G7 Finance Leaders Seek Non-Tariff Consensus in Canada, may Face US Pushback

Political

Economic

Summary:

Finance leaders from the Group of Seven industrialized democracies will strive for unity on non-tariff issues when they meet in Canada this week, but may have trouble reaching consensus with a Trump administration intent on pushing allies to serve U.S. interests.

The other six G7 members - Japan, Britain, Germany, France, Italy and host Canada - want to keep the powerful Western policy alliance from fracturing over U.S. President Donald Trump'stariffs and reversals on climate change, global tax cooperation and Ukraine, G7 officials and economic diplomacy experts said.

That may require less-specific communique language and avoidance of some topics. A source briefed on U.S. positions in the talks said that any consensus needed to align with Trump administration priorities.

"We're not inclined to do a communique just for the sake of doing a communique," the source told reporters on condition of anonymity.

U.S. Treasury Secretary Scott Bessent will join fellow G7 finance ministers and central bank governors for the Tuesday-to-Thursday meeting in the Canadian Rocky Mountain resort town of Banff, Alberta. That puts disagreements over steep new tariffs imposed by Trump at the center of the discussions, but the U.S. source said no bilateral trade deals would be announced at the G7 meeting.

Japan, Germany, France and Italy all face a potential doubling of reciprocal U.S. duties to 20% or more in early July. Britain negotiated a limited trade deal that leaves it saddled with 10% U.S. tariffs on most goods, and host Canada is still struggling with Trump's separate 25% duty on many exports.

"No one expects this to be a big moment where the U.S. declares that for G7 and other partners there will be a special regime that's more favorable," said Charles Lichfield, deputy director of the Atlantic Council's GeoEconomics Center in Washington.

Ministers from the other six countries will likely try to tactfully remind Bessent that they are the closest U.S. allies and that it is difficult for them to meet Washington's demands that they exert economic pressure on China while facing U.S. coercion themselves, Lichfield said.

CHINA PUSHBACK FORUM

A Treasury spokesperson said Bessent will push the countries to address imbalances and non-market practices, including in their own economies, and counteract China's state-driven economic model.

"The G7 must work together to protect our workers and firms from China's unfair practices," the spokesperson added.

Bessent, a former hedge fund manager, has consistently criticized China's policies that have fueled excess production capacity and unleashed a flood of subsidized goods into market economies.

Bessent is widely seen as a moderating influence on Trump's trade agenda, so G7 ministers will "encourage him to push for more moderate administration policies on trade," said Mark Sobel, a former U.S. Treasury and International Monetary Fund official who is U.S. chairman of OMFIF, an independent financial policy think tank.

Source: Reuters

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Olivia Brooks

Political

Russia-Ukraine Conflict

U.S. President Donald Trump said on Monday that Russia and Ukraine "will immediately start negotiations" toward a ceasefire and an end to their three-year-old war, speaking after he held a call with Russia's President Vladimir Putin.

"Negotiations between Russia and Ukraine will begin immediately," Trump said in a Truth Social post following his call with Putin, which lasted two hours.

After the call, Putin said efforts to end the war were "generally on the right track" and that Moscow was ready to work with Ukraine on a potential peace deal.

"We have agreed with the president of the United States that Russia will propose and is ready to work with the Ukrainian side on a memorandum on a possible future peace accord," Putin told reporters near the Black Sea resort of Sochi.

There was no immediate comment from Ukrainian President Volodymyr Zelenskiy on the statement that talks would begin immediately. A source familiar with the matter earlier said Zelenskiy spoke "for a few minutes" with Trump before the U.S. leader's call with Putin.

Kyiv has said it is ready for a ceasefire now while Moscow has said conditions must be met first.

In his social media post, Trump said the Vatican, "as represented by the Pope, has stated that it would be very interested in hosting the negotiations. Let the process begin!"

Putin and Trump spoke after direct talks last week in Turkey between Moscow and Kyiv, the first since 2022 in the early months of Russia's invasion of Ukraine. Talks last week failed to agree on a truce.

U.S. Vice President JD Vance earlier repeated a warning that Washington could walk away from the peace process.

Putin said the memorandum would define "a number of positions, such as, for example, the principles of settlement, the timing of a possible peace agreement."

He said that if appropriate agreements were reached, there could be a ceasefire, adding that direct talks between Russia and Ukraine gave "reason to believe that we are generally on the right track."

"The main thing for us is to eliminate the root causes of this crisis," Putin said. "We just need to determine the most effective ways to move towards peace.

Item 1 of 5 Vice President JD Vance talks to reporters on board of the Air Force Two at Leonardo da Vinci International Airport, in Rome, Monday, May 19, 2025. Jacquelyn Martin/Pool via REUTERS

[1/5]Vice President JD Vance talks to reporters on board of the Air Force Two at Leonardo da Vinci International Airport, in Rome, Monday, May 19, 2025. Jacquelyn Martin/Pool via REUTERS Purchase Licensing Rights, opens new tab.

He thanked Trump for supporting the resumption of direct talks between Moscow and Kyiv and said Trump noted Russia's support for peace, though the key question was how to move towards peace.

Trump, who has promised to bring a swift end to Europe's deadliest war since World War Two, has repeatedly called for a ceasefire after three years when Washington joined other Western countries in arming Ukraine.

European leaders have said they want the United States to join them in imposing tough new sanctions on Russia for refusing a ceasefire. The leaders of Britain, France, Germany and Italy spoke to Trump on Sunday ahead of his call with Putin.

Putin was speaking from Russia's Black Sea resort of Sochi while Trump was in Washington.

Shortly before the call, Vance told reporters that Washington recognised there was "a bit of an impasse here".

"And I think the president's going to say to President Putin: 'Look, are you serious? Are you real about this?'" Vance said as he prepared to depart from a visit to Italy.

"I think honestly that President Putin, he doesn't quite know how to get out of the war," Vance said.

He said it "takes two to tango. I know the president's willing to do that, but if Russia is not willing to do that, then we're eventually just going to say, 'This is not our war.'"

"We're going to try to end it, but if we can't end it, we're eventually going to say: 'You know what? That was worth a try, but we're not doing any more.'"

White House press secretary Karoline Leavitt told reporters that Trump wanted to see a ceasefire, but that he had grown "weary and frustrated with both sides of the conflict".

Asked if a package of secondary sanctions against Russia remains on the table, she said: "I think everything's on the table."

Putin, whose forces control a fifth of Ukraine and are advancing, has stood firm on his conditions for ending the war, despite public and private pressure from Trump and repeated warnings from European powers.

Reporting by Guy Faulconbridge and Vladimir Soldatkin in Moscow, Max Hunder and Tom Balmforth in Kyiv, Maxim Rodionov in London and Steve Holland, Susan Heavey Rami Ayyub and David Brunstrom in Washington; Editing by Clarence Fernandez, Gareth Jones and Cynthia Osterman

Source: Reuters

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Manuel

Forex

Central Bank

Central bank body the Bank for International Settlements has flagged a possible scramble for dollars could be triggered if whipsawed investors begin to unwind positions in the $113 trillion FX swap market amid U.S. volatility.

The BIS recently estimated that funds and other non-bank financial firms had more than $80 trillion in FX swaps - money borrowed in the U.S. currency with the promise to pay it back at an agreed exchange rate at a later date.

Effectively a form of short-term debt, swaps tend to be held 'off balance sheet' and are not to be factored in regulatory capital requirements.

The issues come if investors suddenly rush to unwind these positions, the head of the BIS' monetary and economics department, Hyun-Song Shin, said in a lecture at the London School of Economics.

Investors who have hedged positions are often holding euros or yen but still have the dollar repayment obligations.

"If you have to roll over that swap you have to join the scramble (for dollars)," Shin said, adding that can then cause a rapid spike in the value of the U.S. currency.

The comments come after market turmoil in April when President Donald Trump launched the U.S. into a full blown trade war and consigned the dollar to its weakest start to a year in over 35 years.

On Friday too, Moody's stripped the U.S. of its last remaining triple-A credit rating, underscoring concerns about the huge increase in U.S. government debt over the last 15 years.

Shin also touched on whether U.S. exceptionalism - investors' strong preference and incentive to buy U.S. assets - had been eroded by this year's turbulence.

He noted the highly unusual combination of U.S. stocks, bonds and the dollar all selling off in tandem but said it was still too soon to know whether major investors were selling down their U.S. assets or just hedging.

However, they are likely to be at least thinking about whether strategic changes might be warranted, Shin added

Source:Reuters

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Manuel

Stocks

Economic

UnitedHealth Group (UNH) stock jumped 8.2%, marking the top daily performance in the S&P 500. While Monday's move higher extended a recovery that began late last week, shares of the insurance giant had been under heavy pressure after reports of a Justice Department investigation into possible Medicare fraud compounded news about the departure of UnitedHealth's top executive and suspension of its guidance. As the stock rebounded, filings showed that incoming CEO Stephen Hemsley purchased a significant stake in the company.

The Food and Drug Administration granted full approval for the protein-based COVID-19 vaccine produced by Novavax (NVAX), and shares of the biotech firm surged 15%. Shares of fellow vaccine maker Moderna (MRNA) were up 6.2%.

Dollar General (DG) shares advanced 4.9%, adding to gains posted at the end of last week after Walmart (WMT) discussed tariff-related price increases on its earnings call. Analysts have highlighted that Dollar General has limited tariff exposure compared with some of its rivals in discount retail.

Shares of several solar energy companies moved lower after Republican leaders in the House reportedly committed to eliminating certain clean energy tax credits earlier than anticipated. An initial budget proposal from the House Ways and Means Committee released last week included plans to roll back many provisions of the Inflation Reduction Act, including tax credits for residential solar installations. Shares of panel manufacturer First Solar (FSLR) sank 7.6%, losing the most of any S&P 500 stock, while shares of solar equipment maker Enphase Energy (ENPH) lost 3.2%.

The uncertain policy outlook pressured other stocks in the renewable energy space. Shares of power generator AES Corp. (AES), whose portfolio includes solar, wind, hydro, and energy storage projects, fell 4.1%.

Best Buy (BBY) shares sank 3% after Wells Fargo trimmed its price target on the electronics retailer's stock. Although analysts noted the potential for customers to pull forward their purchases in anticipation of tariff impacts, they remain cautious of significant uncertainties and risks in the market.

Source: Investopedia

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Manuel

Cryptocurrency

JPMorgan CEO Jamie Dimon said the Wall Street lender plans to offer Bitcoin (BTC) to its customers in a stark shift from his historical stance toward the digital asset.

During JPMorgan’s Investor Day, Dimon reiterated that he is “not a fan” of Bitcoin, but acknowledged that clients will continue to demand access to it.

He said: “I don’t think you should smoke, but I defend your right to smoke. I defend your right to buy Bitcoin.”

He also clarified that the bank does not plan on offering custody services.

Dimon maintains skepticism

Dimon’s criticism of crypto is consistent with past remarks. In a January interview, he called Bitcoin “worthless.” He tied it to criminal activity, repeating concerns raised in his 2023 Senate testimony, in which he advocated for shutting down the industry altogether.

At the 2024 World Economic Forum in Davos, he referred to Bitcoin as a “pet rock,” while in April of the same year, Dimon called crypto a “Ponzi Scheme.”

In his May 19 remarks, he also stated that “blockchain doesn’t matter as much” as people think. However, JPMorgan has continued to build infrastructure around blockchain technology for institutional use.

Earlier this month, Kinexys completed a test transaction that bridged its private network to a public layer-1 blockchain, using tokenized short-term Treasury assets and real-time settlement protocols. Chainlink and Ondo Finance participated in this pilot.

Additionally, Kinexys processes over $2 billion in transactions daily and plans to scale up dollar-euro settlements using JPM Coin, JPMorgan’s proprietary token.

JPMorgan increases crypto exposure

Amid the remarks on Bitcoin offering, JPMorgan’s 13F filing with the US Securities and Exchange Commission (SEC) for the first quarter of 2025 showed a dramatic increase in crypto exposure through exchange-traded funds (ETFs).

As of March 31, the firm reported $16.3 million in crypto-related holdings, up from $1 million at the end of 2024. The lender’s crypto exposure is primarily via Bitcoin and Ethereum-linked instruments.

As of March 31, JPMorgan held a little over 263,000 shares of BlackRock’s iShares Bitcoin Trust (IBIT) and around 3000 shares of Bitwise’s spot Bitcoin ETF (BITB).

The lender also held shares of Grayscale’s Bitcoin Trust (GBTC) and Mini Trust ETFs, Fidelity’s Wise Origin Bitcoin Fund (FBTC), and new allocations to Bitwise and Franklin Templeton Ethereum products.

The firm’s crypto-related holdings are just a tiny fraction of its $4.4 trillion in assets under management at the end of the first quarter.

It’s unclear how much of the portfolio reflects proprietary positioning versus facilitation of client demand. The bank has previously clarified that holding some ETF allocations could be a part of its market-making services.

Source: Cryptostale

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Manuel

Economic

Bond

Even before talk of fresh unfunded tax cuts took center stage in the budget wrangling on Capitol Hill, US bond investors were making their views loud and clear: If the government keeps spending more than it takes in, there will be consequences.

Sure enough, one blow landed late Friday, when Moody’s Ratings revealed it had run out of patience and was lowering its credit score on the world’s biggest borrower below the top triple-A level. It cited a years-long pattern of rising debt and budget deficits, which show no sign of abating amid deeply-rooted political polarization.

While the Moody’s decision was anticipated given the flood of red ink in Washington, and it trailed moves from the likes of S&P Global Ratings, investors responded by lifting the yield on US 30-year bonds above 5% for a time on Monday to the highest since November 2023.

That reinforces what many in financial markets have been highlighting: Unless the US gets its finances in order and soon, the perceived risks of lending to the government will increase, and borrowing costs on long-term Treasury debt will climb even further. That would make reducing the deficit even harder and lift the cost of money for households and companies throughout the economy.

“This is a reminder that it is expensive to kick the fiscal can down the road,” said Priya Misra, portfolio manager at JPMorgan Asset Management, after the downgrade on Friday.

The yield on the 10-year note is up about a third of a percentage point this month alone. Embedded in the market is a rise in the premium investors demand to shoulder the risk of owning longer-term US debt. But even shorter-term securities due in two years or less are yielding more than 4%.

“The bond market is skeptical that the Trump administration and Republicans will offset some of the deficit challenges,” said Michael Arone, chief investment strategist at State Street Global Advisors. What this means is that “rates will remain higher and more volatile” than some investors currently expect, he said.

Markets have a history of being the arbiter of fiscal discipline for spendthrift countries, and the recent spike in yields is beginning to echo past instances when so-called bond vigilantes wielded their power in protest of profligacy. The theory goes that if investors impose higher borrowing costs, governments eventually bow to the pressure and retrench.

This time, though, the stakes are much higher. Even though America’s premier position in global finance is still secure, the government faces less borrowing flexibility at a time when international demand for Treasuries — and the US dollar — is increasingly in doubt.

Moody’s flagged a decline in “debt affordability” and identified higher Treasury yields as a factor hurting US fiscal sustainability. A walk through the numbers reveals what it means by this concept, and explains why doubts around the sustainability of US debt have become a regular talking point among investors, central bankers and financiers from Jamie Dimon to Warren Buffett.

While current US yields between 4% and 5% are near levels that prevailed before 2007 and the financial crisis — and the US historically has paid far higher rates at times — debt and deficits now are exponentially bigger, and that makes all the difference.

A then-and-now look at the fiscal landscape since 2007 reveals a staggering transformation. The amount of outstanding Treasuries has skyrocketed from $4.5 trillion to nearly $30 trillion today — a reflection of the explosion in borrowing during Covid. Annual gross sales of government debt have also ballooned, from $362 billion in 2007 to $2.6 trillion last year, according to Sifma, the bond market’s trade group.

More alarmingly, the ratio of total US public debt to the size of the economy has risen from about 35% in 2007 to 100% now, according to the Congressional Budget Office. Interest payments alone were about $880 billion in 2024, CBO data show.

Enter the budget talks, and a deficit in the trillions running at 6.5% of the economy appears entrenched as tax cuts backed by President Donald Trump loom in Washington’s latest spending plan without sufficient offsetting cost cuts or revenue to pay for them. Trump is pushing for the budget bill’s passage even as hardline Republicans bristle at the prospect of wider gaps.

“The current plan that they’re putting forward is not going to make a material reduction in the deficit in my view,” said David Rogal, portfolio manager of fundamental fixed income group at BlackRock Inc. and a member of the Treasury Borrowing Advisory Committee, an elite group of bond market participants. “The funding gaps open up next year and the year after, where there’s close to $2 trillion if the deficit stays on its current course. How we deal with that is going to be very important.”

The precarious nature of the situation isn’t lost on US Treasury Secretary Scott Bessent, who acknowledged to US lawmakers earlier this month that the nation’s debt path is unsustainable. He also indicated an awareness of the power of the bond vigilantes, adding it’s “very difficult to know” the tipping point at which investors would “rebel.”

As for the downgrade, Bessent told NBC’s Meet the Press on Sunday that “Moody’s is a lagging indicator — that’s what everyone thinks of credit agencies,” and lambasted the spending under the Biden administration.

But Moody’s said its action reflected not just excessive spending during successive administrations, but a bleak outlook for the fiscal picture and the expectation for “larger deficits as entitlement spending rises while government revenue remains broadly flat.”

Without political will to rein in spending in a meaningful way, and no guarantee that tax cuts will goose the economy enough to allow the government to grow out of its debt problems, Bessent will have to hope that a tipping point into rebellion doesn’t occur anytime soon in the bond market.

Already, there have been rumblings from investors like Eurizon SLJ Capital’s Stephen Jen that a bond-market blowup may be needed to force real progress on fixing the budget.

What Bloomberg Strategists Say...

“Moody’s decision underscores deeper structural concerns. The risk is that bond vigilantes re-emerge, pushing yields higher as term premiums adjust to the new fiscal reality. That could weigh on equity valuations and rekindle broader doubts over the resilience of US assets.”

— Mary Nicola, Macro Strategist

In the meantime, the Treasury is walking a fine line as investors grow wary of taking on long-term securities and are turning instead to debt with shorter maturities. For an agency that seeks the lowest financing cost over time and extols a regular and predictable approach, the response has been one of selling more short-term debt, where there is better demand.

“It’s a very delicate balance between how much you can issue further out in the long end relative to demand,” said John Madziyire, senior portfolio manager at Vanguard. “And I’ll say that’s one of the things that limits how far out the Treasury can issue.”

Bessent has maintained the same debt mix as his predecessor Janet Yellen, who moved toward selling more bills following a bond-market tempest in late 2023. That has lowered the average maturity of the government’s IOUs. The result: increased hazards around smoothly rolling over big amounts of debt as it comes due, especially in another debt-ceiling standoff scenario, and a situation that creates a point of vulnerability.

“The more you have to roll over and the more politicized the debt ceiling is, the more risk you’re putting into the system,” said Greg Peters, who helps manage more than $850 billion as co-chief investment officer at PGIM Fixed Income and is also a TBAC member.

Of course, the US is unique compared with other countries in having a vast money market industry rather than relying on bank savings accounts. The current stash of nearly $7 trillion in these funds means there is a regular buyer of Treasury bills that extends from four weeks to 12 months. That funding mix provides Treasury with a lot of wiggle room, but the longer Treasury yields remain in a 4%-plus zone, the cost of rolling over a growing debt pile keeps rising.

“Now Scott Bessent’s Treasury Department is funding short rather than long and you have huge refinancing obligations,” James Millstein, co-chairman at Guggenheim Securities and a former US Treasury official, told Bloomberg TV on Monday.

The debt problem and the expectation among watchdogs including the CBO that US entitlement spending will only shoot higher in the years ahead leaves the Treasury with little choice but to retain its current funding mix and wait for a window of lower longer-dated yields.

“Ultimately the issuance strategy can help, but the big picture will depend on whether the budget deficits themselves are improving,” said Guneet Dhingra, head of US interest-rate strategy at BNP Paribas.

For now, the US has still has scope to manage its debt should lawmakers continue to run up deficits. An investor standoff that forces a yield surge beyond 5% would likely encourage other long-term natural buyers such as pension funds and insurers to step in. Even in the case of an unruly rise in bond yields or messy auction, market participants said it’s likely that the Federal Reserve would intervene and buy Treasuries as a backstop.

“If you had a really sloppy auction, say a 30-year or 10-year, and the bond market really got unsettled, then I think at that point the Fed would probably step in,” said Jurrien Timmer, director of global macro at Fidelity Investments. “It’s part of the Fed’s job to maintain orderly markets.”

Zooming out from a historical perspective, though, the US has already breached a worrisome threshold. Historian and former Bloomberg Opinion contributor Niall Ferguson cites a different type of tipping point: When the cost of paying interest exceeds US defense spending, that puts a great power’s influence in jeopardy. This already happened in the US last year.

“Debt is a problem, but you know, what is even more of a problem is not addressing it,” said Sinead Colton Grant, chief investment officer at BNY Wealth.

Source: Bloomberg

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Adam

Economic

Oil prices have staged a decent recovery as the day has progressed following renewed demand concerns to start the week. Oil prices faced pressure on two fronts in early trade as lackluster retail sales data from China weighed on sentiment.

Chinese Data and Moody’s Downgrade

Retail sales, which reflect consumer spending, grew by 5.1% in April, slowing from 5.9% in March and falling short of the 5.5% forecast. Economists blame the slowdown on U.S. tariffs affecting consumer confidence and weak domestic demand.

This was further compounded by a Moody’s downgrade of the United States from AAA to Aa1, raising concerns around the US economic outlook. This comes after last week's US data hinted at a potential slowdown. Consumer confidence data from the US also painted a dour picture, however there does appear to be some room for optimism.

Goldman Sachs Raises Oil Demand Outlook

With demand concerns returning to the fore Goldman Sachs decision to increase its global oil demand forecast came at a perfect time and may have mitigated some selling pressure.

Goldman Sachs analysts have raised their forecast for global oil demand, predicting an increase of 600,000 barrels per day this year and 400,000 barrels per day in 2026.

Despite this, the bank kept its oil price predictions unchanged at $60 per barrel for Brent crude and $56 per barrel for West Texas Intermediate (WTI) for 2025. Currently, Brent crude is trading above $65 per barrel, and WTI is over $62.

Goldman Sachs raised its oil demand forecast, citing optimism about a potential trade war resolution and a US-Iran nuclear deal.

However, the Investment Bank warned that if the tariff war continues and harms the global economy, Brent crude prices could fall to $40 per barrel by late 2026. This would also require OPEC+ to fully restore the supply cuts made in 2022, according to the analysts.

So a slight ray of hope where demand is concerned but the prices discussed in the Goldman note raises affordability concerns particularly for US Oil producers. The $56 a barrel mark has been touted by some as a break-even point for US producers, with a drop below this price level likely to affect production and output. Interesting times for Oil markets and a potentially bumpy ride ahead.

Technical Analysis - Brent Crude

From a technical standpoint. Brent crude posted a bullish inside bar close on Friday.

This is usually a hint at further upside something which has materialized as the day progressed.

As things stand, the Oil price approaching a resistance level at 66.42 with a break of the previous high potentially leading to a retest of resistance at 68.17.

The period-14 RSI on the daily timeframe has also crossed back above the 50 neutral level which signals a shift in momentum from bearish to bullish.

If however bears are to return and push prices lower, immediate support rests at 65.00 and 64.00 before the 62.81 handle comes into focus.

Brent Crude Oil Daily Chart, May 19, 2025

Client Sentiment Data - WTI Oil

Looking at OANDA client sentiment data and market participants are Net-Long on WTI with 74% of traders holding long positions. I prefer to take a contrarian view toward crowd sentiment and thus the fact that so many traders are long means WTI prices could decline further.