Japan Won’t Rush Trade Deal, While Welcoming Progress Before G-7

Economic

Political

Summary:

Japanese Prime Minister Shigeru Ishiba said he won’t rush into a trade deal with the US that would hurt the nation’s interests, although he’d welcome any progress made before an expected summit with US President Donald Trump.

“If there’s progress before I meet the president, that’s in and of itself good,” Ishiba told reporters in Tokyo Thursday. “But what’s important is to achieve an agreement that’s beneficial to both Japan and the US. We won’t compromise Japan’s interests by prioritizing a quick deal.”

Ishiba is expected to meet Trump on the sidelines of the Group of Seven leaders gathering in Canada starting Sunday, but Ishiba said the time and date for the bilateral hasn’t been set. The prime minister spoke following a gathering with opposition party leaders to discuss US tariffs. Collaborating beyond party lines is necessary to deal with what can be considered a national crisis, Ishiba said.

Ishiba’s top trade negotiator Ryosei Akazawa is expected to travel to North America later this week as Japan continues to aim for a reprieve from the US tariffs, which put the country at risk of a technical recession.

Source: Bloomberg

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Economic

Headline and Core Inflation Below Forecasts

According to the U.S. Department of Labor’s report released on June 11, CPI increased just 0.1% in May, below the 0.2% rise expected by economists surveyed by Dow Jones. On an annual basis, inflation stood at 2.4%, aligning with forecasts. More notably, the core CPI — which excludes volatile food and energy prices — also rose only 0.1% for the month and 2.8% year-over-year, both below projections of 0.3% and 2.9%, respectively.

This lower-than-expected inflation reading offers a short-term sense of relief to markets concerned about the inflationary impact of recent tariffs. However, energy prices fell 1% during the month, while food and shelter costs climbed 3% annually. Notably, egg prices fell 2.7% in May but remain 41.5% higher than a year ago, indicating lingering supply and pricing issues in key consumer goods.

A Calm Before the Storm?

Seema Shah, Chief Global Strategist at Principal Asset Management, urged caution in interpreting the data. She noted that while the current CPI report seems benign, it may not yet reflect the lagged effects of import tariffs. “It's too early to conclude that the price shock won’t materialize,” she warned, indicating that the CPI may understate the medium-term inflation threat posed by the trade war.

Trump’s recent escalation of trade measures — including reciprocal tariffs set to take effect in July — adds a layer of complexity to future price movements. While some sectors might benefit from domestic substitution, import-reliant industries could face mounting cost pressures, which would gradually trickle down into consumer prices.

Implications for the Federal Reserve

The Federal Reserve, which closely monitors core inflation as part of its dual mandate, now faces a policy crossroads. While May’s data supports a continued pause in rate hikes, uncertainty surrounding trade policy and inflation expectations could force the Fed to remain cautious. Market analysts now predict the Fed is unlikely to adjust rates until at least September, pending clearer insights into how tariffs affect pricing dynamics.

President Trump, however, has renewed his calls for rate cuts, arguing that a slower labor market and soft inflation warrant policy easing. Nonetheless, the Fed appears reluctant to react too quickly, given the risk of future inflation acceleration and global geopolitical instability.

Market Response: A Cautious Uptick

U.S. equity futures responded positively to the CPI data. The S&P 500 gained 0.2%, the Nasdaq 100 rose nearly 0.3%, and the Dow Jones advanced by 54 points (0.1%). Investors are pricing in a longer period of stable interest rates, hoping for a soft landing scenario that avoids both runaway inflation and an economic slowdown.

While the May inflation report offers tentative reassurance that tariffs haven’t yet sparked a price surge, economists remain wary of delayed effects. The disconnect between current data and forward-looking risks suggests that policymakers and investors should prepare for potential turbulence. The coming months will be crucial in determining whether this inflation lull is sustained or merely the calm before a tariff-driven storm.

Source: CNBC

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Political

Russia-Ukraine Conflict

Kyiv’s Firm Line on Sovereignty

Amid prolonged conflict and stagnating negotiations, President Zelensky has made a decisive declaration: any discussions over Ukraine’s territorial integrity must happen directly with Russian President Vladimir Putin. Speaking to Hungary’s Valasz Online, Zelensky emphasized that Ukraine’s delegation in talks such as those held in Istanbul was never authorized to negotiate issues of sovereignty. Their mandate was strictly limited to humanitarian matters and ceasefires.

By framing territorial matters as a constitutional issue, Zelensky has drawn a clear red line — reinforcing that only the head of state holds the legitimate authority to negotiate over such fundamental national concerns. This move effectively sidelines lower-level talks and signals to international observers that only a top-level breakthrough can unlock real progress.

Russia’s Demands and Ukraine’s Refusal

Russia’s latest peace roadmap reportedly includes demands that Ukraine recognize the loss of five annexed regions, withdraw military forces, and adopt a neutral, demilitarized stance. Zelensky flatly rejected this, labeling it a “ultimatum,” and instead proposed an unconditional 30-day ceasefire as a prerequisite for any meaningful discussions.

Moscow, meanwhile, has continued aggressive military operations in northeastern and central Ukraine, particularly in Sumy and Dnipropetrovsk, maintaining pressure both militarily and diplomatically.

Strategic Signaling to Domestic and International Audiences

Zelensky’s refusal to negotiate territorial concessions — except with Putin himself — serves a dual purpose. Domestically, it reinforces his leadership's credibility among Ukrainian troops and citizens, who have endured years of war and displacement. Internationally, it reasserts Ukraine’s stance that sovereignty is non-negotiable and that any durable peace must be anchored in justice, not imposed outcomes.

His call for a “substantial international guarantee” before discussing final terms further reveals Ukraine’s wariness of bilateral deals without multilateral enforcement mechanisms. This approach reflects Kyiv’s broader diplomatic strategy of aligning closely with Western allies and securing long-term security assurances.

Stalemate Remains Without Presidential Breakthrough

While Kremlin spokesman Dmitry Peskov has hinted at the possibility of a Zelensky-Putin meeting if “concrete progress” is made, current military and diplomatic conditions offer little hope of such progress. Even with continued mediation by Turkey and the U.S., the absence of willingness from either side to budge on core issues ensures that talks remain at a standstill.

Zelensky’s latest remarks solidify Ukraine’s red lines: no backroom territorial deals, no concessions under pressure, and no negotiations with proxies. While Moscow maintains a hybrid strategy of military pressure and diplomatic coercion, Ukraine’s counter-strategy is to resist immediate settlement in favor of a longer-term resolution on its own terms. Without a major shift or direct top-level diplomacy, the deadlock is likely to persist.

Source: Reuters

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Commodity

Safe-Haven Demand Drives Gold to New Highs

Gold surged for the second consecutive day, rising as much as 0.6% to around $3,373 an ounce—extending a 1% gain from the previous session. Investors flocked to the metal amid escalating risks in the Middle East and heightened anxiety about U.S. trade measures, reinforcing gold’s traditional role as a hedge in times of geopolitical and economic uncertainty.

The immediate catalyst was President Trump's announcement that the U.S. would send formal tariff notifications to its trading partners within one to two weeks, ahead of a July 9 deadline to reimpose higher duties. Although Trump confirmed a completed trade framework with China, tariffs between the world’s two largest economies will remain in place, keeping pressure on global trade stability.

Middle East Flashpoints Bolster Risk Aversion

Gold's momentum was further strengthened by geopolitical developments. The U.S. ordered partial embassy evacuations in Baghdad and authorized military families to leave the region amid fears of a potential confrontation with Iran. This came after Iran threatened to strike U.S. military installations should nuclear negotiations fail—a scenario that would directly threaten oil transit through the Strait of Hormuz and unsettle broader financial markets.

Such conditions historically spark elevated demand for gold, particularly as investors shift capital away from equities and other risk-sensitive assets toward safe-haven instruments.

Dollar Weakness and Central Bank Buying Add Tailwinds

The metal also benefited from a declining dollar, which fell 0.4% on Wednesday, making gold more attractive to holders of other currencies. The Bloomberg Dollar Spot Index remained flat early Thursday, suggesting continued weakness in the greenback.

Gold has gained 28% year-to-date, supported not only by market risk aversion but also by robust central bank demand. In the face of rising geopolitical fragmentation and mounting concerns over fiat currency credibility, central banks—especially in emerging markets—have been steadily increasing their gold reserves as a diversification strategy.

Broader Precious Metals Complex Follows Uptrend

Other precious metals joined the rally: silver, platinum, and palladium all saw gains. This broad-based movement reflects not only inflation hedging and geopolitical risk but also renewed interest in industrial metals amid hopes for improved global trade flows, particularly in light of the recent U.S.-China trade détente.

Looking ahead, the trajectory of gold will likely be shaped by how U.S. trade policies evolve, the stability of the Middle East, and any monetary policy responses from the Federal Reserve. With uncertainty dominating the global narrative—from Tehran to Beijing to Washington—the risk premium on gold is expected to remain elevated in the near term.

If inflation expectations rise due to persistent tariffs while geopolitical tensions intensify, gold could challenge new all-time highs. Conversely, any signs of de-escalation or coordinated diplomatic breakthroughs may cap further upside, though structural central bank support will likely continue to underpin demand.

Source: Bloomberg

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Commodity

Geopolitical Risks Push Oil to Two-Month Highs

On Thursday, Brent crude rose to $69.92 a barrel and West Texas Intermediate (WTI) climbed to $68.37, extending a rally that saw both benchmarks jump over 4% the previous day. The gains followed President Trump’s announcement that U.S. personnel were being repositioned from parts of the Middle East amid heightened security threats, sparking renewed concerns over potential disruptions to oil flows from the region.

This move comes after warnings from Iran’s Defense Minister Aziz Nasirzadeh, who stated that Tehran would target U.S. bases in the region if nuclear talks collapse. Given Iran's strategic position in the Strait of Hormuz—a vital chokepoint for global oil shipments—the risk of military escalation has immediate consequences for market volatility and global energy security.

U.S. Strategic Pullback and Embassy Evacuation Deepen Market Fears

The partial evacuation of the U.S. embassy in Iraq and allowances for military families to leave Bahrain and other key areas underscores Washington’s serious assessment of escalating threats. Iraq, as OPEC’s second-largest oil producer, represents a critical node in the global supply chain. Any conflict in this zone could reduce production or impair export infrastructure, driving up prices amid supply fears.

Supply-Side Fundamentals Add Momentum

The bullish momentum was further supported by a sharper-than-expected draw in U.S. crude inventories. According to the Energy Information Administration, stockpiles fell by 3.6 million barrels last week to 432.4 million barrels, compared to the 2 million barrel draw forecasted by analysts. This tighter supply is viewed by the market as evidence of healthy underlying demand or restricted supply—both of which typically support higher prices.

Simultaneously, optimism over a preliminary U.S.-China trade framework also helped buoy prices. A stronger trade environment between the world’s two largest economies could enhance energy consumption, particularly for oil-intensive sectors like transportation and manufacturing. The hope is that increased demand from both nations will stabilize and possibly increase global energy flows.

Volatility Likely to Persist

In the short term, oil prices are expected to remain elevated as geopolitical risk premiums dominate market psychology. If the U.S.-Iran standoff intensifies or if Iranian threats materialize, prices could spike further. Conversely, any diplomatic de-escalation or breakthroughs in nuclear talks could ease tension-driven volatility.

Furthermore, traders will closely monitor next week's Federal Reserve decision and any new sanctions or retaliatory actions in the Middle East. With supply concerns and global demand both in flux, oil markets are poised for continued volatility and directional shifts driven by both headlines and fundamentals.

Source: Reuters

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Economic

Trade Talks Offer Limited Relief as Tariff Fears Persist

While President Trump declared a “great deal” with China that includes easing restrictions on rare-earth exports and student visas, markets reacted with notable restraint. The framework agreement has not rolled back tariffs significantly, and the lack of concrete follow-up details has left investors wary. Trump’s comment that formal trade letters would soon be issued to multiple countries only added to global uncertainty, casting doubt on near-term economic stability.

Economist Shane Oliver of AMP Capital noted that the agreement essentially maintains the current tariff regime, meaning trade friction remains unresolved. This sentiment is echoed in market behavior: MSCI’s Asia-Pacific index outside Japan slipped 0.3%, while the Nikkei dropped 0.7%. Hong Kong’s Hang Seng lost 0.74%, retracing gains from earlier in the week, and China’s blue-chip CSI 300 declined 0.37%.

Currency Markets Signal Erosion of Confidence in Dollar

The dollar’s position weakened notably. The dollar index fell to its lowest since late April, now down 9% for the year. The euro rose to a seven-week high of $1.1512, while the yen firmed to 144.03 per dollar. This shift reflects not only declining confidence in U.S. fiscal and trade policy but also a broader move toward diversification and de-dollarisation, as noted in recent ECB commentary.

Wednesday’s inflation data showed U.S. consumer prices rose 2.4% year-on-year in May, slightly below expectations. Gasoline prices fell, offsetting rent increases. This benign figure has raised hopes for eventual Fed rate cuts, with markets now pricing in a 70% chance of a 25 basis-point cut by September. However, the Federal Reserve is expected to hold steady in next week’s policy meeting, preferring a “wait and see” approach given the potential inflationary effects of tariffs.

Geopolitical Risk Intensifies Flight to Safety

Beyond trade, geopolitical instability is pushing investors toward safe-haven assets. Oil prices remain pinned near two-month highs at just under $70 a barrel, fueled by concerns of a potential conflict between Iran and the U.S. over failed nuclear negotiations. Iran’s threats to U.S. bases in the region have elevated tensions and raised the risk of supply disruptions.

Gold has also benefited from risk aversion, climbing 0.5% to $3,370.29. The metal’s rally underscores the market’s fragile sentiment amid a convergence of inflation risks, geopolitical threats, and policy uncertainty.

As investors digest the limited trade deal and brace for possible tariff fallout, attention now shifts to the Federal Reserve’s policy stance and global risk factors. If inflation pressures build as anticipated, central banks may face difficult trade-offs between supporting growth and containing prices. Meanwhile, the dollar’s weakening trend and the rise in safe-haven demand suggest that investor confidence is far from fully restored. Markets remain highly sensitive to developments in Washington, Beijing, and the Middle East in the weeks ahead.

Source: Reuters

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Economic

Stocks

Muted Optimism as Trade Talks Offer Little Spark

Asian equities started Thursday on uneven footing, reflecting investor hesitation to celebrate the latest China-U.S. trade deal. Japan’s Nikkei 225 fell by 0.7%, while Hong Kong’s Hang Seng dropped 0.7% and Shanghai's Composite slipped 0.1%. These declines suggest markets are unconvinced by the substance of the new agreement between Presidents Trump and Xi. The deal, which includes commitments on rare-earth supplies and student access, appears to lack the depth needed to shift broader economic expectations, particularly around tariffs.

Meanwhile, the South Korean Kospi rose 0.4%, and Australia’s ASX 200 gained 0.1%, hinting that regional markets with less direct exposure to U.S.-China tensions are slightly more upbeat.

Wall Street Slips as Inflation Eases But Tech Stumbles

In the U.S., Wall Street’s rally paused. The S&P 500 declined by 0.3%, the Nasdaq dropped 0.5%, and the Dow was virtually flat. Apple led tech losses with a 1.9% drop, following a lukewarm reception to its recent software announcements. The market’s pullback came despite inflation data showing only a modest increase in May — 2.4% year-on-year, slightly below expectations.

Although the figures suggest that Trump’s tariff policies haven’t immediately stoked inflation, economists warn that the lag effect may still bring upward pressure in the months ahead. Bond yields responded to the data, with the 10-year Treasury yield falling to 4.41%, reinforcing the market’s belief that rate cuts from the Federal Reserve could be on the horizon.

Trade Deal Lacks Impact: Sentiment Hinges on Larger Agreement

President Trump’s announcement that China will provide rare-earth minerals and ease restrictions on students was framed as a “great WIN,” yet the market’s response remained measured. Investors appear to be holding out for a more comprehensive resolution to U.S.-China trade tensions — one that could reduce uncertainty and ease the tariff burden on global supply chains. Until such clarity emerges, equities may continue to tread water.

The broader concern is that if a more meaningful deal does not materialize, high tariffs could drag the U.S. and global economies closer to recession, especially if inflation simultaneously picks up.

Energy and Currency Markets Steady

Crude oil prices remained relatively stable, with U.S. benchmark crude rising slightly to $68.28 and Brent crude inching up to $69.87. Meanwhile, the U.S. dollar softened against the Japanese yen, reflecting a slight pullback in risk appetite, while the euro edged higher against the dollar, consistent with easing Treasury yields.

Overall, the mixed market performance across Asia highlights skepticism about the immediate benefits of the trade deal and continued uncertainty over the economic fallout of U.S. tariffs. While lower-than-expected inflation has sparked hopes for Fed rate cuts, persistent geopolitical and trade-related concerns continue to weigh on investor confidence. The next decisive catalyst may come from tangible tariff rollbacks or policy