U.S. Inflation Slows in May Despite Tariff Fears: Temporary Relief or Delayed Shock?

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 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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

1. U.S. tariff revenue hits record high in May, helping narrow the monthly deficit.

2. Iranian defense minister states all U.S. military bases in the Middle East are within range.

3. Bessent expects U.S. FY 2025 budget deficit to approach 7%.

4. Trump will send letters to Trade Partners within the next one or two weeks to set unilateral tariff rates.

5. Israel issues new response to Gaza Ceasefire Draft.

6. U.S. Treasury Secretary Bessent signals willingness to extend the tariff suspension period.

7. U.S. CPI "Surprises" to the downside, but may not be enough to influence Fed decision-making.

U.S. tariff revenue reached a record high in May, aiding in narrowing the budget deficit for the month. However, questions remain about the sustainability of these tariff revenues amid ongoing negotiations between the Trump administration and trade partners, as well as legal challenges to tariff measures. According to the U.S. Treasury Department’s monthly budget report, tariff revenue in May reached 23 billion, a year−on−year increase of 17 billion, or a surge of 270%. After adjusting for calendar-year differences, the fiscal deficit in May was 316 billion, down 17%, and the deficit for the first eight months of the current fiscal year was 1.37 trillion. An official from the department told reporters that considering deferred revenue from 2023 to 2024 and calendar-year adjustments, the deficit has narrowed by 1% since the start of the fiscal year. Another factor driving last month’s improved fiscal position was a decline in debt-servicing costs. An official noted that this was due to lower interest payments on inflation-linked bonds and reduced discounts on Treasury bills.

Iran and the U.S. are set to hold a new round of indirect talks in Oman on Sunday, June 15. Iranian Defense Minister Nasirzadeh warned on June 11th that if the talks fail and lead to a military conflict between Iran and the U.S., Iran will attack U.S. military bases in the Middle East. Mediated by Oman, the two sides have held five rounds of indirect talks since April this year. However, they still disagree on several core issues, particularly Washington’s insistence that Iran fully halts all levels of uranium enrichment on its soil, which Iran has rejected as a “zero enrichment” demand.

U.S. Treasury Secretary Scott Bessent blamed Democrats for potentially another unusually large budget deficit this year. He projected that the deficit-to-GDP ratio for the current fiscal year would range between 6.5% and 6.7%, marking the third consecutive year it has exceeded 6%. According to Treasury data, the deficit ratio was 6.4% for fiscal year 2024 and 6.2% for fiscal year 2023. The fiscal year ends in late September.

U.S. President Donald Trump stated that he plans to send letters to trade partners within the next week or two to set unilateral tariff rates, aiming to reimpose higher tariffs on dozens of economies by the July 9 deadline. “At a certain point, we’re just going to send letters out. And I think you understand that, saying this is the deal, you can take it or leave it.” Trump told reporters during an event at the John F. Kennedy Center for the Performing Arts in Washington on Wednesday local time. It remains unclear whether Trump will follow through. He often sets two-week action deadlines but has frequently delayed or seen such plans fizzle out. On May 16, Trump said he would set tariff rates for U.S. trade partners “over the next one to two weeks.” Currently, the U.S. has only reached a trade framework with the United Kingdom.

Israeli media reported late on June 11th local time that Israel has issued a new response to the draft ceasefire and prisoner exchange agreement for Gaza. The latest Israeli response includes flexible adjustments, such as timelines for the Palestinian Islamic Resistance Movement (Hamas) to release Israeli detainees and extend the ceasefire. However, Israel still firmly rejects agreeing to a permanent end to its military operations in Gaza and insists on retaining control over the distribution of humanitarian aid in the Gaza Strip. On the evening of June 10th, Israeli Prime Minister Benjamin Netanyahu convened a meeting with Defense Minister Yoav Gallant, Strategic Affairs Minister Ron Dermer, IDF Chief of Staff Herzi Halevi, and senior officials from Israeli security agencies to discuss and decide on related issues.

At a hearing held by the House Ways and Means Committee in Washington on Wednesday, U.S. Treasury Secretary Scott Bessent stated that the U.S. has 18 “important trading partners” with whom the Trump administration is working to reach agreements. For countries and trade blocs (such as the EU) that are “negotiating in good faith,” the U.S. is “highly likely” to “roll the date forward to continue good faith negotiations.” He added, “If someone is not negotiating, then we will not.” Previous Trump administration officials had not indicated that tariff suspensions would be extended if “terms of an agreement” were not reached before the suspension expired. Bessent’s remarks suggest that as the deadline approaches, the Trump administration may be more inclined to adjust its own self-imposed deadlines.

U.S. CPI rose 2.4% year-on-year in May, with the month-on-month data increasing for the second consecutive month by 0.1%. Core CPI (excluding food and energy) climbed 0.1% month-on-month and 2.8% year-on-year.

Housing prices remained the primary driver of the increase, rising 0.3% month-on-month. Other categories with notable month-on-month gains included food, medical services, personal care items, and education. Meanwhile, energy prices fell 1.0% month-on-month.

Core CPI has remained stubborn, with its year-on-year increase holding steady at 2.8% for three consecutive months. Given the unclear material impact of trade policies on inflation, recent economic indicators, including nonfarm payrolls and inflation data, have not provided sufficient grounds for the Fed to open up space for interest rate cuts.

Following the data release, traders ramped up their bets on Fed rate cuts, largely anticipating two reductions this year. Interest rate swaps indicate that market participants see a 75% probability of a Fed rate cut by September.

UTC+8 20:00 ECB Vice President Guindos speaks

UTC+8 20:20 ECB Governor Schnabel speaks

UTC+8 20:30 US May PPI

UTC+8 23:15 ECB Governor Elderson speaks