Bond Investors Stick to Neutral Stance Ahead of Fed Meeting

Bond

Forex

Summary:

Fixed-income investors said they are either staying neutral relative to their benchmarks, reducing their long-duration exposure, or preferring to remain on the shorter end of the yield curve.

Bond investors have taken a neutral stance in the run-up to the Federal Reserve's two-day monetary policy meeting this week, reflecting continued caution over U.S. trade policy that threatens to plunge the world's largest economy into recession.

Fixed-income investors said they are either staying neutral relative to their benchmarks, reducing their long-duration exposure, or preferring to remain on the shorter end of the yield curve.

"We are sort of in this uneasy equilibrium between growing economic concerns as we see soft data sour a bit, but also the potential for policy shocks that could impact inflation outlooks and the deficit," said Chip Hughey, managing director of fixed income at Truist Advisory Services in Richmond, Virginia.

To be neutral means sticking to a portfolio's duration benchmark. For instance, if the benchmark duration is five years, a neutral position would suggest staying in fixed-income assets with five-year maturities or around that vicinity.

Duration, which is expressed in number of years, provides an indication on how far the bond's value will fall or rise when interest rates move. In general, when rates fall, higher-duration bonds experience a greater increase in value compared to those with lower duration.

Investors extended duration for most of 2024, believing at the time that the Fed would embark on a deep rate-cutting cycle. Long-duration bets typically involve buying longer-dated assets on expectations of a decline in yields.

On Wednesday, the U.S. central bank's policy-setting Federal Open Market Committee is widely anticipated to keep its benchmark overnight interest rate in the 4.25%-4.50% range. Stronger-than-expected U.S. nonfarm payrolls data for April last Friday also gave the Fed some leeway to keep rates unchanged.

Since the Fed's last meeting in March, President Donald Trump's administration has introduced a massive trade shock that saw effective tariff rates surge, particularly on Chinese goods.

That fueled a U.S. Treasuries sell-off that, at one point, pushed benchmark 10-year yields more than 70 basis points (bps) higher to nearly 4.6% over the April 3-11 period. The U.S. 10-year yield is currently at 4.357%.

In his post-meeting press conference on Wednesday, Fed Chair Jerome Powell is likely to indicate that Trump's tariff shock could lead to higher inflation and an increase in unemployment, with recession not a far-fetched scenario.

NO PRE-EMPTIVE MOVE

"The Fed is unlikely to act pre-emptively given its expectation that inflation will be firming and the size of the tariff shock could produce persistent inflation effects," Morgan Stanley analysts led by chief U.S. economist Michael Gapen wrote in a research note.

Trump has walked back some of the U.S. tariffs since his self-declared "Liberation Day" on April 2, partly stabilizing bond and stock markets. But overall market anxiety over what will happen next has not dissipated, investors said.

"We're telling investors to continue to be cautious and de- risk," said Gregory Peters, co-chief investment officer at PGIM Fixed Income, which has assets under management of $837 billion.

"The way I see the tail is that there's only one side of the distribution: I don't see the upside tail. I think there's more of a centering around, from a yield-curve perspective, on the front end because at least that's driven by Fed policy," he said referring to his expectation that the economy will struggle with the Trump administration's tariff policy.

He added that the back end, specifically 30-year bonds, are "driven by factors that are well beyond my control and understanding."

The market, however, does not expect the Fed to leave rates unchanged much longer. The benchmark federal funds futures market has priced in a nearly 80% chance that the U.S. central bank will resume its rate cuts at its July 29-30 policy meeting, according to LSEG calculations.

All told, the market expects about 77 basis points of easing this year.

J.P. Morgan's latest Treasury client survey showed that 64% of the U.S. bank's clients are neutral, and 24% are net long overall. That net long position on Treasuries was down from a peak of 32% in the week of April 7, according to Jay Barry, head of global rates strategy at J.P. Morgan.

"We're currently neutral, leaning more on the front end of the curve where we have a little bit of comfort that it will be anchored toward Fed cuts going forward," said Anders Persson, chief investment officer and head of global fixed income at Nuveen in Charlotte, North Carolina.

"That's recognizing that given all the policy uncertainty, the backdrop of not a whole lot of clarity, that we're not all that comfortable making big bets."

Source: Reuter

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Adam

Stocks

Netflix (NFLX), Warner Bros. (WBD), and other media stocks fell Monday following President Trump's call for a 100% tariff on all foreign-produced films.

Stocks recouped steeper losses by mid-morning, although Netflix continued to lead the declines, down about 2%. Warner Bros. Discovery and Paramount Global (PARA) slipped around 1% after also recovering from earlier session lows. Disney (DIS) traded flat.

The companies did not immediately respond to Yahoo Finance's request for comment.

The market reaction comes after Trump directed his administration late Sunday to impose "a 100% tariff on any and all movies coming into our country that are produced in foreign lands," sending shockwaves through an industry still reeling from the pandemic shutdown and the recent writers' and actors' strikes.

"The Movie Industry in America is DYING a very fast death," Trump wrote in a post on Truth Social. "Other Countries are offering all sorts of incentives to draw our filmmakers and studios away from the United States. Hollywood, and many other areas within the U.S.A., are being devastated. This is a concerted effort by other Nations and, therefore, a National Security threat."

Earlier this year, Trump appointed a trio of actors — Jon Voight, Sylvester Stallone, and Mel Gibson — as his "special ambassadors" to Hollywood. He introduced the initiative in January, describing Hollywood as “a great but very troubled place.”

Netflix, Warner Bros. stocks slide as Trump threatens 100% tariff on foreign-made films_1

'Insane and devastating'

Trump's announcement follows China's move to "moderately reduce" imports of Hollywood movies in retaliation for escalating US tariffs on Chinese goods.

The proposed tariffs could affect several blockbusters filmed abroad, including Disney's "Avengers: Doomsday" and "Spider-Man: Brand New Day" (London), 20th Century's "Avatar: Fire and Ash" (New Zealand), Paramount's "Mission: Impossible — The Final Reckoning" (global locations), Lionsgate's Ballerina (Czech Republic), and Lucasfilm's "Star Wars: Starfighter" (UK).

"Until there is more clarity, this new development — which should’ve been predicted by all Hollywood C-suites — will likely slow down the business, or, in a worst case, shut it down in exactly the same way that the strikes affected Hollywood," Chris Fenton, longtime Hollywood executive, told Yahoo Finance.

Veteran film producer Kathryn Arnold called the proposed tariffs "insane and devastating," warning they could wipe out lower to mid-budget films by driving up costs and disrupting a globally interconnected system.

"If films are forced to be made here, the pricing of labor and goods and services is higher. Budgets will go up," she said, noting US tax incentives aren’t nearly enough to offset domestic production costs.

The ripple effects, she added, would hit everyone from crew to catering.

International markets are vital for major releases, often contributing up to 70% of box office revenue. Prior to the pandemic, China alone accounted for up to 40%, though US studios typically only see about 25% of those grosses due to strict local revenue-sharing rules.

According to the Motion Picture Association, the US film and TV business is a net export business and is running a trade surplus, based on data collected through 2023.

Hollywood tariff unknowns

Despite the initial stock declines, many unknowns remain about how such a tariff rollout would be structured and what the implementation might look like. Some key questions include whether the tariffs would apply to all forms of distribution, including streaming platforms, or just theatrical releases.

It's also unclear how existing international co-productions would be treated. Industry insiders warn the policy could create logistical and legal complications for studios with global production pipelines.

"With only a single social media post to go on, [it's] virtually impossible to size the impact to the industry or specific companies today," Morgan Stanley analyst Ben Swinburne wrote in reaction to the news on Monday.

He warned 100% tariffs could result in fewer, more expensive films and lower industry earnings, particularly for Netflix, which produces more films than any other studio and derives up to 30% of its viewership from film content.

Swinburne also flagged potential retaliatory moves from foreign governments, which could target US streaming platforms or restrict film releases abroad.

Source: finance.yahoo

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Adam

Forex

President Trump’s tariff policy has distorted key US economic data and market trends. Tariff-driven activity inflated GDP and spending figures in early 2025, masking underlying weakness. Businesses and consumers rushed to purchase before new tariffs, creating artificial short-term growth. However, slowing labor indicators, rising inflation expectations, and fragile financial markets suggest deeper structural problems. This article examines how Trump’s tariffs disrupted economic stability, pressured the US dollar, and fueled a strong rally in EUR/USD.

How Trump’s Tariffs Distort US Economic Data and Mask Real Growth

President Trump’s tariff policy has disrupted the US economy. Because of temporary factors, the US GDP numbers do not accurately reflect the true health or direction of the economy. Businesses and consumers rushed to import goods before tariffs took effect in April, which inflated GDP, investment, and spending numbers.

Companies accelerated inventory accumulation to avoid anticipated price increases from tariffs. Additionally, consumers brought forward purchases, particularly in the automotive sector. These front-loaded activities temporarily boosted GDP but are expected to weigh on future growth.

Meanwhile, a decline in aggregate weekly hours worked during Q1 provides a more accurate signal of a slowing economy. The chart below shows that the US GDP contracted in Q1 2025, raising concerns about a potential recession.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_1

On the other hand, inflation trends also reflect tariff-driven shocks. Core PCE rose sharply by 0.5% in February, then dropped to just 0.03% in March, as shown in the chart below. Despite this decline, the Fed will unlikely proceed with further rate cuts.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_2

Meanwhile, consumers expect prices to rise further amid uncertainty in the financial system. The University of Michigan’s April survey indicates that Trump’s tariff plans fuel inflation fears. Inflation expectations for April 2025 have climbed above 6%, as shown in the chart below.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_3

Market Volatility Rises as Tariff Uncertainty Weighs on Investor Sentiment

Financial markets remain fragile under the weight of tariff uncertainty. The S&P 500 edged higher but lacked strong momentum. Investors stay cautious as tariff negotiations continue to stall. The chart below shows that the financial liquidity eased slightly to -0.45% on April 18, but long-term trends indicate tightening conditions ahead.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_4

The chart below shows that Moody’s Baa bond spreads peaked at 2.02% and remain elevated.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_5

Trump’s Tariffs Undermine US Dollar Strength and Confidence

Trump’s tariffs have weakened the US dollar. Rising inflation and fiscal deficits are damaging investor confidence. Tariffs are pushing up prices while growth slows, creating a stagflation-like environment that is making the dollar less attractive to global investors.

US Dollar Faces Technical Breakdown and Bearish Outlook

The monthly chart of the US Dollar Index shows that it has been trading within an ascending channel since 2009. Consolidation within this channel has stabilized over time. However, the index has repeatedly failed to break above the key resistance level at 115, keeping the door open for a potential decline.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_6

The peaks near 115 and 110, highlighted by red circles, mark the points where each downward leg began. The index has also broken a triangle pattern within the ascending channel and is now moving toward the 96–97 area. A decisive break below this level could trigger a sharp decline toward the 90 zone. The index must recover above 110 to resume the long-term upward trend.

EUR/USD Breakout Gains Momentum as Dollar Retreats

The weakness in the US dollar benefits the euro. EUR/USD has room to rise as traders move away from dollar-denominated assets. The monthly chart for EUR/USD shows a breakout from the falling wedge pattern, with the April 2025 close above $1.12. This breakout opens the door for a potential move toward the $1.22 area. Moreover, the RSI has moved above the midpoint, strengthening the bullish trend. The decline in the US dollar has triggered this strong rally in EUR/USD.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_7

The daily chart for EUR/USD shows a strong reversal from the $1.02 area, driven by the formation of a cup pattern. The breakout above $1.05 confirmed this pattern and opened the door for a strong rally in EUR/USD. The crossover of the 50-day SMA above the 200-day SMA further highlights the positive trend. Investors and traders may consider buying on pullbacks, targeting a move toward the $1.22 area.

The Trump Trade: Tariffs Distort US Growth and Fuel EUR/USD Rally_8

Source: fxempire

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Damon

Economic

The biggest question facing the Federal Reserve as it gathers again this week is how to grapple with a tariff-related "tug-of-war" between sticky inflation and a slowing economy — as well as a president who wants looser monetary policy.

How that dilemma gets resolved could mean two very different courses for interest rates in the coming months.

President Trump has made his views known in recent weeks: He wants rates lowered ahead of any slowing of the economy possibly triggered by his trade policies.

And he is not happy with the caution of Fed Chair Jerome Powell, who has said the central bank will "wait for greater clarity" while weighing both sides of its mandate for stable prices and full employment.

There is a "strong likelihood," Powell said last month, that the economy will be moving away from both of the Fed's goals for the "balance of the year, or at least not making much progress."

New reports on the economy, jobs, and inflation released last week reinforced the Fed's conundrum as it looks for patterns in the data.

A GDP report showed the US economy contracted for the first time in three years to begin 2025 due largely to a rush by importers to beat the start of President Trump's tariffs.

But an April jobs report released Friday also showed the labor market remained resilient even in the weeks after Trump's "Liberation Day" announcements shook markets.

An inflation gauge favored by the Fed showed that price growth slowed in March to an annualized 2.6%, but it was still a hotter-than-expected 3.5% for the quarter. And both marks are above the Fed's target of 2%.

Some economists expect inflation to kick higher and the economy to fall further in the months ahead.

The 'tug-of-war'

The challenge for the Fed, Wilmington Trust bond portfolio manager Wilmer Stith said, is that it has to ferret out "the tug-of-war between how much inflation is over the 2% target versus a deteriorating job market."

Luke Tilley, chief economist for Wilmington Trust, isn't expecting much change in the Fed's stance at this week's meeting. He does expect Powell to reiterate the tension between lower growth and higher inflation.

"They will hold where they are at this meeting, citing all of the uncertainty and that, if you look through the GDP data that still looks pretty strong and domestic demand was strong," he said.

Tilley said underlying demand was actually inflated during the first quarter by businesses stocking up on inventory ahead of the president's tariffs.

He expects the economy to slip into a mild, short recession in the second quarter, which he expects will lead the Fed to cut rates.

"I expect that by the end of the year they will be cutting rates and more so than they think right now — and more so that they'd ever be willing to say right now," Tilley said.

Tilley sees a rate cut at every meeting for the rest of the year starting in June, amounting to 125 basis points of reductions by year-end.

But he doesn't think the Fed will cut until there is an actual drop in economic growth.

That could lead to even more tension with the occupant of the White House. Trump in recent weeks has repeatedly made clear that he wants the Fed to cut rates and has accused it and Powell of being late.

Source: yahoo

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Damon

Economic

The largest U.S. lender, along with its peers has been ramping up its use of AI. Goldman Sachs is rolling out a generative AI assistant to its bankers, traders and asset managers, while Morgan Stanley developed a chatbot for its financial advisers with OpenAI.

JPMorgan's AI tools have supercharged the speed at which its bankers could provide research and investment advice to wealthy clients last month at a time when the U.S. tariff announcements erased trillions of dollars from the stock market.

"In the last few weeks, there have been several fluctuations in the market which are not in normal bite sizes, making it very complicated to think about all your clients and all the things required to do," Mary Erdoes said. The "powerful" AI tools helped advisors to quickly handle client requests by pulling data on their trading patterns and anticipating queries, she said.

In the days surrounding U.S. President Donald Trump's tariff announcement last month, U.S. stock markets set a new record for single-day trading volume, and posted some of the sharpest intraday swings of the past 50 years.

The volatility prompted individual investors to call their bankers seeking advice, Erdoes told Reuters.

"When you have a tool that pre-populates all the data and the movement in real time, while also remembering clients' old investment preferences and helps in tailoring a plan for them quickly, it also allows advisors to do much more," she added.

JPMorgan's so-called Coach AI tool used by private client advisers is quicker at locating content and research to drive conversations with clients.

"Our advisors are finding the right information up to 95% faster--which means they spend less time searching and more time engaging in meaningful conversations with clients," said Mike Urciuoli, chief information officer at JPMorgan asset and wealth management.

"It's a great example of how of AI isn't replacing human touch, it's enhancing it," Urciuoli added.

The app will help advisers expand their client rosters by 50% in the next three-to-five years by enabling them to take on more clients, with AI handling some of the other research-related work.

JPMorgan Asset & Wealth Management also saw a 20% year-over-year increase in gross sales between 2023-2024, with Gen AI-driven tools which has helped teams focus more effectively on high-impact client work, it said.

Source: Yahoo Finance

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Adam

Economic

Markets in focus

China unveils economic support framework

The Chinese government has recently articulated more comprehensive details regarding economic support measures, including employment subsidies for university graduates, financial assistance packages for exporters, and strategic initiatives to stimulate domestic consumption. Officials have confirmed the imminent implementation of a technology development fund and consumption stimulus policies by June, whilst expressing confidence in achieving the 5% growth target despite ongoing US trade tensions. This enhanced clarity generated market optimism, propelling the Hang Seng Index (HSI) upward by 2.4% last week.

The current week represents another shortened trading period for numerous Asian markets, including Hong Kong, which observes a market holiday on Monday. Investors will be meticulously analysing developments in US-China trade negotiations and assessing the forthcoming April trade data release.

Technical analysis indicates that momentum has improved substantially since early April, with the index approaching the 50-day moving average (SMA). The HSI price pattern demonstrates characteristics consistent with Elliott Wave theory, with the recent market recovery exhibiting behaviour typical of Wave B within the framework. A 0.618 Fibonacci extension of Wave A would potentially advance the index to 22,729 before a subsequent retracement towards 19,000. However, a definitive breach of the 50-day SMA could establish a trajectory towards the psychological threshold of 24,000.

Figure 1: Hang Seng index (daily) price chart

Technical correction in gold market

Gold has experienced an 8% correction from its historical peak and currently trades at approximately $3230. The improved market sentiment catalysed by diminishing US trade tensions has strengthened the US dollar and risk assets, precipitating the gold price retracement.

The World Gold Council's latest analysis indicates persistently robust demand for gold. Global central banks augmented their reserves by 244 tonnes in Q1, whilst exchange-traded funds (ETFs) recorded inflows of 227 tonnes (equivalent to approximately $21 billion), representing the highest quarterly influx since Q1 2022. Despite a temporary moderation in price momentum, Chinese investors have maintained their gold accumulation strategy through ETFs, futures contract and gold bars.

Gold prices descended below the 20-day SMA last week, bringing valuations to more sustainable levels as reflected in the relative strength index (RSI). This correction may present an opportunity to enter for bullish market participants. Buying interests is anticipated around $3190, with potential upside towards the recent high of $3,500. However, a decisive breach below $3190 could establish a trajectory towards the subsequent support level at approximately $3100.

Figure 2: Gold (daily) price chart

USD/JPY advances following Bank of Japan policy decision

USD/JPY has sustained its recovery from seven-month lows, bolstered by the Bank of Japan's (BoJ) decision to maintain interest rates at 0.5%. The board emphasised that uncertainties surrounding US tariffs would exert pressure on Japanese corporate earnings and consumer expenditure, consequently decelerating economic growth. Accordingly, the BoJ revised its growth forecast for the current fiscal year downward to 0.5% from the previous projection of 1.1%. While the trajectory towards interest rate hikes remains intact, the implementation timeline has been extended.

Market reaction has primarily focused on the delayed interest rate adjustment schedule; however, it is essential to recognise that the yen's safe-haven status can supersede Japan's economic growth considerations during periods of heightened market volatility, as evidenced during April's market turbulence. Any substantive progress in trade negotiations could also significantly alter the BoJ's baseline economic assessment.

From a technical perspective, USD/JPY will remain subject to downward pressure while trading below the 200-day SMA with an adequate safety margin. The currency pair is currently intersecting the upper boundary of the descending channel at approximately 145. Although USD/JPY is likely to revert to the prevailing downtrend, a clear and sustained breakout would suggest temporary dollar strength towards the resistance zone at 148.2-148.5. The recent low at 139.9 represents significant technical support.

Figure 3: USD/JPY (daily) price chart

The week ahead

This week features a lighter schedule of economic data releases, with the Federal Open Market Committee (FOMC) meeting and the Bank of England's (BoE) interest rate decision representing the principal events for market participants. The quarterly earnings season progresses with pivotal financial disclosures from Advanced Micro Devices, Walt Disney and Coinbase.

Although US inflation appears to be moderating, with core personal consumption expenditures (PCE) price index decelerating to 2.6% year-on-year (YoY) in March, market consensus anticipates the Fed will maintain current policy rates while assessing the impact of President Trump's tariff implementations. Fed funds futures currently indicate expectations for three to four 25-basis-point reductions by year-end, reflecting a more accommodative outlook compared to market views prior to Liberation Day on 2 April. Market participants will scrutinise Thursday's FOMC statement for indications regarding the future interest rate trajectory.

Figure 4: Fed funds futures implied yield

Source: ig

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Blue River

Forex

Economic

The U.S. dollar was mostly lower against major currencies, including the yen and the euro, on Monday as markets weighed continued uncertainty from President Donald Trump's policies and their impact on the economy.

The greenback slid to a fresh record low against the Taiwan dollar to 28.8150 amid speculation that Taiwan was letting its currency appreciate as part of a trade deal with the U.S., or at least was unwilling to intervene to stop it rising alongside sharp inflows in capital.Trump doubled down on tariff-driven policies during an interview on Sunday, reiterating that the duties on U.S. imports would eventually make Americans rich. He announced on Sunday a new 100% tariff on films made outside the U.S.

Markets have been affected by the fact that Trump is not leaving his stance that tariffs are important, said Juan Perez, director of trading at Monex USA in Washington.

The dollar was down 0.79% against the Japanese yen at 143.805 . Against the Swiss franc , the dollar weakened 0.57% to 0.822.Trump said he would not attempt to remove Federal Reserve Chair Jerome Powell, but repeated calls for lower interest rates and called Powell a "stiff". The Fed meets on Wednesday and is widely expected to leave rates steady following a solid March payrolls report.Perez said the U.S. dollar was being hurt the most by chaos in the markets.

"I think we're returning today to...this very sour mood and descent and this idea that overall you may not necessarily rely on American markets the way you used to. And that's been seen across Treasuries."

Markets now imply only a 37% chance of a Fed rate cut in June, down from 64% a month ago. Goldman Sachs and Barclays both shifted their cut calls to July from June.

The dollar trimmed its losses briefly against the yen after the Institute for Supply Management report for April showed a larger-than-expected pickup in growth in the U.S. services sector, which accounts for two-thirds of the American economy.

Chinese onshore markets were closed but the yuan traded offshore hit its highest in almost six months at 7.1831 per dollar as investors wagered Beijing might let its currency strengthen as part of trade talks with Washington. The yuan was last up 0.23% to 7.194 per dollar.

In Europe, the euro was up 0.27% at $1.133025 and the pound was up 0.28% at $1.33050.

The Bank of England will meet on Thursday and is widely expected to cut rates by a further 25 basis points to 4.25%. Central banks in Norway and Sweden also meet this week and are expected to keep rates steady.

Reporting by Chibuike Oguh in New York, Wayne Cole and Alun John. Editing by Sonali Paul, Mark Potter, Tomasz Janowski and Nia Williams