said... ‘The impact was felt almost immediately during that first week of May.’”
Budget Watch:
May 22 – Associated Press (Lisa Mascaro, Kevin Freking and Leah Askarinam): “House Republicans stayed up all night to pass their multitrillion-dollar tax breaks package, with Speaker Mike Johnson defying the skeptics and unifying his ranks to muscle President Donald Trump’s priority bill to approval Thursday. With last-minute concessions and stark warnings from Trump, the Republican holdouts largely dropped their opposition to salvage the ‘One Big Beautiful Bill’ that’s central to the GOP agenda… It next goes to the Senate, with long negotiations ahead. ‘To put it simply, this bill gets Americans back to winning again,’ said Johnson… The outcome caps an intense time on Capitol Hill... Republicans insisted their sprawling 1,000-page-plus package was what voters sent them to Congress — and Trump to the White House — to accomplish.”
May 23 – Bloomberg (Erik Wasson, Chris Cioffi and Alexandra Harris): “Chances of a close brush with a US payment default are growing as the Senate plans for time-consuming revisions to President Donald Trump’s sprawling, multi-trillion-dollar tax and spending package. Republican congressional leaders attached an increase in the US legal debt limit to the president’s signature economic legislation. That gambit adds urgency to the enactment of a top-priority bill… Not only does the tax bill face a protracted process in the Senate, but Republican members have indicated that they expect to make extensive changes on the way to passage. That could provoke further problems when the revised measure is returned to the House for approval, given it only passed… by a single vote after tortuous negotiations among warring GOP factions.”
May 19 – Bloomberg (Liz Capo McCormick): “Washington lawmakers are risking a ‘fiscal disaster’ if a recession hits as they plow on with their package of sweeping tax cuts, according to Guggenheim Securities Co-Chair Jim Millstein. ‘What today is 6.4% of GDP as a deficit, a $2.4 trillion deficit, could easily expand to $4 trillion if we had a recession,’ Millstein said... The cost estimates of the current GOP package ‘assume consistent economic growth. So imagine we have a recession. In the last five or six recessions, the budget deficit actually blows out because tax revenues go down and spending increases’… The Joint Committee on Taxation had pegged the total cost of the bill at $3.8 trillion over the next decade, though the Committee for a Responsible Federal Budget analysis says the outcome will be more dire.”
May 20 – Associated Press (Lisa Mascaro, Kevin Freking, Leah Askarinam and Joey Cappelletti): “President Donald Trump implored House Republicans at the Capitol to drop their fights over his big tax cuts bill and get it done, using encouraging words but also the hardened language of politics over the multitrillion-dollar package that is at risk of collapsing before planned votes this week. During the more than hour-long session Tuesday, Trump warned Republicans not to touch Medicaid with cuts, and he told New York lawmakers to end their fight for a bigger local tax deduction, reversing his own campaign promise. The president, heading into the meeting, called himself a ‘cheerleader’ for the Republican Party and praised Speaker Mike Johnson. But he also criticized at least one of the GOP holdouts as a “grandstander” and warned that anyone who doesn’t support the bill would be a ‘fool.’”
May 21 – Axios (Zachary Basu): “President Trump yesterday declared himself the biggest ‘fiscal hawk’ in Washington. He then spent the next hour urging Republicans to unite behind the most budget-busting legislation in modern U.S. history. Trump’s ‘big, beautiful bill’ is projected to add trillions to the deficit over the next decade — rattling conservatives who have long warned that the U.S. is barreling toward fiscal catastrophe. Some Republicans now find themselves trapped between two of the party's most animating principles: Deficit reduction vs. absolute loyalty to Trump. That tension is threatening to derail Trump's vision for a new ‘Golden Age,’ which the White House hopes will begin in earnest with a vote on the House floor this week.”
May 20 – Financial Times (Steff Chávez): “Donald Trump has put a $175bn price tag on the development of a ‘Golden Dome’ missile defence shield, promising the project would be ‘operational’ by the end of his term. The so-called Golden Dome — whose name is a nod to the renowned ‘Iron Dome’ shielding Israel — will be completed in two-and-a-half to three years, the US president said in an announcement from the Oval Office. The tax and budget bill before Congress includes $25bn to ‘help construction get under way’, he added.”
May 21 – Bloomberg (Anto Antony): “Former United States Treasury Secretary Steven Mnuchin said he’s more alarmed by the country’s growing budget deficit than its trade imbalances, and urged Washington to prioritize fiscal repair. ‘I’m very concerned,’ he said during a panel discussion at the Qatar Economic Forum… ‘The budget deficit is a larger concern to me than the trade deficit. So I’m on the side of, I hope we do get more spending cuts — something that’s very important.’”
New World Order Watch:
May 20 – Financial Times (Joe Leahy): “China’s President Xi Jinping has stepped up calls for greater ‘self-reliance’ in the country’s manufacturing sector, emphasising a strategy that critics say has fuelled tensions with trading partners. Xi’s comments…, which the Chinese leader made on a visit to a ballbearing factory that dates back to Mao Zedong’s era, came barely a week after the US and China agreed to a 90-day truce in their trade war… Xi… said China’s focus on industrial output had been the right decision. ‘From relying on imports of foreign matches, soap, and iron in the past, we have now become the world’s largest manufacturing country… We need to keep improving our manufacturing sector, insist on self-reliance and self-improvement [and] master key core technologies.’”
U.S./Russia/China/Europe/Iran Watch:
May 20 – Associated Press: “Iran’s supreme leader… pushed back against U.S. criticism of the country’s nuclear program, saying that Tehran won’t seek permission from anyone to enrich uranium and calling American statements ‘nonsense.’ ‘They say, ‘We won’t allow Iran to enrich uranium.’ That’s way out of line,’ Ayatollah Ali Khamenei said… ‘No one in Iran is waiting for their permission. The Islamic Republic has its own policies and direction — and it will stick to them’… ‘Yes, indirect negotiations were held during Raisi’s time too, just like now,’ he said. ‘But they didn’t go anywhere — and we don’t expect much from the current ones either. Who knows what will happen.’”
May 19 – Bloomberg (Arsalan Shahla): “Iran said its ability to enrich uranium was ‘absolutely non-negotiable’ after US President Donald Trump’s special envoy repeated a demand that the Islamic Republic cease its production of the fissile material. ‘The issue of enrichment, as part of the natural cycle of Iran’s nuclear industry, is absolutely non-negotiable,’ Esmail Baghaei, spokesman for Iran’s foreign ministry, said… On Sunday, Steve Witkoff, Trump’s negotiator in nuclear talks with Iran, told ABC News that any future deal with Tehran had to include the suspension of uranium enrichment and it was ‘a very, very clear red line’ for the US.”
May 22 – Financial Times (Laura Pitel and Richard Milne): “Friedrich Merz promised to help defend ‘every inch’ of Nato territory as he joined the inauguration of the first German military brigade to be permanently stationed on foreign soil since the second world war. The new German chancellor declared that ‘the security of our Baltic allies is also our security’ as he attended a military parade in Vilnius to honour the German army’s new 45th armoured brigade based in Lithuania. The deployment was decided in 2023 after Russia’s full-scale invasion of Ukraine, which amplified fears in the three former Soviet republics that they could be next. Lithuanian President Gitanas Nausėda described the brigade as ‘historic’, adding: ‘This is a day of trust, responsibility and action.’”
Ukraine War Watch:
May 22 – Wall Street Journal (Bojan Pancevski and Laurence Norman): “On a call Monday, President Trump told European leaders that Russian President Vladimir Putin isn’t ready to end the Ukraine war because he thinks he is winning, according to senior European officials familiar with the conversation. European leaders had long believed this—but it was the first time they were hearing it from Trump… It also ran counter to what Trump has often said publicly, that he believes Putin genuinely wants peace… Karoline Leavitt, the White House press secretary, disputed the accounts, saying Trump ‘did say he believes Putin is winning the war BUT he NEVER said ‘Putin isn’t ready to end war’’… One of the officials, who was on the call, said Trump began the discussion by saying, ‘I think Vladimir does not want peace.’”
May 19 – Financial Times (Guy Chazan, Christopher Miller, Polina Ivanova and Henry Foy): “For Donald Trump, Monday’s call with Vladimir Putin evoked the hope of a bright future of ‘largescale TRADE’ between Russia and the US, ‘when this catastrophic ‘bloodbath’ is over’. Yuri Ushakov, the Russian leader’s foreign policy adviser, said the tone of the two-hour conversation was so friendly that neither president wanted to be the first to put down the phone. The Ukrainians and allies in Europe felt they were being abandoned. It was not only that the US president did not appear to exert any pressure on Russia to achieve a ceasefire… Trump also made clear that the US was bowing out as a mediator in efforts to end the war, leaving Moscow and Kyiv to figure things out themselves. Ukraine’s President Volodymyr Zelenskyy warned of the consequences. ‘It is crucial for all of us that the United States does not distance itself from the talks and the pursuit of peace, because the only one who benefits from that is Putin’…”
May 20 – Associated Press (Illia Novikov and Yehor Konovalov): “Kyiv’s European allies slapped new sanctions… on Moscow, a day after a phone call between U.S. President Donald Trump and Russian President Vladimir Putin failed to produce a breakthrough on ending the 3-year-old war in Ukraine. ‘We have made clear again and again that we simply expect one thing from Russia now: namely, a ceasefire, unconditional and immediate,’ German Foreign Minister Johann Wadephul said… ‘We welcome the fact that Ukraine is still prepared to do this. We note with disappointment that Russia has not yet taken this decisive step, and we will have to react to this.’”
Bubble and Mania Watch:
May 19 – Bloomberg (Leslie Kaufman and Prashant Gopal): “Florida real estate prices are in decline again — and this time, real estate experts say, the costs of living with climate change may deepen the down phase of the usual boom-and-bust cycle. Sky-high insurance rates and condo fees, stemming in part from extreme weather, are weighing more heavily… ‘This is a non-cyclical phenomenon,’ said Jesse Keenan, a real estate professor at Tulane University who focuses on climate adaptation. ‘This is resetting the baseline values of housing in Florida.’ Florida’s median home price dropped 3.1% in April from a year earlier, the biggest drop of any state… Inventory is near a record high. The state’s influx of new residents during the pandemic has slowed sharply, curbing demand.”
May 21 – Financial Times (Alexandra Heal): “The billionaire co-founder of buyout firm Thomas Bravo has said wealthy individuals should be concerned about companies that private equity firms cannot sell ending up in funds aimed at retail investors. Orlando Bravo… said that the growing pool of private funds aimed at retail investors meant that ‘retail could end up saving these companies that people cannot sell’. Demand from retail funds had lit the market for second-hand stakes in buyout funds and private equity portfolio companies ‘on fire’, Bravo said. The retail vehicles are starting to fund so-called continuation vehicles, which buyout firms set up specifically to buy companies from themselves either because they cannot sell them or want to remain exposed to the upside. ‘That’s beginning to happen,’ he said.”
May 18 – Wall Street Journal (Konrad Putzier, Douglas Belkin and Anthony DeBarros): “At Western Illinois University, an empty dorm that once held 800 students is now a police training ground… Nearby dorms have been razed to weedy fields. Two more dorms are set to close this summer. Frat houses and homes once filled with student renters are empty lots… ‘It’s almost like you’re watching the town die,’ said Kalib McGruder, who was born in Macomb and worked 28 years for the Western Illinois campus police department… Across the U.S., colleges are faltering and so are the once booming towns around them. Enrollment is down at many of the nation’s public colleges and universities, widening the gap between high-profile campuses and struggling schools. Starting next year, there will be fewer high-school graduates for the foreseeable future.”
May 21 – Bloomberg (Dinesh Nair, Matthew Martin, and Fiona MacDonald): “The head of one of the world’s largest sovereign wealth funds said the clock is ticking for private equity and joined the chorus of investors who’ve grown worried about the industry’s valuation practices. The industry has struggled to return money to investors for years, said Sheikh Saoud Salem Al-Sabah, managing director of the $1 trillion Kuwait Investment Authority. While that’s mostly been due to a lack of deals and initial public offerings, Sheikh Saoud said some firms were underwriting deals at valuations that they would struggle to exit. ‘Private equity is very troubled, I believe, especially in the large buyouts, venture capital and the rise of continuation vehicles — that’s a very worrying sign,’ Sheikh Saoud said… ‘Their time is coming up.’”
May 22 – Bloomberg (Kate Clark and Katie Roof): “There’s a crisis brewing for the next generation of venture capitalists. While Silicon Valley heavyweights like Sequoia Capital and Andreessen Horowitz are still able to bring in big checks, up-and-coming VCs are finding fundraising increasingly difficult. Hundreds of small firms — which make up the majority of the VC industry — are struggling to raise money in the current market. Traditional investors in venture funds, like family offices and wealthy individuals, have pulled back thanks to high interest rates and economic uncertainty. Meanwhile, universities and their endowments have come under increasing financial pressure from House Republicans and the Trump administration.”
AI Bubble Watch:
May 21 – Bloomberg (Michael Shepard and Edward Ludlow): “The Trump administration will maintain efforts to keep advanced artificial intelligence technology out of China’s hands, a top White House official said, brushing off calls from Nvidia Corp. Chief Executive Officer Jensen Huang to ease restrictions on chip exports to the world’s second largest economy. ‘We obviously have huge respect for Jensen,’ Sriram Krishnan, White House senior policy adviser for artificial intelligence, said... ‘When it comes to inside China, I do think there is still bipartisan and broad concern about what can happen to these GPUs once they’re physically inside’ the country, he added.”
Inflation Watch:
May 16 – New York Times (Ivan Penn): “Individuals and small business have been paying more for power in recent years, and their electricity rates may climb higher still. That’s because the cost of the power plants, transmission lines and other equipment that utilities need to serve data centers, factories and other large users of electricity is likely to be spread to everybody who uses electricity… The report by Wood MacKenzie, an energy research firm, examined 20 large power users. In almost all of those cases, the firm found, the money that large energy users paid to electric utilities would not be enough to cover the cost of the equipment needed to serve them. The rest of the costs would be borne by other utility customers or the utility itself.”
May 21 – Reuters (Juveria Tabassum): “Nike is planning to raise prices of some products from next week and will sell items on Amazon after six years, the company said… The footwear retailer will increase prices on apparel and equipment for adults between $2 and $10, while those priced between $100 and $150 will see a $5 hike, it said.”
May 22 – Los Angeles Times (Caroline Petrow-Cohen): “As Southern California Edison faces scrutiny over the role its equipment may have played in sparking the deadly Eaton fire, the utility giant is facing some pushback from ratepayers over plans to seek another increase in electricity rates. The California Public Utilities Commission is expected to make a decision this summer on Edison’s request to raise rates by 10% in order to pay for wildfire mitigation and cover ‘reasonable costs of its operations, facilities [and] infrastructure’…”
Federal Reserve Watch:
May 21 – Financial Times (Eric Platt): “Bank lending to the $1.6tn private credit industry may pose systemic risks to the US financial system during an economic downturn, the Federal Reserve’s Boston branch warned… Boston Fed economists said in a paper that US lenders were exposing themselves to a new channel of risks by offering finance to non-bank groups that specialise in making loans directly to companies. The report underscores how the booming private credit industry, led by groups such as Blackstone, Apollo and Ares, is forging increasingly close links with the much more tightly regulated traditional banking sector.”
May 20 – Bloomberg (Jonnelle Marte): “Two Federal Reserve officials underscored the US central bank can be patient and assess incoming data before adjusting policy as the economy navigates heightened uncertainty. The Fed should stay in a ‘central position, and then be prepared to move agilely — but not abruptly or quickly when we don’t need to because we don’t have enough information,’ San Francisco Fed President Mary Daly said… ‘Right now I think the best action we can take is to sit on our hands and really carefully go through the data, engage with our communities, hear what they’re thinking about, hear about the choices that they’re making and see how that all comes together in the aggregate data,’ Hammack said.”
May 19 – Bloomberg (Maria Eloisa Capurro): “Two Federal Reserve officials, including New York Fed chief John Williams, suggested policymakers may not be ready to lower interest rates before September as they confront a murky economic outlook. ‘It’s not going to be that in June we’re going to understand what’s happening here, or in July,’ Williams said… ‘It’s going to be a process of collecting data, getting a better picture, and watching things as they develop.’ The Fed’s next three meetings are in June, July and September.”
May 22 – Reuters (Michael S. Derby): “Federal Reserve Governor Christopher Waller said… he still sees a path to interest rate cuts later this year, and added that market pricing shows investors are worried the current Republican-backed budget and tax bill in Congress does not do enough to deal with the U.S. deficit… ‘If we can get the tariffs down close to the 10% and then that's all sealed, done and delivered somewhere by July, then we're in good shape for the second half of the year, and then we’re in a good position to kind of move with rate cuts through the second half of the year,’ Waller said.”
U.S. Economic Bubble Watch:
May 22 – Wall Street Journal (Nick Timiraos): “An economy facing possible indigestion from big increases in tariffs now is contending with a second headwind: potential fallout from a rise in government borrowing costs. Congressional Republicans and the White House have plowed ahead with a package of tax cuts designed to shore up the economy and soothe jitters about the hit from tariffs. But the cost of the tax bill could be adding to investor concerns over perpetually high budget deficits. Longer-dated government bonds continued their selloff on Thursday morning after Republicans successfully pushed President Trump’s tax bill through the House of Representatives. Yields rise as bond prices fall.”
May 22 – Reuters (Lucia Mutikani): “U.S. business activity picked up in May amid a truce in the trade war between Washington and China, but President Donald Trump’s sweeping tariffs on imported goods raised prices for companies and consumers. The survey from S&P Global… hinted at an acceleration in inflation in the coming months and a labor market slowdown… Manufacturing delivery delays were the longest in 31 months while exports of services, including spending by foreign visitors in the U.S., dropped at the sharpest pace since the COVID-19 pandemic… The survey’s flash manufacturing PMI increased to 52.3 from 50.2 in the prior month… Its flash services PMI rose to 52.3 from 50.8 in April… A measure of prices paid by businesses for inputs vaulted to 63.4, the highest level since November 2022, from 58.5 in April… The survey's gauge of prices charged by businesses for goods and services jumped to 59.3, the highest since August 2022, from 54.0 in April.”
May 22 – Associated Press (Matt Ott): “The number of Americans filing unemployment claims last week fell slightly as businesses continue to retain employees despite growing economic uncertainty over U.S. trade policy. Applications for jobless benefits fell by 2,000 to 227,000 for the week ending May 17… The total number of Americans receiving unemployment benefits for the week of May 10 climbed by 36,000 to 1.9 million.”
May 22 – Reuters (Lucia Mutikani): “U.S. existing home sales unexpectedly fell in April… Home sales slipped 0.5% last month to a seasonally adjusted annual rate of 4.00 million units… Sales last month were the slowest for April since 2009… They declined 2.0% on a year-over-year basis in April. ‘Home sales have been at 75% of normal or pre-pandemic activity for the past three years,’ said Lawrence Yun, the NAR's chief economist… With sales being weak, the inventory of existing homes increased 9.0% to 1.45 million units in April. Supply soared 20.8% from a year ago. An oversupply of new homes on the market could pull buyers away from previously owned ones. Builders are cutting prices and offering incentives to attract customers.”
May 21 – CNBC (Diana Olick): “After shifting in a narrow range for several weeks, mortgage rates moved decidedly higher last week… ‘Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,’ said Mike Fratantoni, senior vice president and chief economist at the MBA. Applications for a mortgage to buy a home, which had been rising for a few weeks, dropped 5% for the week and were 13% higher than the same week one year ago.”
China Watch:
May 20 – Bloomberg: “China’s fiscal stimulus pushed its four-month budget deficit to a record high, as the government ramped up support for the economy during an escalation in its trade conflict with the US. The broad deficit reached 2.65 trillion yuan ($367bn) in January-April, the most ever for the period… The shortfall swelled by more than 50% compared with a year earlier. It’s the clearest evidence yet that Beijing shifted into a higher gear in deploying this year’s planned fiscal stimulus…”
May 19 – Bloomberg: “Major Chinese banks cut deposit rates again… Lenders including Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China, Bank of China Ltd. and China Merchants Bank Co. trimmed rates across maturities on Tuesday. One- and two-year fixed deposit rates fell by 15 bps… Rates on three- and five-year deposits were slashed by 25 bps. The cuts on the country’s more 300 trillion yuan ($41.6 trillion) of deposits came as the recent package of government measures to stimulate the world’s second largest economy has further squeezed bank profits.”
May 18 – Reuters (Liangping Gao, Xiuhao Chen and Liz Lee): “China’s new home prices were unchanged in April from a month earlier…, extending the no-growth trend to nearly two years despite policymakers’ efforts to stabilise the sector. New home prices stayed the same for a second straight month and have shown no growth since May 2023 as China attempts to lift the real estate sector, once a key driver of the economy, from a prolonged slump. ‘The property sector remains on a downward path. While many believe we’re approaching the bottom, the exact distance remains uncertain,’ said Zhaopeng Xing, senior China strategist at ANZ. From a year earlier, prices in April were down 4.0%...”
May 18 – CNBC (Anniek Bao and Evelyn Cheng): “China’s retail sales growth slowed in April…, signaling that consumption remains a worry for the world’s second-largest economy. Retail sales rose 5.1% from a year earlier in April, missing analysts’ estimates of 5.5% growth… Sales had grown by 5.9% in the previous month. Industrial output grew 6.1% year on year in April…”
May 20 – Bloomberg (David Fickling): “Casting your mind back to the China of 2003 almost feels like an exercise in historical fiction. With an economy barely larger than Italy’s, it was still underdeveloped and isolated… And yet the China of 2025 is oddly reminiscent of a generation ago. With a four-year real estate crash showing few signs of abating, construction of new housing is now back to the levels of the early 2000s. Just 132 million square meters of homes have been started in the four months through April… That’s less than a third of the level before the crash began in 2021, and the lowest total since 2003.”
Central Bank Watch:
May 20 – Bloomberg (Jesús Aguado): “Geopolitical and trade tensions stemming from U.S. tariffs pose a risk to the stability of the global financial system and to global economic growth, European Central Bank policymaker Jose Luis Escriva warned… Escriva saw the unpredictability of the Trump administration's policies, from trade to wider economy, as one of the risks defining the global environment, with ‘possible deterioration of international investors' confidence in the U.S. economy’ also generating uncertainty. ‘All these factors have a decisive impact on the global growth outlook and pose risks to the stability of the international financial system,’ Escriva, who also chairs the Bank of Spain, wrote in its annual report.”
May 20 – Bloomberg (Mark Schroers): “The European Central Bank warned that escalating global tariff tensions have emerged as a ‘significant concern’ for financial stability and the global economy. ‘Policy authorities need to identify the risks stemming from trade tensions, monitor them and evaluate their potential impact on financial stability,’ six staff economists wrote… The ECB recommended that ‘financial institutions should also take a number of proactive steps to cope with risks stemming from trade tensions.’”
Europe Watch:
May 19 – Associated Press (Sylvia Hui): “Britain and the European Union hailed a new chapter in their relationship… after sealing fresh agreements on defense cooperation and easing trade flows at their first formal summit since Brexit. Five years after the U.K. left the EU, ties were growing closer again as Prime Minister Keir Starmer met European Commission President Ursula von der Leyen and other senior EU officials… The deals will slash red tape, grow the British economy and reset relations with the 27-nation trade bloc, Starmer said, while von der Leyen called the talks a ‘historic moment’ that benefits both sides. ‘Britain is back on the world stage,’ Starmer told reporters. ‘This deal is a win-win.’”
May 21 – Associated Press (Pan Pylas): “Inflation in the U.K. spiked to its highest level for more than a year in April amid a raft of higher domestic bills, such as energy and water… The Office for National Statistics said that its key measure of inflation… rose by 3.5% in the year to April, up from 2.6% in March. April’s rate was the highest since January 2024 and above expectations for a more modest increase to 3.3%. The scale of the rise was also the largest since October 2022, at the height of the energy crisis in the wake of Russia’s full-scale invasion of Ukraine.”
May 19 – Financial Times (Marton Dunai): “Pro-EU centrist Nicuşor Dan won Romania’s presidential run-off…, defeating an ultranationalist Eurosceptic who had topped the first round and raised fears about the country’s pro-western orientation… The mayor’s victory caps months of political and economic turmoil triggered by the cancellation of a previous vote owing to alleged Russian interference, which put Bucharest in Moscow’s and Washington’s crosshairs and split the nation over its way forward.”
Japan Watch:
May 22 – CNBC (Anniek Bao): “Japan’s core inflation accelerated to 3.5% in April… Headline inflation climbed 3.6% from a year ago, steady from the prior month and staying above the Bank of Japan’s 2% target for more than three years.”
May 22 – Associated Press (Mari Yamaguchi): “Rice is essential to Japanese culture, tradition and politics. People take pride in the oval-shaped sticky Japonica grain, which is still a staple even though total consumption has fallen over the decades. But since last summer, prices have soared as supplies have fallen short of demand… To cope with shortfalls this year, the government has released rice reserves. But the grain has been slow to reach supermarket shelves. Anger over that was part of the reason the agriculture minister quit this week.”
May 20 – Financial Times (Harry Dempsey, David Keohane and Leo Lewis): “Japan’s largest companies have said tariffs planned by the Trump administration could erode annual profits by tens of billions of dollars, with the probability of a bigger impact in the event of a US recession. Groups including Toyota, Sony and Mizuho could suffer a total hit as high as ¥4tn ($27.6bn), according to Financial Times calculations based on company guidance…”
Emerging Market Watch:
May 20 – Financial Times (John Paul Rathbone): “Turkish police detained 22 Istanbul municipality employees on corruption charges…, marking the latest step in a crackdown that began with the arrest of opposition mayor Ekrem İmamoğlu in March… The latest detentions, which included the head of Istanbul’s press department, were made under the continuing anti-graft investigation into municipal tenders issued by the alleged ‘shadowy’ network. Last week, Erdoğan called the probe ‘unprecedented’.”
Social, Political, Environmental, Cybersecurity Instability Watch:
May 22 – Bloomberg (Jennifer Hiller): “The struggling rooftop solar industry faces a potentially fatal blow after the House of Representatives passed a tougher version of President Trump’s expansive tax-and-spending package. The bill sunsets rich renewable energy credits, as expected—but includes more stringent provisions and rollback dates that were seen as especially bleak for rooftop solar. Credits for rooftop solar and battery storage would end this year, while those for larger solar, storage and wind energy projects would end by 2028, instead of a slower phaseout through 2031. ‘I think this is basically shutting down the industry,’ said Gregg Felton, chief executive of Altus Power, which develops solar projects… ‘Nobody will invest any longer in this space with this version of the law.’”
May 19 – New York Times (David Gelles): “When the Trump administration declared two weeks ago that it would largely disregard the economic cost of climate change as it sets policies and regulations, it was just the latest step in a multipronged effort to erase global warming from the American agenda. But President Trump is doing more than just turning a blind eye to the fact that the planet is growing hotter. He is weakening the country’s capacity to understand global warming and to prepare for its consequences. The administration has dismantled climate research, firing some of the nation’s top scientists, and gutted efforts to chart how fast greenhouse gases are building up in the atmosphere and what that means for the economy, employment, agriculture, health and other aspects of American society. The government will no longer track major sources of greenhouse gases... ‘We’re not doing that climate change, you know, crud, anymore,’ Agriculture Secretary Brooke Rollins told Fox Business…”
May 22 – Bloomberg (Valerie Volcovici): “The House budget bill that narrowly passed in an early morning vote on Thursday would effectively put the brakes on a clean energy production boom in the United States spurred by tax credits enacted in 2022. The bill to carry out President Donald Trump’s ‘one big beautiful bill’ plan that would further his tax cuts and boost spending on the military and border enforcement would kill Inflation Reduction Act tax credits for clean energy years earlier than initially planned in an earlier draft, rendering them unusable for most projects.”
May 22 – Wall Street Journal (Eric Niiler and Scott Patterson): “A downsized National Weather Service is struggling to do more with less as the country heads into a storm season that is expected to see above-normal numbers of hurricanes, tornadoes and wildfires. On Thursday, the National Oceanic and Atmospheric Administration announced it expects 13 to 19 Atlantic storms, with six to 10 reaching hurricane-strength winds… After losing 600 of its 4,000 employees since January amid widespread federal job cuts, the weather service is now scrambling to refill some critical vacancies with staff from NOAA.”
May 19 – Bloomberg (Leslie Kaufman): “As climate change worsens extreme weather around the US, floods are increasing the risk of home foreclosure, according to a new report by First Street Technology… A big part of the reason why is that unlike damage from hurricane winds and wildfires, flood damage isn’t covered by standard home insurance. Only a small percentage of Americans hold separate flood insurance. First Street analyzed 55 wind, wildfire and flood events that took place in the US between 2000 and 2020. It then compared the foreclosure rates… The analysis found that of 16 wind events, six were followed by a rash of foreclosures. Of 10 wildfires, only one preceded a foreclosure wave. But out of 29 floods, 20 were followed by an unusually high number of foreclosures.”
May 22 – Financial Times (Martin Arnold and Kenza Bryan): “Droughts could wipe out nearly 15% of economic output in the Eurozone, the European Central Bank has warned. Eurozone banks have €1.3tn of loans extended to sectors most at risk from potential water shortages — particularly in agriculture, manufacturing, mining and construction… The warning underscores how the central bank is intensifying its focus on the financial risks of climate change, despite a growing political backlash against green policies and pressure from US officials for regulators to water down work in this area. ‘Losses related to water scarcity, poor water quality and flood protection emerge as the most critical from a value added perspective,’ Frank Elderson, an ECB executive board member, said…”
May 20 – Bloomberg (Natasha White): “Global loss of tropical and boreal forests surged to a record high last year as unprecedented temperatures fueled fires, releasing more than four times the emissions of all air travel in 2023. That’s according to the latest annual assessment by Global Forest Watch, a platform run by the nonprofit World Resources Institute... ‘It’s a global red alert,’ Elizabeth Goldman, co-director of Global Forest Watch, said… ‘This level of forest loss is unlike anything we’ve seen in over 20 years.’”
