Thailand: Prime Minister Suspended Over Leaked Cambodia Call

Political

Summary:

The Prime Minister of Thailand, Paetongtarn Shinawatra, was suspended by the country's constitutional court on Tuesday pending an investigation into a leaked phone call with a senior Cambodian politician.

The judges voted 7 to 2 to suspend the 38-year-old prime minister after accepting a petition from 36 senators accusing her of dishonesty and a breach of ethical standards.

Why has Thailand's prime minister been suspended?

Paetongtarn has faced growing dissatisfaction over her handling of a border dispute with neighboring Cambodia, which saw a Cambodian soldier killed in a violent clash in May.

During a leaked June 15 phone call with Cambodian Senate President Hun Sen, Paetongtarn appeared to criticize an outspoken Thai army commander — considered a red line in a country where the military has significant clout.

Despite apologizing and insisting that her remarks were a negotiating tactic, thousands of conservative, nationalist-leaning protesters rallied in central Bangkok on Saturday to demand the prime minister's resignation.

"I only thought about what to do to avoid troubles, what to do to avoid armed confrontation, for the soldiers not to suffer any loss," she said. "I wouldn't be able to accept it if I said something with the other leader that could lead to negative consequences."

Paetongtarn first has 15 days in which to provide evidence to the constitutional court to support her defense, in which time Deputy Prime Minister Suriya Juangroongruangkit is expected to become acting prime minister.

"Government work doesn't stop, there is no problem," Tourism Minister and Pheu Thai Party Secretary-General Sorawong Thienthong told the Reuters news agency. "Suriya will become caretaker prime minister."

Thai government under pressure

However, the government has been left with only a wafer-thin majority after Paetongtarn's leaked call saw a key party abandon her coalition and threaten a no-confidence vote.

Earlier on Tuesday, King Maha Vajiralongkorn endorsed cabinet reshuffle which should have seen Paetongtarn assume the position of culture minister in addition to prime minister. But it's unclear if she will be able to be sworn into the role during her suspension.

She said on Monday that she would accept and follow the process but she didn't want to see her work interrupted.

It's not the first time that Paetongtarn has faced allegations over ethics breaches; she is currently also under investigation by Thailand's Office of the National Anti-Corruption Commission in a separate case.

The Constitutional Court last year removed her predecessor over a breach of ethics while her father, the influential former Prime Minister Thaksin Shinawatra, was deposed in a military coup in 2006.

Also on Tuesday, a spokeswoman for the Chinese Foreign Ministry insisted that would not comment on an "internal" Thai affair but said: "As a friendly neighbor, we hope that Thailand will maintain stability and development."

Source: DW

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Glendon

Economic

Forex

Euro zone inflation edged up last month to the European Central Bank's 2% target, confirming that the era of runaway prices is over and shifting policymaker focus to trade war-induced economic volatility.

Inflation in the 20 nations sharing the euro currency crept up to 2.0% in June from 1.9% a month earlier, in line with expectations in a Reuters poll of economists, as energy and industrial goods continued to pull down prices, offsetting quick services inflation.

Underlying inflation, a closely watched measure that excludes volatile food and fuel prices, meanwhile held steady at 2.3%, in line with expectations.

Anticipating this fall, the ECB has lowered interest rates from record highs by two full percentage points over the last year, and debate has turned to whether it needs to ease policy further to prevent inflation becoming too low given weak growth.

The development in services costs, which have been stubbornly high for years, is pivotal as it has raised fears that domestic inflation could get stuck above 2%.

Last month, services inflation edged up to 3.3% from 3.2%, as prices rose 0.7% on the month, supporting the argument of policy hawks that domestic inflation remains uncomfortably high, reducing the risk of undershooting.

Financial investors expect one more ECB rate cut to 1.75% towards the end of the year, then anticipate a period of steady rates before possible increases towards the end of 2026.

The outlook, however, is complicated by the fact that it depends on the outcome of a trade dispute between the EU and the U.S. President Donald Trump's administration.

For now, the conflict has reduced price pressures because it has sapped economic confidence, pushing up the value of the euro and lowering energy prices.

Indeed, the euro zone's economy is barely growing, with full-year expansion expected at less than 1%, as industry struggles after a multi-year recession, with private consumption weak and investment low.

If U.S. trade barriers stay, the EU is likely to retaliate and that is bound to be inflationary. Firms will then start rearranging value chains, which would add to increased production expenses.

Once the cost of the green transition and the ageing of the working age population are factored in, then prices could come under more sustained upward pressure, economists say.

Source: Yahoo Finance

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Michelle

Economic

Forex

Britain's manufacturing sector showed some signs of turning a corner in its long slump and businesses pushed up their prices in June to offset higher labour costs, according to a survey published on Tuesday.

The S&P Global/CIPS manufacturing Purchasing Managers' Index improved for a third month in a row to 47.7 in June from 46.4 in May although it remained below the 50.0 growth threshold for a ninth month in a row.

The reading was unchanged from a preliminary estimate.

The severity of the downturn eased in output, hiring and new orders, the PMI showed.

"That said, any hoped for stabilisation remains fragile and subject to potential headwinds that could severely impact demand, supply chain reliability and future growth prospects," Rob Dobson, director at S&P Global Market Intelligence said.

The Bank of England, which kept interest rates at 4.25% last month, has said it is focusing on the conflicting inflation risks from a weaker labour market and from higher energy prices due to conflict in the Middle East.

Input costs rose for an 18th month with firms citing higher wages and suppliers raising prices due to finance minister Rachel Reeves' employer payroll tax increase as well as geopolitics and concerns over future government policy.

Companies passed on part of the higher costs to consumers, S&P said.

Hiring shrank for the eighth month in a row and exports contracted at their fastest pace since November, reflecting uncertainty around U.S. President Donald Trump's import tariffs, weaker demand from the United States, Europe and China.

But the share of manufacturers expecting higher output in a year's time rose to 46% as sentiment reached a four-month high.

On Monday, a survey published by Lloyds showed business confidence rose to its highest in nine years.

Source: Reuters

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Gerik

Economic

A Record-Breaking First Half for European Banks

European banking stocks have delivered their most impressive first-half performance since 1997, with the Stoxx 600 Banks Index climbing 29% through June 30. This remarkable rally, led by strong profitability, increased capital returns, and a vibrant M&A landscape, has made the banking sector the top-performing subgroup in Europe for the first half of 2025.

Investor appetite has surged in response to improved fundamentals. Despite macroeconomic headwinds and lingering trade uncertainties, many institutions have strengthened their balance sheets, streamlined operations, and benefited from the tailwinds of elevated interest rates and fiscal stimulus, especially in Germany and southern Europe.

Societe Generale and Strategic Restructuring Lead France’s Gains

Societe Generale SA emerged as one of the best-performing financial stocks in Europe, gaining 79% year-to-date. CEO Slawomir Krupa’s restructuring strategy—emphasizing the divestment of non-core units and efficiency enhancements—has begun to yield results, with analysts projecting further upside. SocGen’s revival highlights a causal relationship between cost discipline, capital optimization, and market valuation.

Banco Santander, in a June report, named SocGen its top French pick, citing the French lender's potential to deliver positive earnings surprises amid deeper operational reforms.

Commerzbank’s Rally Reshapes German M&A Landscape

Germany’s Commerzbank AG also made headlines after its market capitalization surpassed €30 billion in May, driven by consistent earnings growth and earlier merger speculation. Its stock has more than doubled since UniCredit expressed interest in late 2023. However, CEO Andrea Orcel later dismissed the possibility of a takeover, noting the valuation surge made a merger economically unattractive.

Here, the causality is evident: a speculative M&A premium initially lifted shares, but sustained gains are now driven by core earnings strength and investor confidence in Commerzbank's standalone trajectory.

Spain’s Banking Sector Sustains Strength Through Rate Cycle

Spanish lenders have maintained momentum despite the European Central Bank's rate-cutting cycle. Banco Santander, up 57% year-to-date, has surpassed UBS to become continental Europe’s most valuable lender. Meanwhile, BBVA remains committed to its acquisition of Banco Sabadell, despite political delays, signaling strong institutional confidence in further sector consolidation.

The sustained strength of Spanish banks reflects a correlation between high fee income, M&A activity, and robust core performance, insulating them from interest rate sensitivity more effectively than peers.

Deutsche Bank Rides Fiscal Stimulus and Shareholder Focus

Deutsche Bank AG has advanced 51% in 2025, supported by its enhanced shareholder returns strategy and optimism around Germany’s fiscal spending. CEO Christian Sewing has prioritized increasing dividends and buybacks as part of his broader effort to re-anchor investor sentiment.

Although recent volatility followed disclosure around capital ratios, the broader rally is causally linked to Germany’s expansive fiscal programs and Deutsche Bank’s strategic clarity on shareholder value creation.

Italian Banks in M&A Spotlight

Italy’s financial sector is undergoing a restructuring phase marked by aggressive deal-making. UniCredit, up 48% in the first half, has eclipsed Intesa Sanpaolo in market capitalization. Its moves to consolidate domestically and expand in Greece signal a shift from balance sheet repair to regional dominance.

Smaller institutions such as Mediobanca and Banca Generali have also set new records, reflecting broader confidence in Italy’s post-cleanup banking landscape. The upswing here is causally tied to strong earnings and renewed acquisition strategies.

Valuation and Outlook: Still Room to Run?

Despite the rally, analysts remain cautiously optimistic. KBW’s Andrew Stimpson points out that sector valuations are still below historical averages, implying further upside potential, particularly if earnings resilience continues and the macroeconomic backdrop stabilizes.

The banking sector’s improved earnings profile, capital discipline, and strategic focus on M&A and shareholder returns form a robust foundation for continued investor engagement—even as geopolitical risks and economic uncertainty persist.

The historic rally in European bank stocks reflects a sector-wide transformation, underpinned by better earnings, focused restructuring, and heightened investor returns. With deal-making and capital deployment set to continue, banks across France, Germany, Spain, and Italy are repositioning themselves for a new era of regional competition and global relevance. As long as valuation multiples remain attractive and balance sheets solid, the banking sector may extend its leadership into the second half of the year.

Source: Bloomberg

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Glendon

Economic

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Inflation expectations of euro-area consumers eased in May, the European Central Bank said.

Prices were seen increasing 2.8% over the next 12 months, down from 3.1% in April, according to a monthly survey released Tuesday. The gauge for three years fell to 2.4% from 2.5%, while for five years ahead it stayed at 2.1%.

ECB officials remain upbeat that inflation will settle at their 2% goal this year. June data for the 20-nation euro zone are due later Tuesday, with analysts expecting a slight acceleration to match the target.

The ECB’s poll showed consumers’ views on the economy improved, foreseeing a 1.1% contraction over the next 12 months, compared with a 1.9% slump before.

Source: Bloomberg Europe

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Gerik

Economic

Tariff Hike Disrupts Malaysia’s Edge in Data Centre Investment

Malaysia’s status as a rising data centre hub in Southeast Asia is now in flux as unexpectedly sharp electricity tariff increases take effect. Data centre operators, heavily dependent on low-cost, stable power, are recalculating their operational budgets after the government’s tiered pricing system raised energy costs by an estimated 10% to 14% for major consumers. For large-scale facilities, this could mean an additional $15–$20 million in annual costs, even before monthly fuel surcharges are applied.

This shift marks a critical inflection point. Malaysia has historically used its affordable power rates to lure digital infrastructure investment away from land-constrained neighbours like Singapore. However, the tariff adjustment risks eroding that cost advantage, potentially triggering a reevaluation of project viability across the sector.

Tiered Pricing and Ultra-High Voltage Band Create Planning Gaps

A central issue lies in the lack of clarity surrounding the pricing tiers used to calculate electricity bills. While many data centres anticipated gradual cost changes, most now fall into the ultra-high voltage band—the bracket with the steepest rates. This has caught operators off guard, with the industry reporting that few were financially or strategically prepared for the scale of the hike.

The causal relationship here is direct: as power consumption scales, large data centres not only face higher absolute costs but are also assigned a disproportionate share of grid infrastructure and distribution charges. Cheam Tat Inn of Equinix Malaysia confirms that larger operators are now bearing more of the grid’s overhead, creating an unequal burden between small and large facilities.

Fuel Surcharges Add Layer of Volatility to Cost Forecasting

Compounding the tariff issue is the government’s plan to issue monthly fuel surcharges based on fluctuations in global fuel prices and currency movements. While July’s surcharge stands at zero, the system introduces a new layer of cost volatility that complicates long-term pricing forecasts. This uncertainty is especially problematic for global tech giants such as Microsoft and Google, whose hyperscale investments rely on predictable, stable energy contracts over multi-decade horizons.

Malaysia remains poised for rapid growth in data infrastructure. A May report by Bain & Company, Google, and Temasek projected Malaysia’s share of regional data centre power demand to triple from 7% in 2022 to 21% by 2027. However, the tariff realignment may dampen this trajectory if investors hesitate or reallocate planned capital to more cost-competitive markets like Vietnam or Thailand.

Gary Goh of Sprint DC Consulting noted that the higher operating costs could cause investors to adopt a “wait-and-watch” stance, reassessing future commitments despite prior land or building investments. This reflects a risk of delayed or redirected capital flows unless pricing transparency and predictability improve.

Industry Calls for Policy Review and Energy Alternatives

Leading firms, including Equinix, are already exploring alternative energy procurement to hedge against rising tariffs. At the same time, the Data Centre Association of Malaysia is urging the government to consider regional competitiveness and reevaluate the new pricing framework. While Prime Minister Anwar Ibrahim has defended the tariff increases as a means to fund social programs, stakeholders argue that strategic industries like data infrastructure require a more nuanced approach.

The tension between national fiscal goals and private-sector growth incentives now defines the landscape. If unresolved, Malaysia risks losing its strategic positioning just as Southeast Asia enters a critical phase of digital infrastructure expansion.

Malaysia’s ability to maintain its appeal as a digital infrastructure hub now hinges on its approach to electricity pricing and regulatory transparency. The recent tariff surge has introduced cost instability that could jeopardize planned investments, particularly from hyperscale players. To retain its edge, the government must strike a balance between energy cost recovery and long-term industrial competitiveness—before regional rivals capitalize on investor uncertainty.

Source: Bloomberg

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Michelle

Economic

Forex

So, here we are on July 1st. US equities are back at all-time highs. Most headlines credit the rebound to optimism around trade negotiations—hopes that deals will be struck before the July 9 deadline—and expectations that the Federal Reserve (Fed) could cut rates sooner rather than later. But this rally is mostly driven and shouldered by AI optimism – the rest remains uncertain.

The trade headlines, while encouraging, aren’t especially promising. The negotiations with Japan are bumpy. The Japanese, understandably, are reluctant to buy American rice, and as a result, they may soon receive a ‘reveal letter’ detailing the tariff rate they’ll be subjected to. As for the EU, talks are just as uncertain. European could accept 10% universal tariff but demand exceptions for key sectors like drugs, alcohol, chips, planes, cars, steel an aluminum that they might not get.

On the monetary policy front, Fed Chair Jerome Powell has been crystal clear: it’s not smart to rush to the exit when the implications of new tariffs on inflation and growth are still unknown. That warning was reinforced by last week’s core PCE data, which came in hotter than expected, suggesting that inflation may be making a U-turn—moving away from the 2% target. That means even if economic data on growth or jobs begins to weaken, the Fed is likely to prioritize tackling inflation first. Yet, this doesn’t seem fully priced into markets.

There’s a clear mismatch between how markets are positioned and the risks that remain on the table. Trade tensions, geopolitical uncertainty, the ballooning US debt burden, the possibility that the Fed might not be able to cut rates, signs of economic slowdown, and even a potential re-acceleration in inflation—none of these risks have disappeared. They’ve simply been pushed aside, priced in and out over recent months, but they persist.

Retail investors continue to drive the rally. The latest COT data shows that institutional demand has improved slightly, but still feels lukewarm. That’s understandable, given the trend in earnings expectations. According to FactSet, second-quarter S&P 500 earnings growth estimates have been revised down from 9.4% at the end of March to just 5%. That downgrade is barely reflected in market pricing, making the upcoming earnings season a potential minefield.

From here, the path forward is essentially a coin toss. In one scenario, trade deals are struck, everyone leaves the negotiating table happy, the Middle East finds peace, the US addresses its soaring debt, inflation slows, and economic growth accelerates. But if that doesn’t happen—and some of the risks materialize—markets could face a sharp reality check. Earnings could disappoint, macro data could weaken, trade deals could fall short or prove unsustainable, and US debt worries could resurface—especially given that the latest tax bill is expected to add $3 trillion to the federal deficit. That would require a ramp-up in debt issuance, which could push yields higher just as corporate profits come under pressure.

Investors vs CFOs

Investor sentiment may appear upbeat, but those making real-world business decisions are more cautious. A recent Teneo survey shows nearly 80% of investors expect the global economy to improve over the next six months. Yet 43% of global CFOs disagree. In fact, the majority of US CFOs expect interest rates to rise—not fall—over that same period. We can choose to ignore those views, but CFOs are decision-makers, and they’ve already started to act, slowing hiring and reassessing supply chains.

That said, one area continues to shine: AI. Strong capital expenditure is flowing into AI projects, with the aim of replacing labour, cutting costs, and boosting productivity. That could help tame inflation over the long run and support growth. Oracle announced a major cloud deal expected to bring in up to $30 billion annually from fiscal 2028. Its stock jumped 4% on the news. Meta also hit an all-time high on reports it plans to spend ‘hundreds of billions’ on projects and research. Nvidia continues to hover near record highs.

But beyond the AI sector, the broader macro picture remains fragile. All eyes are now on US labour market data this week. Job openings are due today, followed by the ADP employment report tomorrow and nonfarm payrolls, wage figures, and the unemployment rate on Thursday. Moderately soft figures may support expectations of Fed rate cuts and push equities even higher. But if the data is too weak, it could raise concerns about the economic impact of recent policy shifts, prompting some investors to lock in profits and head to the sidelines ahead of the slower summer months.

Meanwhile, the US dollar remains under pressure. The EURUSD touched the 1.18 level this morning after an unexpected dip in German inflation revived dovish European Central Bank (ECB) expectations. Today’s euro area aggregate inflation number is likely to land near the ECB’s 2% target, reinforcing the view that the central bank will remain accommodative. The euro outlook remains positive, but technically speaking, the RSI indicator points to overbought conditions. Deep bearish dollar positioning also suggests that some profit-taking could lead to a short-term correction before the euro resumes its march toward the 1.20 mark.