RBNZ Governor Hawkesby Says July Rate Cut ‘Is Not A Done Deal’

Summary:

New Zealand’s central bank could hold the Official Cash Rate steady at its next policy decision in July, Governor Christian Hawk

New Zealand’s central bank could hold the Official Cash Rate steady at its next policy decision in July, Governor Christian Hawkesby said.

“The main message we were looking to get to markets was that, when we next meet in July a further cut in the OCR is not a done deal, it’s not something that’s programmed in,” Hawkesby told Bloomberg Television Thursday in Wellington. “We’re really more in a phase where we are taking considered steps, data dependent. The markets need to follow developments really closely to get a feel for what it means for us.”

The Reserve Bank on Wednesday reduced the OCR by 25 basis points to 3.25%, taking total cuts since August to 225 points, and lowered its forecast track for the benchmark rate, suggesting it could drop below 3%. But the bank also removed an explicit easing bias.

That prompted investors to pare bets on further the OCR reductions. They now see just a 32% likelihood of a cut at the July 9 meeting, and only a slim chance of it falling any lower than 3% this year, swaps data show.

Hawkesby said the OCR has already fallen “a long way” and is now in a neutral zone where it neither curbs nor stimulates economic activity.

He said US tariffs are likely to damp New Zealand’s economic recovery by curbing global demand for its exports and delaying investment decisions, but stressed the high level of uncertainty around the outlook.

“We think New Zealand’s in good shape at the moment. We have high agricultural export prices, we have interest rates that have fallen a long way and that’s really underpinning an economic recovery that we’re experiencing,” he said. “Facing into that is the global uncertainty. For us, it means a much more modest recovery than otherwise.”

Source: Bloomberg Europe

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James Whitman

Economic

Political

President Donald Trump’s proposed reciprocal trade tariffs on major U.S. trading partners were blocked by a federal court on Wednesday, on the grounds that the president overstepped his authority.

The Court of International Trade ruled on Wednesday that Congress held exclusive authority to regulate commerce with other countries, and that Trump’s emergency powers did not supersede this authority.

Wednesday’s ruling was on a lawsuit filed by the Liberty Justice Center on the behalf of five small U.S. businesses that import goods from the countries targeted by Trump’s tariffs.

The trade court ruled that the International Emergency Economic Powers Act (IEEPA), which was invoked by Trump to carry out his tariff agenda, did not grant the president sufficient authority to impose “unlimited tariffs on goods from nearly every country in the world.”

“The court does not read IEEPA to confer such unbounded authority and sets aside the challenged tariffs imposed thereunder,” the court said in its ruling.

Wednesday’s ruling poses a fresh challenge for Trump’s agenda to impose steep trade tariffs on countries with large trade surpluses with the United States.

Trump had initially unveiled his planned tariffs in early April– what the president dubbed as “liberation day.” Trump announced double-digit levies on several major U.S. trading partners, and also targeted countries he alleged were trade proxies for China.

But he had shortly after announced a 90-day extension in the planned tariffs, except for China. Trump’s tariffs on China rose as high as 245% in April, before Washington and Beijing agreed to deescalate earlier in May.

Source: Investing

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Manuel

Bond

Economic

Investors are getting nervous the U.S. government might struggle to pay it’s debt — and they are snapping up insurance in case it defaults.

The cost of insuring exposure to U.S. government debt has been rising steadily and is hovering near its highest level in two years, according to LSEG data.

Spreads or premiums on U.S. 1-year credit default swaps were up at 52 basis points as of Wednesday from 16 basis points at the start of this year, LSEG data showed.

Credit default swaps are like insurance for investors. Buyers pay a fee to protect themselves in case the borrower — in this case the U.S. government — can’t repay their debt. When the cost of insuring the U.S. debt goes up, it’s a sign that investors are getting nervous.

Spreads on the CDS with 5-year tenor were at nearly 50 basis points compared with about 30 basis points at the start of the year. In a CDS contract, the buyer pays a recurring premium known as the spread to the seller. If a borrower, in this case, the U.S. government defaults on its debt, the seller must compensate the buyer.

CDS prices reflect how risky a borrower seems and are used to guard against signs of financial trouble, not just a full-blown default, said Rong Ren Goh, portfolio manager in Eastspring Investments’ fixed income team.

The recent surge in demand for CDS contracts is a “hedge against political risk, not insolvency,” said Goh, underscoring the broader anxiety about U.S. fiscal policy and “political dysfunction,” rather than a market view that the government is verging on failing to meet its obligation.

Investors are pricing in the increased concerns around the unresolved debt ceiling, several industry watchers said.

“The credit default swaps have become popular again as the debt ceiling remains unresolved,” said Freddy Wong, head of Asia Pacific at Invesco fixed income, pointing out that the U.S. Treasury has reached the statutory debt limit in January 2025.

The Congressional Budget Office said in a March notice that the Treasury had already reached the current debt limit of $36.1 trillion and had no room to borrow, “other than to replace maturing debt.”

Treasury Secretary Scott Bessent said earlier this month that his department was tallying the federal tax receipts collected around April 15 filing deadline to come up with a more precise forecast for the so-called “X-date,” referring to when the U.S. government will exhaust its borrowing capacity.

Data from Morningstar shows that spikes in CDS spreads on U.S. government debt have typically aligned with periods of heightened worries around U.S. government’s debt limit, particularly in 2011, 2013 and in 2023.

Wong pointed out that there are still several months before the U.S. reaches the X-date.

The U.S. House of Representatives has passed a major tax cut package which could reportedly see the debt ceiling raised by $4 trillion, pending approval from the Senate.

In a May 9 letter, Bessent urged congressional leaders to extend the debt ceiling by July, before Congress leaves for its annual August recess, in order to avert economic calamity, but warned “significant uncertainty” in the exact date.

“There is still enough time for the Senate to pass its version of the bill by late July to avoid a technical default in U.S. Treasury,” added Wong.

During the debt ceiling crisis in 2023, the U.S. Congress passed a bill suspending the debt ceiling just days before the U.S. government entered into a technical default.

In the past, the U.S. has come dangerously close to a default but in each case, Congress acted last minute to raise or suspend the ceiling.

Fiscal reckoning

The surge in CDS prices is likely a “short-lived” reaction while investors wait for a new budget deal to raise the debt limit. It is unlikely a sign of an impending financial crisis, according to industry watchers.

During the 2008 financial meltdown, institutions and investors actively traded CDS linked to mortgage-backed securities, many of which were filled with high-risk subprime loans. When mortgage defaults soared, these securities plummeted in value, resulting in enormous CDS payout obligations.

However, the implications for soaring demand for sovereign CDS are very different compared to demand for corporate CDS which was the case in 2008, where investors were making an actual call about growing default risk at corporations, said Spencer Hakimian, founder of Tolou Capital Management.

“Traders seem to believe that CDS provides a speculative instrument for betting on a government debt crisis, which I view as extremely unlikely,” said Ed Yardeni, president of Yardeni Research, who added that the the U.S. will “always prioritize” paying interest on its debt.

“The U.S. government won’t default on its debt. The fear that it might do so is not justified,” he told CNBC.

Moody’s earlier this month downgraded the U.S. sovereign credit rating to Aa1 from Aaa, citing the government’s deteriorating fiscal health.

Should the Senate pass the bill in time, the massive ceiling increase will push up the Treasury supply, putting the U.S. fiscal deficit condition back in the spotlight, Wong warned.

Source: CNBC

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James Whitman

Central Bank

Economic

U.S. Federal Reserve officials at their last meeting acknowledged they could face "difficult tradeoffs" in coming months in the form of rising inflation alongside rising unemployment, an outlook buttressed by concerns about financial market volatility and Fed staff warnings of increasing recession risk, according to minutes of the May 6-7 session.

The foreboding outlook has likely shifted since then following President Donald Trump's decision just a week after the meeting to postpone the severe import tariffs, including a 145% levy on goods from China, that had forced up bond yields, driven down stock prices, and led to widening predictions of a U.S. economic downturn.

But the minutes released on Wednesday still showed Fed policymakers and staff engaged in a consequential discussion of the likely fallout from Trump administration policies that remain in flux - with even the highest tariffs on hold but not yet withdrawn altogether.

Officials at the meeting noted that volatility in bond markets in the weeks before "warranted monitoring" as a possible risk to financial stability, and noted that a change in the U.S. dollar's safe-haven status, along with rising Treasury bond yields, "could have long-lasting implications for the economy."

Fed officials continue to cite the possibility of inflation and unemployment rising in tandem as a risk that would leave them forced to decide whether to prioritize fighting inflation with tighter monetary policy or cutting interest rates to support growth and employment.

"Almost all participants commented on the risk that inflation could prove to be more persistent than expected," as the economy adapted to higher import taxes proposed by the Trump administration.

"Participants noted that the (Federal Open Market) Committee might face difficult tradeoffs if inflation proves to be more persistent while the outlooks for growth and employment weaken," the minutes said. "Participants agreed that uncertainty about the economic outlook had increased further, making it appropriate to take a cautious approach until the net economic effects of the array of changes to government policies become clearer."

RISKS TO BOTH SIDES

The prospect of rising unemployment and higher inflation was outlined in staff briefings that projected a "markedly" higher inflation rate this year due to the impact of tariffs and a job market "expected to weaken substantially" with the unemployment rate rising above estimates of full employment by the end of this year and remaining there for two years.

The unemployment rate was 4.2% as of April; Fed officials consider 4.6% to represent the level sustainable in the long run with inflation steady at the central bank's 2% target.

The delay in the most aggressive tariffs to be imposed on China and other nations caused many analysts to lower their own estimated recession risks, which Fed staff as of early May had considered "almost as likely" as their baseline outlook of slowing but continued growth.

In theory those stiff tariffs are only on hold until July pending negotiations over final tax rates, with Fed officials and business executives left in the dark about key aspects of the upcoming economic landscape.

The uncertainty still felt today was also the watchword at the meeting in early May, when the Fed decided to hold the benchmark policy rate steady in the 4.25% to 4.5% range. In a press conference after the meeting, Fed Chair Jerome Powell indicated the central bank was effectively sidelined until the Trump administration finalizes its tariff plans and the impact on the economy becomes clearer, a view reiterated by Powell and other Fed policymakers in the weeks since.

The Fed next meets on June 17-18, when the central bank will release new projections from policymakers about their outlook for inflation, employment and economic growth in coming months and years, and the projected interest rate they feel would be appropriate.

At their March meeting the median projection among policymakers was for two quarter-point interest rate cuts by the end of 2025.

Source: Reuters

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Manuel

Political

Cryptocurrency

The UK’s Financial Conduct Authority (FCA) in collaboration with the Bank of England will be creating and proposing detailed regulations for stablecoins and crypto custody services.

The attempt to bring clarity and security to the cryptocurrency industry has reached a new milestone with both the UK’s FCA and the Bank of England collaborating to propose a regulatory system.

UK FCA and Bank of England present crypto regulation

In an effort to bring greater clarity and security to the crypto industry, the UK’s Financial Conduct Authority (FCA) has published detailed proposals that outline the regulations of stablecoins and crypto custody services.

The FCA is partnering closely with the Bank of England to ensure consistent oversight and stability in the United Kingdom.

Stablecoins are often considered to be a bridge between traditional finance and blockchain technology due to their ability to facilitate efficient and low-cost transactions.

Under the proposals, issuers of regulated stablecoins must use robust systems to manage backing assets. They will also be required to provide transparent information about how these assets are held and protected.

“At the FCA, we have long supported innovation that benefits consumers and markets,” David Geale, the Executive Director for Payments and Digital Finance at the FCA said. “At present, crypto is largely unregulated in the UK. We want to strike a balance in support of a sector that enables innovation and is underpinned by market integrity and trust.”

The new regulatory regime is aimed at supporting innovation in the crypto space while also ensuring the integrity of the market, consumer protection, and strength of the system.

To create the proposals, there was extensive engagement with the industry, taking feedback from previous discussion papers and roundtables into account. Before the announcement of the regulatory proposals, HM Treasury drafted legislation that was published in April 2025.

To further encourage innovation, the FCA announced that it will consider adding a specific focus on stablecoins to its innovation services in the coming months, which would create new opportunities for firms developing regulated stablecoin products.

The Bank of England, on the other hand, will oversee the stablecoins that operate at a systemic scale. Sarah Breeden, the Deputy Governor for Financial Stability at the Bank of England, welcomed the FCA’s proposals and emphasized the central bank’s intent to publish a complementary consultation paper later this year.

The paper will address the regulatory treatment of systemic stablecoins, including the possibility of allowing returns on the assets backing them.

“We continue to work closely with the FCA to ensure the integrity of the UK’s stablecoin regime,” Breeden said, “including how firms transition within the regime.”

FCA draft covers crypto custody

Other than offering clarity about stablecoins, the FCA’s consultation paper also mentions rules for crypto asset custody.

Under the proposed regulatory regime, crypto custodians must ensure that customers’ assets are effectively secured and remain accessible at all times. Enforcing this will likely involve creating specific requirements for how assets will be stored, managed, and segregated from firm assets, which would reduce the risk of loss or misuse.

The FCA’s proposals include new expectations for firms that offer either stablecoin issuance or crypto custody that will reduce the likelihood and impact of operational failures. The methods to achieve this may include governance standards, capital requirements, and measures to protect client assets in the event of a firm’s insolvency.

The public has until July 31, 2025, to provide feedback on the proposals.

Source: Cryptopolitan

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Manuel

Stocks

China–U.S. Trade War

Nvidia (NVDA.O) beat sales expectations during its fiscal first quarter but forecast second-quarter revenue below market estimates on Wednesday, expecting an $8 billion hit to sales from tighter U.S. curbs on exports of its AI chips to key semiconductor market China.

Shares of the world's most valuable semiconductor firm still rose 4% in extended trading. The stock is relatively flat so far this year, compared with 2024 when the shares nearly tripled in value. Nvidia now faces trade restrictions on what it can sell, and the AI data center market is also maturing.

Washington's years-long efforts to thwart Beijing's access to top-of-the-line U.S. technology have resulted in stricter restrictions on the export of Nvidia's AI chips - stifling the company's access to one of the largest markets for semiconductors.

But Nvidia earlier this month signed a spate of new deals in the Middle East, including the first phases of a 10-square-mile data center site in the United Arab Emirates that could eventually use 5 gigawatts' worth of AI infrastructure. The company has also announced similar deals in Saudi Arabia and Taiwan.

"We have a line of sight to projects requiring tens of gigawatts of Nvidia AI infrastructure in the not-too-distant future," Nvidia Chief Financial Officer Colette Kress told analysts on a conference call.

But in the shorter term, Nvidia faces restrictions in China, where Kress said its data center revenue declined.

New U.S. restrictions on the sale of Nvidia's H20 chips to China, the only AI processors it could legally export to the country, prompted Nvidia to disclose in April that it expected a $5.5 billion charge, while CEO Jensen Huang had in May pegged the revenue impact related to the restrictions at about $15 billion.

On Wednesday, Nvidia said the actual first-quarter charge due to the H20 restrictions was $1 billion less than expected because it was able to reuse some materials. It said it lost $2.5 billion in H20 sales in the first quarter and expected to miss $8 billion in the second quarter.

However, Nvidia also said the H20 brought in $4.6 billion in sales in the first quarter and that China accounted for 12.5% of overall revenue in the first quarter.

Gil Luria, an analyst with D.A. Davidson, said the overall impact of the H20 restrictions was less than feared.

"There was a removal of some China revenue from the July quarter guides, but there was also China revenue that was pulled into the first quarter. Chinese buyers were stocking up on H20 ahead of the restrictions, which is what propped up the April quarter," Luria said.

Though major cloud companies such as Microsoft (MSFT.O) and Alphabet (GOOGL.O) have stood their ground on the billions they have earmarked this year for spending on expanding infrastructure for AI data centers, worries about such spending persist amid rapidly changing global trade policies.

On an adjusted basis, Nvidia earned 81 cents per share in the first quarter. Analyst estimates varied widely as Wall Street tried to assess the impact of restrictions on some of Nvidia's chip sales to China.

Excluding the charges, first-quarter adjusted earnings per share would have been 96 cents.

According to data compiled by LSEG, the estimate for the company's adjusted quarterly earnings was 93 cents per share, with 17 analysts providing estimates after April 15 when Nvidia said H20 shipments would require additional licenses.

The artificial intelligence market bellwether expects revenue of $45 billion, plus or minus 2%, in the second quarter, compared with analysts' average estimate of $45.90 billion, according to data compiled by LSEG.

The forecast includes a loss in H20 revenue of about $8 billion due to the recent export limitations.

"The broader concern is that trade tensions and potential tariff impacts on data center expansion could create headwinds for AI chip demand in upcoming quarters," said Emarketer analyst Jacob Bourne. "This doesn't signal an end to Nvidia's dominance, but highlights that sustaining it will require navigating an increasingly complex landscape of geopolitical, competitive, and economic challenges."

Source: Reuters

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Manuel

Cryptocurrency

After a long legal and financial battle, bankrupt crypto exchange FTX has announced that it will start distributing over $5 billion in stablecoins to its creditors starting May 30, 2025. This development marks one of the most significant steps in FTX’s bankruptcy process, offering some relief to those affected by the platform’s collapse in late 2022.

The repayments will be made in major stablecoins such as USDC and USDT, which are widely used in the crypto market for their dollar-pegged stability. These distributions come after months of courtroom proceedings, asset recovery, and financial restructuring by the estate managing FTX’s liquidation.

Stablecoin Payout Marks a Major Milestone

The planned $5 billion payout is a part of the exchange’s efforts to return customer funds lost during the fallout. According to the bankruptcy plan, this is the first phase of what could be a series of payments aimed at restoring some trust and liquidity to former FTX users and institutional creditors.

Notably, the distribution will be made in stablecoins instead of fiat currency. This approach simplifies logistics and ensures faster delivery to creditors, especially those still operating in the crypto space.

FTX’s estate has already recovered a significant portion of the assets, and this initial distribution will target creditors who have already filed validated claims. More rounds of payouts may follow as additional assets are recovered or liquidated.

What Comes Next for FTX Creditors?

While this $5 billion distribution is a major win for many affected users, the full recovery may take more time. Legal teams are still working through remaining claims, asset disputes, and international recovery efforts.

Still, the upcoming distribution signals progress in what has been a long and painful chapter for thousands of FTX users. The use of stablecoins ensures transparency and speed, allowing stakeholders to see clear value without exposure to crypto market volatility.