The European Central Bank has warned that investor concerns over the riskiness of US assets, driven by Trump’s tariff policies, could destabilize global financial markets. The ECB’s Financial Stability Review noted unusual shifts away from safe-haven assets like the US dollar and Treasuries, signaling a potential “fundamental regime change” in global capital flows, with stretched US tech stock valuations adding to market vulnerabilities. Despite some easing of US-China trade tensions, uncertainties persist, prompting the ECB to lower interest rates to support growth as inflation nears its 2% target. Meanwhile, upcoming Eurozone PMI data for May is expected to show fragile recovery, with Germany’s Manufacturing PMI slightly improving to 48.8 and Services PMI rebounding to 49.5, while Eurozone Manufacturing and Services PMIs are forecast at 49.2 and 50.5, respectively, indicating modest expansion amid ongoing trade tensions and a stronger euro.

Yields on long-dated Japanese Government Bonds (JGBs) have surged to a 20-year high of 2.845% for the 30-year bond, raising speculation about when Japanese investors, holding over $1 trillion in U.S. Treasuries, might repatriate capital due to attractive domestic yields and U.S. policy uncertainties under Trump’s tariffs. Japan could stabilize its yield curve by letting U.S. Treasury holdings mature without reinvesting, potentially strengthening the yen without aggressive monetary actions. Despite U.S.-Japan talks affirming market-driven exchange rates, trade negotiations and a weakening South Korean won may support yen appreciation, as traders anticipate currency adjustments to address U.S. concerns over Asian export advantages. The Bank of Japan, as noted by board member Asahi Noguchi, favors gradual rate hikes, cautious of risks from Trump’s “Liberation Day” tariffs due July 9, 2025, while former BOJ member Sayuri Shirai warns that high inflation expected this Friday could force faster policy normalization. May’s PMI data—Composite at 49.8, Manufacturing at 49.0, and Services at 50.8—signals economic weakness, but a successful trade deal could pave the way for a BOJ rate hike in July, boosting yen bullishness.

The Reserve Bank of Australia has shifted its stance from cautious rate cuts to signaling readiness for faster reductions if economic conditions weaken, prompting markets to anticipate a cut as early as July, potentially lowering rates to 3.1% by year-end with three cuts, though some expect only one or two unless the economy deteriorates significantly. Recent data shows a mixed picture: April’s Westpac Leading Index slightly improved to -0.01%, while May’s PMI Composite dipped to 50.6, with Manufacturing steady at 51.7 and Services at 50.5, indicating modest growth. Bloomberg’s survey of 45 economists projects Australia’s economy to grow 1.8% in 2025, 2.3% in 2026, and 2.5% in 2027, with an 18% recession risk over the next year, stable Q1 2025 GDP at 0.5%, and CPI forecasts at 2.5% for 2025 and 2.7% for 2026, with the RBA rate expected at 3.60% by Q3 2025 from the current 3.85%.