Treasury yields tick higher as China says U.S. breached trade deal

Bond

Summary:

U.S. Treasury yields edged higher as trade tensions escalated after China accused the U.S. of breaching a trade deal. Uncertainty over tariffs and court rulings continues to cloud investor outlook.

U.S. Treasury yields moved higher as China struck back at the U.S. over alleged Geneva trade deal violations.

The 10-year Treasury yield was up more than 1 basis point to 4.436%. The 2-year yield was less than a basis point higher, trading at 3.92%. The 30-year Treasury yield was more than 3 basis points higher at 4.971%.

One basis point is equivalent to 0.01%. Yields and prices move in opposite directions.

Investors are closely watching trade relations between the U.S. and China, which have deteriorated in recent days after U.S. President Donald Trump accused China of violating a preliminary trade agreement with the U.S. on Friday.

China refuted these accusations on Monday, also accusing the U.S. of violating trade terms. The two countries had previously agreed to a 90-day pause on most tariffs, but the clash has raised concerns over the future of the deal.

On top of these concerns, Trump said, Friday, that tariffs will double on steel imports to 50%, from Wednesday.

The Trump administration is also facing a legal battle after the U.S. Court of International Trade invalidated much of the president’s tariffs on Wednesday. A day later, however, a federal appeals court granted the administration’s request to temporarily pause that ruling, effectively reinstating the duties for the time.

“It is really hard to keep up or predict what’s going to happen on trade at the moment, and that’s before we factor in the full ramifications from the court ruling last Thursday night, and then subsequent brief stay of execution for them on appeal,” Deutsche Bank analysts said in a note.

“For now it seems likely that the tariff uncertainty will linger for a long time ahead even if we’re still likely past the peak aggressiveness of US policy.”

Investors are also awaiting a number of economic reports this week, which will offer fresh insights on how tariffs are impacting the economy, such as the May nonfarm payrolls reading on Friday.

source : cnbc

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Glendon

Economic

Forex

U.S. manufacturing contracted for a third straight month in May and suppliers took longer to deliver inputs amid tariffs, potentially signaling looming shortages of some goods.

The Institute for Supply Management (ISM) said on Monday that its manufacturing PMI edged down to a six-month low of 48.5 last month from 48.7 in April. A PMI reading below 50 indicates contraction in the manufacturing sector, which accounts for 10.2% of the economy.

The PMI, however, remains above the 42.3 level that the ISM says over time indicates an expansion of the overall economy.

Economists polled by Reuters had forecast the PMI rising to 49.3. The survey suggested manufacturing, which is heavily reliant on imported raw materials, had not benefited from the de-escalation in trade tensions between President DonaldTrump'sadministration and China.

Economists say the on-gain, off-again manner in which the import duties are being implemented is making it difficult for businesses to plan ahead. Another layer of uncertainty was added by a U.S. trade court last week blocking most of Trump's tariffs from going into effect, ruling that the president overstepped his authority. But the tariffs were temporarily reinstated by a federal appeals court on Thursday.

The ISM survey's supplier deliveries index increased to 56.1 from 55.2 in April. A reading above 50 indicates slower deliveries. A lengthening in suppliers' delivery times is normally associated with a strong economy. But in this case slower supplier deliveries likely indicated bottlenecks in supply chains related to tariffs.

In April, the ISM noted delays in clearing goods through ports. Port operators have reported a decline in cargo volumes.

The ISM's imports measure dropped to 39.9 from 47.1 in April. Production at factories remained subdued, while new orders barely saw an improvement.

The ISM survey's forward-looking new orders sub-index inched up to 47.6 from 47.2 in April. Its measure of prices paid by manufacturers for inputs eased to a still-high 69.4 from 69.8 in April, reflecting strained supply chains.

Factories continued to shed jobs. The survey's measure of manufacturing employment nudged up to 46.8 from 46.5 in April. The ISM previously noted that companies were opting for layoffs rather than attrition to reduce headcount.

Source: TradingView

To stay updated on all economic events of today, please check out our Economic calendar

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Warren Takunda

Economic

At the time of writing (13:05 CEST), all major European indexes were in the red after China said the US "severely violated" the terms of their recent trade agreement. Market participants also considered the impact of US President Donald Trump's plan to double current tariffs on steel and aluminium from 25% to 50% from this Wednesday.

The EURO STOXX 50 was down 0.68%, Germany's DAX fell 0.48%, while France's CAC 40 declined 0.63%.

“Donald Trump has upset markets once again,” Russ Mould, investment director at AJ Bell, said in an email note sent to Euronews.

“Doubling import taxes on steel and aluminium, and aggravating China once again, mean we face a situation where uncertainty prevails. Trump’s continuous moving of the goal posts is frustrating for businesses, governments, consumers and investors.

“Equity markets were down across Europe and Asia, with futures prices implying a similar pattern when Wall Street opens for trading on Monday. Unsurprisingly, gold got a boost as investors returned to safe-haven assets."

US markets end May on flat note

Meanwhile, US markets ended May on a flat note, although for the month as a whole each of the main indices rose strongly following hopes of tariff reconciliations.

"Such optimism will face an immediate challenge as June begins, with comments over the weekend keeping the aggressive rhetoric in place. The latest broadsides from the White House were primarily directed at China and the EU, with both threatening a response in kind to any further tariff hikes," Richard Hunter, head of markets at Interactive Investor, said in an email note to Euronews.

However, he noted, back on the ground, there were some promising economic signs with the Federal Reserve’s preferred measure of inflation, the Personal Consumption Expenditures index coming in lower than expected and with a consumer sentiment index showing higher than had been feared.

"However, such respite could prove short-lived as the latter was largely predicated on an apparent softening of hostilities between the US and China in the latter part of the month, which has since evaporated. There will be a further signal on the state of the economy at the end of the week, with non-farm payrolls expected to show that 130,000 jobs will have been added in May compared to 177,000 the previous month and that the 4.2% unemployment rate will remain unchanged.

"In the meantime, US markets have repaired much of the damage wrought over the last few months although sentiment remains fragile. The Dow Jones and Nasdaq are down by 0.6% and 1% respectively in the year-to-date, while the 0.5% gain for the benchmark S&P500 has in part been driven by a resurgence of the mega cap technology trade," Hunter said.

Asia markets under pressure

In addition to contending with the weekend comments, Asian markets fell foul of geopolitical uncertainty following the latest Russia-Ukraine developments, with the Hang Seng under pressure based on the renewed likely tariff hikes on aluminium and steel.

"Mainland China was closed for a public holiday, which could leave some losses being stored up ahead of its reopening, likely exacerbated by a report which showed a further contraction in factory activity over the last month," Hunter added.

Source: Euronews

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Adam

Commodity

OPEC+ Holds Steady, Crude Oil Futures Break Technical Levels

Daily Light Crude Oil Futures

Crude prices surged Monday, with light crude futures rising more than 3% and breaking above key resistance levels. WTI crude jumped past the 50-day moving average at $62.40 and short-term pivot at $62.59, with bulls now targeting minor tops at $63.07 and $64.19. The key resistance remains $64.40, a level that, if cleared, opens the door for a test of the 200-day moving average at $66.62. Support sits lower between $59.74 and $59.51.

OPEC+ Output Decision Reassures Markets

OPEC+ confirmed over the weekend it will stick with its planned July production increase of 411,000 barrels per day—the third month in a row at that level. The decision came after speculation that a larger increase might be on the table. Traders had already priced in the 411,000 bpd move, helping oil avoid a bearish reaction. Analysts noted that a larger-than-expected increase could have sharply undercut prices.

Onyx Capital Group’s Harry Tchilinguirian noted that markets dodged a negative surprise, while PVM’s John Evans pointed to Kazakhstan’s open refusal to cut output as evidence of internal pressures within the group. Still, the move appears aimed at managing a delicate balance: regaining market share without triggering a supply glut.

Goldman Sachs Sees Room for More Increases

Goldman Sachs remains bullish, citing tight spot fundamentals, strong global demand signals, and seasonal summer support. The bank expects OPEC+ to approve one more 410,000 bpd increase for August. Analysts argue that current demand strength makes it unlikely the group will pause production hikes when it meets again on July 6.

U.S. Fuel Inventories Raise Supply Concerns

Low U.S. fuel inventories and the kickoff of the summer driving season are adding upside pressure to prices. ANZ analysts highlighted a sharp jump in gasoline implied demand—up nearly 1 million bpd, marking one of the largest weekly gains in three years. Traders are also keeping an eye on what’s projected to be a more active-than-usual hurricane season, which could further tighten supply.

Market Forecast: Bullish Outlook for Oil Prices

With OPEC+ sticking to a measured production path, demand showing seasonal and structural strength, and U.S. supply risks rising, the market bias remains bullish. A break above $64.40 could trigger momentum buying, targeting the 200-day moving average at $66.62. Until then, any pullbacks are likely to find support near $59.50, offering dip-buying opportunities for traders.

Source: fxempire

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Michelle

Economic

Forex

In recent economic news, the Manufacturing Purchasing Managers’ Index (PMI) has shown a positive trend in the manufacturing sector, but still missed the forecasted figures. The actual PMI figure came in at 52.0, slightly below the anticipated figure of 52.3.

The Manufacturing PMI is a critical indicator of the activity level of purchasing managers in the manufacturing sector. A reading above 50 signifies expansion in the sector, while a figure below 50 indicates contraction. This index is a crucial metric for traders and market watchers because purchasing managers typically have early access to data about their company’s performance, which can act as a leading indicator of overall economic performance.

The actual PMI reading of 52.0, although lower than the forecasted 52.3, still indicates a growth in the manufacturing sector. This figure is a significant improvement from the previous PMI figure of 50.2, showing a steady rise in the manufacturing sector’s activity. The increase from the previous number suggests that the manufacturing sector is expanding at a faster pace.

However, the fact that the actual PMI missed the forecasted figure might be seen as a negative signal for the USD. Traders often interpret a lower than expected reading as bearish for the US dollar. Despite this, the actual PMI reading still shows an expansion in the manufacturing sector, which might mitigate any potential negative impact.

The Manufacturing PMI is of high importance in the economic calendar, with a rating of three stars. Its figures are closely watched by traders and economists as it can provide early indications of the overall economic performance. Despite falling short of the forecast, the steady growth indicated by the actual PMI figure could signal a positive trend in the manufacturing sector, contributing to the broader economic recovery.

Source: Investing

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Adam

Stocks

Forex

Morgan Stanley said the greenback will tumble to levels last seen during the Covid-19 pandemic by the middle of next year, while JPMorgan Chase & Co. remains bearish on the US currency. Goldman Sachs Group Inc. said Washington’s efforts to explore alternative revenue sources — should tariffs be impeded — may be even more negative for the dollar.

The dollar fell against all its Group-of-10 peers on Monday amid a flare-up in global trade tensions. The Bloomberg Dollar Spot Index dropped 0.5%, extending its decline since the start of April and nearing its weakest level since July 2023.

“We think rates and currency markets have embarked on sizeable trends that will be sustained — taking the US dollar much lower and yield curves much steeper — after two years of swing trading within wide ranges,” Morgan Stanley strategists including Matthew Hornbach wrote in a May 31 note.

The bank forecasts the US Dollar Index will fall about 9% to hit 91 by around this time next year.

Trump’s trade policies have dented sentiment on US assets and triggered a re-think on the world’s reliance on the greenback. Still, the bearishness is far from historical extremes, underscoring the potential for more dollar weakness ahead, Commodity Futures Trading Commission data showed.

JPMorgan strategists led by Meera Chandan reinforced their negative view for the dollar last week, instead recommending bets on the yen, euro and Australian dollar. Morgan Stanley also listed the euro and the yen among the biggest winners from the greenback’s slide, along with the Swiss franc.

The euro climbed to a more than five-week high at $1.1437 on Monday and Morgan Stanley sees it rising to around $1.25 next year. The bank also said the pound may advance from $1.35 to $1.45, aided by “high carry” — the return investors can get from holding the currency — and the UK’s low trade tension risks. The yen may strengthen to 130 from 143, the analysts added.

Morgan Stanley also said the 10-year US Treasury yield will reach 4% by the end of this year, and stage a much larger decline next year as the Federal Reserve delivers 175 basis points of interest-rate cuts. The yield was up four basis points on Monday to 4.44%.

Investors are looking to a slew of US labor-market indicators this week, including the May employment report, for help in determining the next shifts in Fed policy and its implications for the dollar. They will also closely follow any developments on trade negotiations after China and the US accused each other of violating a deal concluded last month.

Tax Risk

For Goldman Sachs, investors are particularly focused on a potential change to US tax rates on foreign individuals and companies. The measure is buried deep in the tax-and-spending bill that Trump is muscling through Congress, and it calls for, among other things, higher taxes on passive income — such as interest and dividends — earned by investors who are potentially sitting on trillions in American assets.

“Even if the application is relatively narrow, such a tool would exacerbate concerns about risks of US investments, at a time when investors are already looking at shifting cross-asset correlations as a reason to seek greater diversification away from US assets,” strategists including Kamakshya Trivedi and Michael Cahill wrote in a note.

In a separate report, Goldman Sachs strategists said their models suggest the dollar is about 15% overvalued and therefore it has further to fall. The decline will likely be driven by reallocation and repricing of global assets, they added.

source : Bloomberg

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Adam

Economic

Markets in focus

US Tech 100 trades within range as momentum plateaus

Despite continuous tariff-related headlines throughout the week, investors demonstrated increasing fatigue towards policy flip-flopping developments. The positive market reaction to the trade court's ban proved considerably more subdued than previous responses to UK and Chinese trade agreements. Similarly, equity markets exhibited minimal reaction when the ban was subsequently averted. Market participants now recognise the rapid pace of policy changes and are adopting a more cautious observational approach before reacting.

From a technical analysis perspective, the US Tech 100 Index maintained firm support above its 200-day simple moving average (SMA) and continued its upward trajectory along the 20-day SMA, although momentum appears to be plateauing. The index is likely to trade within a defined range between resistance at 22,223, established by February's peak, and support around 20,500, unless a decisive breakthrough above the historic peak occurs.

Figure 1: US Tech 100 index (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

Hang Seng Index navigates mixed corporate earnings

Individual corporate developments served as the primary driver of Hang Seng Index (HSI) performance during the previous week.

Meituan shares declined as much as 5% despite quarterly profits exceeding expectations with an 87% year-on-year (YoY) surge. The group's chief executive pledged to win the food delivery competition against JD and Alibaba at any cost. Conversely, Kuaishou shares surged 8% following an 11% YoY revenue growth driven by monetisation of its artificial intelligence tools. The company's overseas operations achieved profitability for the first time.

Following CATL and Hengrui Pharma's successful listings earlier this month, additional positive developments have emerged for Hong Kong's initial public offering (IPO) market. According to Reuters, the prominent fast-fashion retailer Shein is planning to list on the Hong Kong Stock Exchange this year after experiencing delays in China's regulatory approval for a London listing. The company was valued at $66 billion in a 2023 assessment. HKEX shares have appreciated over 15% during the past month.

Technical analysis of HSI reveals a narrow trading range between 22,650 and 24,000, which is likely to persist absent major market catalysts. With current levels receiving support from the 50-day simple moving average (SMA), the index may test the upper boundary of this range, which also represents an important psychological barrier. Should the index cross and sustain above 24,000, it may continue its bullish trajectory. Conversely, a breach below the range may drive the index towards 21,700.

Figure 2: Hang Seng Index (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

Gold awaits breakout from compressed trading range

Gold prices retreated further during the previous week amid US Dollar strength and improving US consumer confidence according to the Conference Board's latest survey. However, this development should not detract from the medium to long-term prospect for gold, as gold exchange-traded fund (ETF) holdings remain at elevated levels and central bank demand continues robustly as they seek to diversify their reserves.

Technical analysis indicates that gold prices are compressed between converging trendlines, forming a descending triangle from April's peak and an ascending trend that commenced at the beginning of the year. The uptrend should provide material support around $3,170, though a decisive breakthrough above the falling trendline at $3,340 is required before the recent correction can be reversed. A clear directional signal is advisable before initiating positions in gold.

Figure 3: Spot gold (daily) price chart

as of 31 May 2025. Past performance is not a reliable indicator of future performance.

The week ahead

The forthcoming week features two significant central bank meetings, with the European Central Bank (ECB) and Bank of Canada (BoC) both deliberating interest rates decisions that could signal shifting monetary policy stances. Critical employment data dominates the US economic calendar, including Job Openings and Labor Turnover Survey (JOLTS) findings, ADP employment figures, and the closely monitored non-farm payrolls report, providing comprehensive insights into labour market dynamics. China's Caixin purchasing managers' index (PMI) releases will offer alternative perspectives on manufacturing and services sector health beyond official government data. As corporate earnings season concludes, technology firms Broadcom and CrowdStrike represent among the final major reports, offering visibility into semiconductor demand and cybersecurity growth trends amid an evolving economic landscape.

The probability of a 25 basis point (bp) cut at the upcoming ECB meeting has increased from 84% in mid-May to 97% this week, reflecting increasingly dovish sentiment following Trump's threat to increase tariffs on European goods to 50% last week. The June rate decision could mark the seventh consecutive reduction since June 2024, bringing the deposit facility rate to 2%.

Last month, ECB President Christine Lagarde indicated that US tariffs would likely prove more disinflationary than inflationary for Europe, driven by cooling energy prices resulting from slower global growth, US dollar depreciation, and excess supply as global goods are redirected to European markets. December bond futures currently price at 1.67%, indicating another one to two cuts by year-end following the June meeting. Markets will monitor the ECB press conference closely for guidance on future cut timing, as a pause exceeding two meetings could signal an end to accommodative policies.

Figure 4: Europe's inflation approaches ECB 2% target, allowing rates to go down further