Global investors puled $24.7 billion out of US equities in May—the largest outflow in a year—shifting focus to European and emerging markets due to concerns over US fiscal policy, rising debt, and potential trade tariffs sparking a recession, according to LSEG Lipper data. European funds saw $21 billion in inflows last month, totaling $82.5 billion this year, boosted by lower interest rates and Germany’s $1 trillion stimulus, while emerging market ETFs attracted $3.6 billion, pushing yearly inflows to $11.1 billion. The dollar’s weakening and US Treasury sell-offs are driving this trend, with the euro nearing April’s high and looking to keep pushing, as ECB policy and fading US safe-haven appeal fuel optimism for further gains.

Japan’s economic outlook has worsened, with the Business Survey Index for large manufacturers dropping to -4.8% in Q2 2025 from -2.4% in Q1, falling short of the expected 0.8% rebound and hitting the lowest level since early 2024, largely due to US trade barriers impacting its export-driven economy. Despite the current downturn, manufacturers are hopeful for a recovery, forecasting a rise to 5.7% in Q3 and 8.4% in Q4, though ongoing trade tensions with the Trump administration—marked by a 10% tariff on Japanese goods—could alter these projections. The yen gained as a safe-haven asset after Trump’s tariff threats, while the Nikkei 225 slipped 0.7% to 38,149, and the 10-year JGB yield fell to 1.45%, amid a complex policy stance from the BOJ, which may raise rates if inflation nears 2%.

The Australian dollar is under pressure as inflation expectations soar to 5.0% in June from 4.1% in May—the highest since mid-2023—creating a stark contrast with the official 2.4% rate and complicating the Reserve Bank of Australia’s strategy. With fading energy subsidies, tight labor markets, and supply issues likely pushing inflation toward the upper end of the 2-3% target, the Aussie is fluctuating, despite an 82% market expectation of a July rate cut and 77 basis points of cuts by December. If rising inflation fears prompt the RBA to reconsider these cuts, the Australian dollar might see a short-term boost.