Dow drops on US fiscal concerns, natural gas futures keel over as EUR/JPY slips

Economic

Summary:

The Dow retreated below key support on U.S. fiscal concerns, EUR/JPY faces further downside toward April lows, and U.S. natural gas futures decline toward major support amid persistent selling pressure.

Dow is seen dropping

Having reached a 2 1/2 month high at 42,842, marginally above its 42,821 late March high, the Dow Jones Industrial Average has fallen back below its 200-day simple moving average (SMA) at 42,318 close to last week's low at 41,778 on US fiscal concerns.

The index is expected to come further off and fill its 41,899 to 41,512 early May price gap and may also revisit its 55-day SMA at 41,134 and its April-to-May uptrend line before recovering.

Minor resistance above the 200-day SMA at 42,318 can be spotted at Tuesday-to-Wednesday's price gap at 42,439-to-42,485.

Dow drops on US fiscal concerns, natural gas futures keel over as EUR/JPY slips_1

EUR/JPY expected to decline further

EUR/JPY's recent decline from its mid-May high at ¥165.21 is taking it through its March-to-May uptrend line at ¥162.56 with the 55-day SMA and 19 May low at ¥162.18-to-¥162.15 about to be reached.

These are likely to soon give way with the late April-to-early May lows at ¥161.71-to-¥161.60 expected to soon be reached, as well as the 200-day SMA at ¥161.40. The 22 April low at ¥160.99 may also be reached. If fallen through, a more significant top may be formed with the early April low at ¥158.31 being back in sight.

Immediate downside pressure should remain in play while Wednesday's high at ¥163.41 isn't overcome.

Slightly above this level minor resistance may be found around the 25 April high at ¥163.75 ahead of key resistance at ¥164.18-to-¥165.23, made up of the December-to-May highs.

Dow drops on US fiscal concerns, natural gas futures keel over as EUR/JPY slips_2

Natural gas futures under pressure

US natural gas futures prices are in the process of keeling over and slipping back towards their 200-day SMA at 276.4. Below it support can be spotted at the 19 May low at 266.7.

Were this level to be slipped through, the 25-to-28 April gap at 260.5-to-255.3 would likely get filled before the April low at 244.00 may be revisited.

Were Wednesday's high at 300.5 to be exceeded, though, the above scenario would likely be delayed while the March-to-May downtrend line at 310.8 may be probed. Slightly further up meanders the 55-day SMA at 315.3 which may also act as potential resistance as well as the 9 May peak at 326.1. While the latter level caps, the medium-term downtrend remains valid.

Dow drops on US fiscal concerns, natural gas futures keel over as EUR/JPY slips_3

Source: ig

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Michelle

Economic

Forex

US business activity and output expectations improved this month as trade-related anxiety eased even as price pressures continued to mount due to tariffs.

The S&P Global flash May composite index of output rose 1.5 points to 52.1 after sliding a month earlier to the lowest since 2023, according to data released Thursday. Figures above 50 indicate growth, and the acceleration reflected expansion at both manufacturers and services providers.

“Business confidence has improved in May from the worrying slump seen in April, with gloom about prospects for the year ahead lifting somewhat thanks largely to the pause on higher rate tariffs,’’ Chris Williamson, chief business economist at S&P Global Market Intelligence, said in a statement.

While the figures indicate a welcome stabilization in both activity and sentiment, companies are having success passing on higher duties on imports of goods and materials. A composite measure of prices charged accelerated for a third month to the highest since August 2022.

The pickup reflected concerns about supply shortages that is also prompting many producers to build inventory. A measure of stockpiles of materials and other inputs at manufacturers surged to the highest level in survey data back to 2007.

“At least some of the upturn in May can be linked to companies and their customers seeking to front-run further possible tariff-related issues, most notably the potential for future tariff hikes after the 90-day pause lapses in July,’’ Williamson said.

The manufacturing purchasing managers index climbed to a three-month high of 52.3, fueled in part by the fastest growth in new orders in more than a year. Output expectations also rose to the highest since February.

Nonetheless, the factory data also illustrated lingering uncertainty and indications how producers are responding to higher costs. Export orders contracted for a second month along with employment.

Export bookings also weakened for service providers, with the gauge showing the steepest contraction since the pandemic lockdowns in 2020.

The pickup this month in overall activity at service providers reflected firmer new business.

Source: Bloomberg Europe

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Adam

Commodity

Oil prices fell further Thursday on renewed oversupply concerns, following a report suggesting that a group of top producers was considering raising output levels once more.

At 04:55 ET (08:55 GMT), Brent Oil Futures fell 1.2% to $64.16 per barrel and West Texas Intermediate (WTI) crude futures dropped 1.2% to $60.86 per barrel.

OPEC+ to hike production again?

The Organization of Petroleum Exporting Countries and allies, a group known as OPEC+, is discussing whether to agree on another large production increase at their meeting on June 1, Bloomberg News reported on Thursday.

An output hike of 411,000 barrels a day (bpd) for July is among the options under discussion, although no final agreement has yet been reached, the report said, citing delegates.

OPEC+ has been in the process of unwinding output cuts, with additions to the market in May and June.

U.S. crude inventories jump unexpectedly - EIA

The crude market had retreated Wednesday after U.S. crude oil inventories unexpectedly increased for the week ending May 16, 2025, raising concerns about oversupply and contributing to a decline in oil prices.

The Energy Information Administration reported a 1.3 million-barrel rise in crude stockpiles, bringing total inventories to 443.2 million barrels. This build defied analyst expectations of a 1.3 million-barrel drawdown.

Additionally, gasoline and distillate inventories increased by 816,000 and 580,000 barrels, respectively, suggesting weakening demand.

The start of the U.S. summer driving season after Memorial Day may boost demand and help draw down inventories, but recent forecasts and data points indicate supply outpacing demand.

U.S.-Iran talks to continue next week; oversupply worries persist

The fifth round of nuclear negotiations between Iran and the United States is scheduled for Friday, May 23, in Rome, with Oman continuing its role as mediator.

A central point of contention remains Iran’s uranium enrichment activities. While the U.S. demands a complete halt to enrichment, Iran insists on its right to enrich uranium for peaceful purposes.

If the negotiations make progress or lead to an easing of U.S. sanctions, Iran could increase its crude oil exports. Currently, Iran is exporting oil at reduced levels due to sanctions, but it holds significant capacity as it is the third-largest producer among OPEC members

source : investing

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Warren Takunda

Economic

There is mounting pressure on Rachel Reeves to relax her budget rules and to prepare the ground by telling voters in the next few weeks.

The latest public borrowing figures for April, which show a rise above most City forecasts, indicate that the chancellor will struggle to stay within the constraints she imposed on herself at last year’s budget.

Reeves gambled that the Treasury could brazen out a difficult year with nearly £10bn of headroom – a cushion that would protect the government against all eventualities.

Donald Trump’s tariffs war and the subsequent global slowdown have been enough to derail that tactic.

Economic growth is expected to slow over the next year despite a spate of trade deals. Inflation is rising, hitting household incomes and pushing up the costs of public services.

A £10bn cushion over a five-year time horizon was always optimistic. Now it looks like being in jeopardy even after the Office for National Statistics said revisions of past estimates means it overestimated last year’s debt by £4bn.

No 10 is adding to Reeves’s problems now Keir Starmer has made clear he views the winter fuel allowance cut as a mistake. It’s possible he has many other unpopular measures in his sights.

There was better news from a rise in tax receipts linked to the increase in employer national insurance contributions and the freeze on income tax thresholds, which has brought more people into higher rates of tax.

They gave the Treasury a lift, according to April’s figures, but not enough to override the extra spending needed to compensate public bodies for higher wage bills and the costs of inflation on department running costs.

Next month’s departmental spending review will set aside funds for lots of long-term projects designed to raise the UK’s skill levels, bring more people back into the workforce and boost productivity. As a potential reboot, it holds the prospect of lifting the nation’s spirits. The impact, though, will be circumscribed by the need to keep the overall plan within tight spending limits.

Another problem for Reeves can be found in the reaction from businesses. They are making their own assessment of the public finances and the tension between the people-pleasing Starmer and the iron chancellor.

They know more concessions from No 10 will make the likelihood of higher taxes on business more likely in the autumn. If there is a budget gap to fill, company bosses sense they are being viewed as a cash cow that can be endlessly milked.

Their reaction is already clear; apart from a few industries such as construction, where the government has shown a sense of direction, most businesses are hunkering down, cutting staff and cancelling job adverts.

Yet the Treasury knows that another round of tax rises, whether on businesses or households, will be a growth killer, delaying a move through the economic gears promised when Labour took office.

The National Institute of Economic and Social Research has long argued that constraining budget rules have forced successive chancellors to make bad, short-term decisions in an effort to squeeze through each annual budget.

That is the prospect Reeves faces now.

The thinktank favours bringing down debt, but after a period of public investment has sparked a rise in tax receipts. It also argues, like many do, that cuts to welfare at this moment will prove to be counter-productive.

To maintain investment and keep public services from falling backwards, there will need to be more cash on the table from the Treasury. That’s the growing view in the business community as well.

The public wants the economy to recover more than it wants fiscal rectitude, and while the financial markets are anxious about rising public debts, the scale of the modest easing needed in the UK will be dwarfed by what is going on in the US, where Trump is pushing for tax cuts that will raise US debt levels by more than $5tn (£3.7tn) by the end of the decade.

As messages go, there could not be a clearer one for the chancellor. A relaxation of the fiscal rules should not be delayed. Without it, the whole Labour project could be undermined.

Source: Theguardian

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Adam

Economic

Bond markets creaked again after the hammer came down on a lukewarm sale of 20-year U.S. Treasuries on Wednesday with President Donald Trump's sweeping tax and spending bill clearing a crucial hurdle overnight.

today's column, I discuss how a long-standing trend of U.S. corporations acting as cash-rich net lenders might reverse due to increased investment in AI and re-industrialisation efforts , opens new tab , potentially creating new competition for funds with ever-expanding U.S. government borrowing.

But now onto all the market news.

Today's Market Minute

* U.S. President Donald Trump's sweeping tax and spending bill cleared a crucial hurdle on Thursday, as the House of Representatives voted roughly along party lines to begin a debate that would lead to a vote on passage later in the morning.

* Foreign investors could once barely imagine that China would invade neighbouring Taiwan, but with Donald Trump as president of the United States, many view it as a tail-risk scenario they must prepare for, although they cannot find ways to do so.

* Stocks and the U.S. dollar fell on Thursday, while longer-dated Treasury yields steadied near their highest in 18 months as worries of a worsening fiscal outlook in the world's biggest economy remained at the top of investors' minds.

* Bitcoin rose to its highest level on record on Wednesday, eclipsing the previous high from January, as risk sentiment continues to improve after last month's tariff-induced selloff.

* Oil prices fell more than 1% on Thursday following a report that OPEC+ is discussing a production increase for July, stoking concerns any potential increase in global supply would exceed demand growth.

* Solar farms are set for a record stretch of power sector dominance in Germany after becoming the single largest generation source in the country at the earliest point of the year ever.

Hammer comes down

Markets fear the bill will bake in elevated deficits and rising debt piles over the remainder of the administration's term at least. The proposed legislation lifts the $36.2 trillion debt mountain by another $3.8 trillion over the next decade, according to the nonpartisan Congressional Budget Office.

Lawmakers were due to vote again to pass the measure later today and send it on to the Republican-led Senate, which could take weeks to act. And it was not yet clear whether House Speaker Mike Johnson would secure the necessary support from his own narrow 220-212 seat Republican majority.

But bond markets are getting restive, as the poor 20-year auction displayed. The U.S. 30-year yield reached 5.108%, its highest since October 2023, and the 20-year yield hit 5.126%, its highest since November 2023.

The 30-year 'long bond' yield is now just 7 basis points from 2023's peaks. A break above that would put it at its highest since the 2007 banking crash unfolded - a shock which forced the Federal Reserve to spend years in bond buying support.

Trouble at the long end of the Treasury market was reflected in government bond markets around the world, with Japan still grappling with surging ultra-long yields to record levels too and Britain's 30-year yield hitting its highest since April's volatility.

Bank of Japan board member Asahi Noguchi said on Thursday he saw no need for the central bank to intervene in the bond market to stem recent sharp rises in super-long yields, describing the moves as "rapid but not abnormal".

Compounded by aggravated inflation readings and tariff-related price concerns, the debt worries unnerved stock markets again too. Wall Street stock indexes (.SPX) , opens new tab fell back more than 1% on Wednesday and markets in Asia and Europe were all lower earlier today.

There was some respite from crude oil prices, however. U.S. benchmark retreated 1% after a report that OPEC+ is discussing a production increase for July, stoking speculation that global supply could exceed demand growth.

The dollar (.DXY) , opens new tab got a modest lift meantime as signals from the G7 finance chiefs in Canada suggested Washington held back from demanding a higher yen in bilateral trade talks with Japan, as some pre-meeting speculation had fretted about.

U.S. Treasury Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato issued a statement on Wednesday that the dollar-yen exchange rate currently reflects fundamentals, a rare and explicit statement on the prevailing market situation.

Bessent and Kato "reaffirmed their shared belief that exchange rates should be market determined and that, at present, the dollar-yen exchange rate reflects fundamentals", the Treasury Department said in a statement.

The somewhat contradictory statement also said that they did not discuss foreign exchange levels.

On Wednesday, South Korea's won rose sharply against the dollar after a media report that Washington had demanded that Seoul come up with measures to boost the won as part of any trade deal. The won gave up most of those gains today, however.

Elsewhere, attention was on worldwide business surveys for May. Composite readings for euro zone and Japanese firms showed activity there unexpectedly slipping back into contractionary mode this month, due largely to fresh weakness among service sector companies.

U.S. equivalents are due out later, along with weekly jobless numbers.

Be sure to check out today's column, which looks at potential rumblings in U.S. government debt markets from the perspective of domestic U.S. corporate demand for credit going forward.

Chart of the day

Longer-dated U.S. Treasury yields climbed again after a $16 billion sale of 20-year bonds on Wednesday met lukewarm demand from investors just as Congress thrashed out the details of Donald Trump's fiscal bill.

With long-term debt yields rising across the world, investors are concerned about mounting deficits, debt piles and tariff-related inflation risks.

The New York Fed's estimate of the 10-year term premium - the compensation investors demand for holding 10-year debt to maturity as opposed to just rolling over short-term securities - is close to its highest in more than a decade and almost twice its 20-year average.

Today's events to watch

* U.S. weekly jobless claims (0830EDT), flash May manufacturing surveys from S&PGlobal(0945EDT), Kansas City Federal Reserve May manufacturing survey (1100EDT), April existing home sales (1000EDT); Canada April producer prices (0830EDT)

* U.S. Treasury sells 10-year inflation-protected securities

* G7 finance ministers and central bankers meet in Banff in Alberta, Canada

* New York Federal Reserve President John Williams and Richmond Fed President Thomas Barkin speak; European Central Bank Vice President Luis de Guindos speaks; Bank of England Chief Economist Huw Pill speaks

* U.S. corporate earnings: Analog, Autodesk, Copart, Deckers, Intuit, Ralph Lauren, Ross, Workday

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles , opens new tab, is committed to integrity, independence, and freedom from bias.

source : reuters

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Warren Takunda

Economic

Private sector activity in the eurozone unexpectedly contracted in May for the first time this year, with weakening demand and renewed pessimism weighing on the services sector and dragging overall momentum to a six-month low.

According to preliminary data compiled by S&P Global, the eurozone’s Composite Purchasing Managers’ Index (PMI) fell to 49.5 in May from 50.4 in April, below the 50.7 expected by economists and marking the lowest reading since November 2024. A figure below 50.0 signals contraction.

May PMI reveals services contraction

The drop reflects a significant loss of momentum in services, where business activity declined for the first time in six months and at the sharpest pace since January 2024.

The services PMI dropped to 48.9, from 50.1 in April, missing expectations of 50.3. Meanwhile, manufacturing remained weak, with a PMI reading of 48.4—up slightly from April’s 48.0 but still firmly below the growth threshold.

Business sentiment also deteriorated. Confidence in the euro area edged lower for a second consecutive month, reaching its weakest level since October 2023. The decline was again particularly pronounced in services, where optimism fell to levels not seen since September 2022.

'Do not blame tariffs for this one'

Dr. Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, said the figures show an economy struggling to gain traction.

“Since January, the overall PMI has shown only the slightest hint of growth and in May, the private sector actually slipped into contraction,” he said.

“Do not blame US tariffs for this one. In fact, efforts to get ahead of those tariffs might partly explain why manufacturing has held up a bit better lately.”

De la Rubia noted that eurozone manufacturers have now increased production for a third consecutive month, with new orders no longer declining—something not seen since April 2022

Yet, the services sector—typically more shielded from external shocks—appears increasingly vulnerable.

“Foreign demand for services is softening, but it’s the sluggish domestic demand that seems to be dragging the sector down,” de la Rubia said. The result, he suggested, is a subdued outlook that aligns with cautious company sentiment and a hesitant recovery path.

According to the expert, the latest PMI data offer a mixed picture for the European Central Bank (ECB). While service-sector sales price inflation ticked down slightly from an already low level, input costs are still rising and may even be accelerating. He attributed this mainly to higher wages, as energy prices continue to fall.

Despite the continued cost pressures in services, de la Rubia said the ECB is likely to proceed with cautious interest rate cuts, especially as manufacturing purchase prices are now declining.

Germany’s contraction deepens despite manufacturing resilience

In Germany, the eurozone’s largest economy, business activity contracted further in May. The Composite PMI fell to 48.6 from 50.1 in April. While the manufacturing PMI ticked up to 48.8, services dragged the economy lower, with their index falling sharply to 47.2 from 49.0.

“Manufacturing is doing better, as output has been climbing for three months in a row, and new orders are following suit,” said de la Rubia.

“In the service sector, by contrast, activity has taken a sharper tumble, and that drop has pulled overall activity into contraction.”

Still, hopes for fiscal stimulus—particularly in infrastructure and defence—could offer support in the months ahead. “Falling input costs, especially cheaper energy, should offer manufacturers some breathing room,” de la Rubia added.

In a separate release on Thursday, Germany’s business morale, measured by the Ifo Institute, rose to 87.5 in May from 86.9, its highest level since June 2024. It marked a fifth consecutive monthly increase, diverging from S&P Global’s weaker survey data.

France sees modest improvement in factories, but services remain weak

In France, the picture remained subdued but showed signs of stabilisation. The Composite PMI edged up slightly to 48.0 in May, from 47.8 in April, as the manufacturing PMI rose to 49.5—its highest since February 2023—while services remained soft at 47.4.

“France’s private sector remained subdued in May,” said Jonas Feldhusen, junior economist at Hamburg Commercial Bank. “The Flash Composite PMI continues to signal contraction, reflecting the economic challenges France is facing amid domestic political instability and a fragile macroeconomic environment.”

Feldhusen noted a divergence between sectors: “The manufacturing sector showed signs of recovery, supported by increased factory output. In contrast, the services sector deteriorated further, with weak new business and a decline in the employment outlook.”

He flagged price dynamics as a growing concern. “While output prices slipped into deflationary territory in May, input cost inflation accelerated, signalling a squeeze on profit margins, particularly in the services sector,” he said.

Market reactions: Eurozone equities fall

Despite weaker-than-expected PMI data, the euro held firm on Thursday, supported by renewed investor scepticism toward the US dollar amid growing concerns over Washington’s fiscal outlook.

By 10:20 a.m. Central European Time, the euro was trading around $1.1330, broadly unchanged from Wednesday’s levels.

German bond markets also showed limited movement: 10-year Bund yields held steady at 2.65%, while two-year yields slipped by 3 basis points to 1.83%, reflecting expectations that the European Central Bank will continue its rate-cutting cycle.

Eurozone equities followed Wall Street’s Wednesday downturn.

The Euro STOXX 50 index fell 1.4%, with losses recorded in 43 of its components. National indices posted more moderate declines.

Germany’s DAX and France’s CAC 40 each dropped 0.7%, Italy’s FTSE MIB fell 0.9%, and Spain’s IBEX 35 lost 0.7%.

Source: Euronews

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Adam

Economic

Market Overview

U.S. equity futures are edging higher early Thursday following a sharp sell-off in the prior session. S&P 500 and Nasdaq 100 futures are up 0.14% and 0.18% respectively, while Dow futures are flat.

Wednesday’s session saw heavy downside pressure, with the Dow shedding over 800 points and the S&P 500 dropping 1.6% as Treasury yields spiked on renewed deficit concerns. The driver remains the contentious U.S. budget bill, now stalled due to internal GOP divisions over SALT deductions.

The budget bill’s potential to add trillions to the national deficit stoked fears of resurgent inflation, pushing yields to multi-month highs. This macro backdrop continues to weigh on sentiment and is the key risk catalyst into today’s session.

Key Economic Releases

Traders will be closely watching several economic reports due Thursday:

Weekly jobless claims (Week ending May 17) – 12:30 GMT

S&P Global Flash Manufacturing PMI (May) – 13:45 GMT

S&P Global Flash Services PMI (May) – 13:45 GMT

Existing Home Sales (April) – 14:00 GMT

The PMI prints are particularly relevant as traders assess the impact of tariffs and rising rates on economic resilience. Jobless claims will also provide an updated read on labor market tightness.

Notable Earnings

Before the bell, watch for:

Ralph Lauren (RL) – Expected EPS: $2.02

Analog Devices (ADI) – Expected EPS: $1.69

BJ’s Wholesale (BJ) – Expected EPS: $0.92

After the bell, key reports include:

Intuit (INTU) – Expected EPS: $10.90

Workday (WDAY) – Expected EPS: $2.01

Ross Stores (ROST) – Expected EPS: $1.44

These names could influence both consumer discretionary and tech sentiment, with INTU and WDAY especially in focus for Nasdaq-watchers.

Central Bank Activity

At 18:00 GMT, New York Fed President John Williams is scheduled to speak. Markets will be listening for any commentary on inflation and deficit implications for future rate policy. With bond markets jittery, even indirect Fed signals could move yields and risk assets.

Commodities, Crypto, and Bonds

Daily Gold (XAU/USD)

Gold rallied to a two-week high at $3,340.53, supported by a weaker dollar and defensive flows amid debt concerns.

Meanwhile, Bitcoin surged past $111,000, hitting a fresh record as institutional interest and favorable U.S. regulatory signals offset equity market stress.

Yields remain elevated: the 10-year trades at 4.59% and the 30-year has breached 5.09%, a level not seen since October 2023. Soft demand in Wednesday’s 20-year auction underscored fading appetite for U.S. debt.

Technical Outlook

Daily E-mini S&P 500 Index

The S&P 500 futures chart shows price action pulling back from the recent 5,993.50 high, now hovering near 5,868, just below the 200-day SMA at 5,885.71. The short-term support zone lies near 5,837.25, followed by a deeper pivot at 5,611.2 (50-day SMA). Rejection at the 200-day may signal a deeper retracement, while reclaiming 5,993.50 would open the door to the 6,236.50 resistance.

Outlook

Today’s session hinges on debt-ceiling rhetoric, Treasury yield moves, and key macro prints. With resistance from yields, fragile sentiment, and major earnings still ahead, markets may remain reactive and headline-driven. Traders should watch for yield stabilization and any shift in budget bill negotiations.