June 5th Financial News

Daily News

Summary:

Japan's base wages accelerate in April, supporting potential Bank of Japan (BOJ) rate hike; Fed Beige Book: Increased spending on tariff-affected goods......

[Quick Facts]

1. Japan's base wages accelerate in April, supporting potential BOJ rate hike.

2. U.S. appeals court blocks Trump Administration's effort to dismantle Education Department, orders reinstatement of laid-off workers.

3. CBO: Trump's tariffs will reduce deficits but also drag on economy.

4. Fed Beige Book: Increased spending on tariff-affected goods.

5. Saudi Arabia pushes for OPEC+ to further "Significantly" boost production.

6. Bank of Canada holds rates for second straight meeting, signals possible future cuts.

7. U.S. President Trump: Powell Must Cut Rates Now.

8. Carney pauses retaliatory measures against the U.S.

9. U.S. services sector unexpectedly contracts in May as inflation heats up.

[News Details]

Japan's base wages accelerate in April, supporting potential BOJ rate hike

The acceleration in Japan's base wage growth is a positive signal for the BOJ, which is seeking opportunities to raise interest rates. Data released by Japan's Ministry of Health, Labour and Welfare on Thursday showed that base wages rose 2.2% year-on-year in April, up from a revised 1.4% increase in the previous month. Nominal wage growth came in at 2.3%, slightly below economists' expectations of 2.6%. A more stable wage indicator, which avoids sampling errors and excludes bonuses and overtime pay, showed that full-time employees' wages rose 2.5% year-on-year, marking the 20th consecutive month of growth at or above 2%. However, on the downside, real cash earnings fell 1.8% year-on-year, a larger decline than the market's expected 1.6%. The growth in nominal wages is a key component of the "virtuous economic cycle" long pursued by the BOJ.

As policymakers assess the future policy path, they are looking for more evidence that wage increases will drive demand-led price growth. If overall conditions permit, Thursday's wage data could support another BOJ rate hike this year.

U.S. appeals court blocks Trump Administration's effort to dismantle Education Department, orders reinstatement of laid-off workers

On June 4th (local time), the U.S. Court of Appeals for the First Circuit rejected the Trump administration's appeal, upholding a federal judge's ruling that requires the government to halt the execution of an executive order dismantling the Department of Education and reinstate employees who were laid off in a mass dismissal. Previously, the Trump administration had taken a series of steps to advance the closure of the Education Department, including large-scale layoffs. In March, Trump signed an executive order directing Education Secretary Linda McMahon to take all necessary measures to shut down the department and return education management authority to the states. The latest ruling means the Trump administration cannot proceed with its Education Department restructuring plan in the near term.

CBO: Trump's tariffs will reduce deficits but also drag on economy

On June 4th (local time), an analysis by the U.S. Congressional Budget Office (CBO) showed that President Trump’s tariff policies would reduce the deficit by $2.8 trillion over 10 years but would also lead to economic contraction, higher inflation, and reduced overall purchasing power for American households. According to the report, the CBO outlined in a letter to Democratic congressional leaders how the Trump administration's plan to impose broad tariffs on countries around the world would affect U.S. households. One projection indicated that American households would buy fewer goods from countries subject to the tariffs. Additionally, the CBO estimated that the tariff policies would raise the average annual inflation rate by 0.4 percentage points in 2025 and 2026.

Fed Beige Book: Increased spending on tariff-affected goods

The Federal Reserve's Beige Book noted that half of the districts reported slight to moderate declines in economic activity, three saw no change, and three reported modest growth. All regions highlighted elevated economic and policy uncertainty, leading businesses and households to hesitate in decision-making and adopt a cautious stance. Manufacturing activity edged down slightly. Consumer spending reports were mixed, with most districts indicating slight declines or no change; however, some regions noted an uptick in spending on goods affected by tariffs. Residential real estate sales showed little change, and most districts reported flat or slowing construction activity for new homes. Reports on loan demand and capital expenditure plans were varied. Port activity remained robust, but other transportation and logistics reports were mixed.

Saudi Arabia pushes for OPEC+ to further "Significantly" boost production

Saudi Arabia is pushing for OPEC+ to continue accelerating oil production increases in the coming months, as the kingdom prioritizes reclaiming lost market share, according to informed sources. Saudi Arabia, increasingly dominant within OPEC+, wants the group to raise output by at least 411,000 barrels per day in August and potentially September. One source said the kingdom is eager to unwind production cuts quickly to capitalize on peak summer demand in the Northern Hemisphere. OPEC+ has already agreed to boost output by 411,000 bpd in May, June, and July, though recent meetings revealed divisions over the strategy. A faction led by Russia favored pausing increases, but Saudi Arabia's stance ultimately prevailed.

Bank of Canada holds rates for second straight meeting, signals possible future cuts

The Bank of Canada held interest rates steady for a second consecutive meeting but suggested borrowing costs may need to be lowered if the economy weakens, while inflation remains contained amid the impact of U.S. tariffs. Policymakers led by Governor Tiff Macklem kept the benchmark rate at 2.75% on Wednesday, in line with market and economist expectations. Officials said they stood pat to assess the fallout from trade tensions with the U.S., which they called the "most significant downside risk" to Canada's economy due to its drag on exports and heightened uncertainty for consumers and businesses. Meanwhile, they noted that first-quarter growth exceeded expectations and pointed to a recent spike in core inflation measures.

U.S. President Trump: Powell Must Cut Rates Now

Following the release of the May ADP employment data, U.S. President Donald Trump declared that Federal Reserve Chair Jerome Powell "must cut rates now." He added, "It’s unbelievable—Europe has cut rates nine times." Earlier data showed U.S. private payrolls rose by just 37,000 in May, well below expectations of 110,000 and down from April’s 62,000. Hiring growth slowed to its weakest pace since March 2023.

Carney pauses retaliatory measures against the U.S.

Canadian Prime Minister and former Bank of Canada and Bank of England Governor Mark Carney stated that Canada will not immediately retaliate against the Trump administration’s decision to double steel and aluminum tariffs. He noted that officials from both countries are engaged in "intensive discussions" on trade relations. " Those discussions are progressing," Carney said, adding that the government will "take some time" to consider its response to the U.S. recently raising tariffs on foreign metals to 50%. He called the tariff hikes "unjustified, they’re illegal, they’re bad for American workers, bad for American industry, and of course for Canadian industry as well." Dominic LeBlanc, Carney’s cabinet minister overseeing U.S.-China trade talks, met with U.S. Commerce Secretary Howard Lutnick in Washington on Tuesday—his second visit to the U.S. capital in two weeks.

U.S. services sector unexpectedly contracts in May as inflation heats up

The U.S. services sector shrank in May for the first time in nearly a year, while input prices rose, signaling the economy may still face a period of sluggish growth and elevated inflation. The Institute for Supply Management (ISM) reported Wednesday that its non-manufacturing PMI fell to 49.9, dipping below the 50 threshold and marking the lowest reading since June 2024.

The new orders index dropped sharply to 46.4 from 52.3 in April, likely due to fading tariff-related front-loading effects. Service-sector customers reported inventories as too high relative to demand, which was a concerning sign for near-term economic activity.

Supplier delivery performance worsened further, with longer factory lead times indicating supply chain strains that could fuel inflation through shortages. Businesses are also seeking to pass tariff costs to consumers. The services input price index surged to 68.7 from 65.1 in April, hitting its highest level since November 2022. Most economists expect the full inflationary and employment impacts of tariffs to emerge in hard economic data this summer.

[Today's Focus]

UTC+8 20:15 ECB June Interest Rate Decision

UTC+8 20:45 ECB President Lagarde's Monetary Policy Press Conference

UTC+8 00:00 Fed Governor Kugler Speaks

UTC+8 00:30 Bank of Canada Deputy Governor Kozicki Speaks

UTC+8 01:30 Philadelphia Fed President Harker Speaks

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Economic

Energy

A Historic Surge in Energy Capital Allocation

The International Energy Agency (IEA) forecasts that global energy investment will hit a record $3.3 trillion in 2025, propelled largely by clean energy. This marks a significant structural shift in energy markets, as investment in renewables, nuclear power, and storage technologies is set to reach $2.2 trillion — more than double the expected $1.1 trillion in fossil fuel investments. The momentum underscores a global reallocation of capital, driven by climate commitments, falling technology costs, and policy support.

Fatih Birol, the IEA’s executive director, acknowledged the challenging macroeconomic environment, but emphasized that existing clean energy projects continue largely unaffected, even if some new project approvals face delays due to trade uncertainties and rising financing costs.

Solar and Batteries Lead the Energy Transition

Among clean energy categories, solar power is expected to be the biggest magnet for capital, with $450 billion in projected investment. This reflects solar’s maturity, scalability, and falling cost curve. Battery storage investment is set to jump to $66 billion — a necessary acceleration as energy systems integrate more intermittent renewables. Storage technologies allow power to be absorbed during off-peak times and released during demand peaks, helping grid stability and improving the economic viability of renewables.

Despite its importance, battery investment still trails behind solar and wind. However, as countries seek energy resilience and cost-effective decarbonization, storage solutions are likely to gain greater prominence in future capital flows.

Fossil Fuel Investment Declines as Structural Demand Weakens

Upstream oil investment is forecast to drop by 6% in 2025, the first contraction since the COVID-19 crisis in 2020. This decline is partly due to weakening global oil demand expectations and lower price assumptions, signaling a cautious pivot even within traditional energy sectors. The shift away from oil and gas investment suggests that fossil fuel producers are recalibrating in response to carbon constraints and the growing competitiveness of alternatives.

Still, fossil fuels continue to attract substantial investment, especially in regions where energy access or economic reliance on hydrocarbons remains strong.

Grid Infrastructure Emerges as a Bottleneck

One of the IEA’s most pressing concerns is the lag in grid investment, which remains at around $400 billion annually — significantly below what is needed to keep pace with generation capacity expansion. Without adequate transmission and distribution infrastructure, clean energy deployment could stall, especially in peak-load scenarios.

The gap is attributed to permitting delays, regulatory inertia, and supply chain constraints, particularly in sourcing transformers and cables. The IEA warns that grid investment must rise to parity with generation by the early 2030s to ensure electricity security and system reliability.

Regional Disparities and China’s Outsize Role

The investment landscape remains highly unequal. Developing economies, especially in Africa and parts of Asia, continue to struggle to mobilize capital for essential energy infrastructure. This imbalance threatens to exacerbate global inequality in access to affordable, clean power.

China, by contrast, continues to dominate, accounting for nearly one-third of global clean energy investment. Its leadership spans across solar panel manufacturing, EV production, and battery supply chains, reinforcing its position at the center of the energy transition.

The $3.3 trillion energy investment milestone signals a historic turning point, with clean energy no longer on the periphery but at the heart of global capital strategies. Yet systemic risks — from grid bottlenecks and geopolitical fragmentation to financing gaps in the developing world — could undermine progress. Policymakers, investors, and multilateral institutions must now ensure that the transition is not only deep and fast but also inclusive and infrastructure-ready.

Source: IEA

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Economic

AI Integration as a Strategic Catalyst in Chinese Manufacturing

The integration of artificial intelligence into Chinese supply chains is no longer a futuristic ambition — it is already reshaping the country’s manufacturing landscape. As trade tensions prompt global firms to reconsider their sourcing strategies, China’s rapid embrace of AI, automation, and digitalization is creating a new competitive barrier: technologically superior supply chains that are faster, more precise, and increasingly self-reliant.

This shift is not anecdotal. Beijing’s recent Action Plan for Digital Supply Chain Development by 2030 outlines a national roadmap to embed AI, blockchain, and digital platforms into both manufacturing and agriculture. The government aims to cultivate at least 100 “digital supply chain leaders” by the end of the decade. At the enterprise level, companies like BYD, Zeekr, and Midea are already demonstrating applied use cases of robotics, autonomous mobile logistics systems, and generative AI.

Competitive Pressure and AI-Driven Innovation

Multinational firms and tech start-ups are feeding this momentum. Israeli firm Cybord, which specializes in AI-powered quality control, is expanding operations in China, citing Chinese factories’ eagerness to adopt machine learning tools that detect counterfeit or defective components. Cybord’s tools are now being integrated into Siemens’ factory management systems — a signal of China’s appetite for smart industrial partnerships.

According to Stanford University data, China installed seven times more industrial robots than the U.S. in 2023, capturing over half of all new global installations. This wave of automation spans multiple sectors, with the auto industry leading in implementation. BYD and Geely have moved decisively, deploying robotics in logistics and manufacturing to reduce labor costs and enhance production speed, while companies like Nio are investing in AI for battery and chip innovation.

Digital Leadership in Global Benchmarking

Karel Eloot of McKinsey highlights that 41% of the world’s most advanced digital manufacturing use cases — as defined by the World Economic Forum’s Global Lighthouse Network — are located in China. This includes not only domestic champions but also foreign multinationals operating inside the country, such as GE Healthcare, AstraZeneca, and Schneider Electric, which are leveraging China-based AI and automation to optimize global supply chains.

These developments signal a critical transition: China is not just the world’s factory; it is becoming the smart factory of the world. Generative AI is enabling faster design iterations, streamlined workflows, and predictive maintenance. Companies like Hisense-Hitachi are using it to minimize inefficiencies in team coordination and increase real-time responsiveness on factory floors.

Supply Chain Fragmentation and AI Inequality

However, this advancement comes with global consequences. While China races ahead in supply chain digitalization, many countries are struggling to keep pace, risking deeper bifurcation in global manufacturing capabilities. Jens Eskelund of the EU Chamber of Commerce warns that China’s push for technological self-sufficiency could trigger countermeasures from key trading partners, especially if access to high-tech markets and data becomes restricted.

Moreover, the sheer intensity of internal competition — marked by rapid price wars and relentless innovation — means that laggards will be quickly sidelined. This “AI arms race” in production processes is already making it harder for smaller or less digitally equipped economies to attract manufacturing investment.

AI is becoming the new strategic advantage in global trade. With robust public and private sector alignment, China is not only defending its manufacturing supremacy amid geopolitical tensions — it is reinventing it. As generative AI and robotics scale across sectors, companies seeking cost-effective, high-quality production will find it increasingly difficult to bypass China. In a world of tariff threats, rising debt, and fragmented trade blocs, China’s bet on digital infrastructure may well define the next chapter of global supply chains.

Source: CNBC

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Forex

Dollar Pressured by U.S. Economic Slowdown and Tariff Jitters

The greenback continued its downward trajectory, weighed down by deteriorating U.S. economic indicators and sustained concerns over the Trump administration’s unpredictable trade policies. The May ISM services data revealed a contraction for the first time in nearly a year, while private payroll figures from ADP significantly undershot expectations. This combination of sluggish growth and persistent inflation has stoked fears of a “stagflation-lite” scenario, prompting a rally in U.S. Treasuries and sending yields on the 10-year note to a four-week low.

The dollar index, tracking the greenback against six major currencies, fell to 98.749, down about 9% year-to-date and on pace for its worst annual performance since 2017. Demand for safe-haven alternatives such as the yen and euro remained resilient. The dollar slipped slightly to ¥142.80, while the euro hovered near its six-week high at $1.1424. The British pound traded at $1.3557, buoyed by relatively stronger economic data from the UK.

Markets Anticipate Fed Rate Cuts Amid Trump’s Pressure

With mounting signs of economic deceleration, traders have begun pricing in a high probability—95%, according to LSEG data—of a Federal Reserve rate cut by September, totaling 56 basis points in projected easing for 2025. Former President Donald Trump has amplified his criticism of Fed Chair Jerome Powell, demanding swift rate reductions to counteract the economic headwinds triggered partly by his own tariffs. His Truth Social post on Wednesday underscored frustration: “‘Too Late’ Powell must now LOWER THE RATE. He is unbelievable!!!”

The Fed's challenge is delicate: cutting rates could support growth but risks reigniting inflation, particularly if trade tensions continue to distort supply chains and consumer prices.

Trade Uncertainty Deepens Currency Market Volatility

Investor confidence has been undermined by the lack of concrete progress in the U.S.’s trade negotiations, especially with China. While Trump has hinted at a potential direct call with Chinese President Xi Jinping, the lack of clarity and Xi’s perceived reluctance have exacerbated geopolitical uncertainty. Trump’s latest description of Xi as “extremely hard to make a deal with” signals deepening friction just weeks before the self-imposed early July deadline for several trade agreements.

This backdrop has increased hedging activity in foreign exchange markets, with investors rotating into currencies less exposed to trade turmoil. Both the Australian and New Zealand dollars edged higher—up 0.22% and 0.24%, respectively—driven partly by relative commodity market stability and a weaker USD.

ECB Poised to Cut Rates, Euro Steady

While the euro has strengthened in recent sessions, it faces a pivotal test with the European Central Bank widely expected to deliver a 25-basis-point rate cut. This would be the ECB’s eighth reduction in just over a year. The focus, however, is shifting toward the guidance for future moves. With energy prices declining and fiscal stimulus in the pipeline, some analysts, including Nuveen’s Laura Cooper, suggest that the ECB may adopt a wait-and-see posture after Thursday’s cut—unless data justifies further easing.

All eyes are now on Friday’s U.S. non-farm payrolls report, expected to show 130,000 jobs added in May. A weak result could trigger another wave of dollar selling and deepen expectations of aggressive Fed cuts. Conversely, a surprise upside could temporarily steady the greenback, though structural concerns about the U.S. deficit and erratic trade leadership may cap any rebound.

In sum, the interplay between macroeconomic data and geopolitics—particularly Trump’s trade decisions—continues to weigh heavily on the dollar’s outlook and global investor sentiment.

Source: Reuters

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Economic

Diplomatic Response Amid Escalating Pressure

The Ministry of Industry and Trade of Vietnam confirmed on Thursday that it had submitted a formal document to the U.S., addressing recent trade demands. Though the contents remain undisclosed, the ministry emphasized Vietnam’s “determination and goodwill” in seeking mutual understanding and practical solutions. The timing is critical: the Trump administration’s imposition of steep tariffs, although temporarily paused, threatens to destabilize Vietnam’s export-driven economic model if enacted in July.

This development comes as part of intensified diplomatic efforts, following the Trump administration’s ultimatum for negotiating countries to submit their best offers by Wednesday, in anticipation of a rapidly approaching five-week deadline for revised trade deals. These moves mark a strategic push by the White House to finalize multiple bilateral frameworks under accelerated timelines.

Third Negotiation Round Set, Risks Remain High

Vietnamese Trade Minister Nguyen Hong Dien and U.S. Trade Representative Jamieson Greer met in Paris this week to lay the groundwork for the upcoming third round of trade negotiations, scheduled before next weekend. The Vietnamese ministry confirmed that both sides pledged to “focus maximum efforts” on reaching substantial progress during this next round.

The looming 46% tariffs, if enforced, could inflict serious damage on Vietnam’s manufacturing sector, particularly in electronics, textiles, and furniture—industries that are deeply reliant on U.S. market access. While Vietnam has diversified its trade partners in recent years, the U.S. remains its largest export destination, accounting for roughly a quarter of its total exports.

Geopolitical and Economic Stakes

This bilateral trade tension occurs within a broader reshuffling of global supply chains. Amid U.S.-China decoupling, Vietnam has emerged as a key beneficiary of manufacturing relocations. However, this strategic advantage could be reversed if punitive tariffs make Vietnamese goods uncompetitive in the U.S. market.

The Trump administration, under pressure to assert a tougher stance on trade imbalances, views Vietnam’s trade surplus and the undervaluation of the dong as critical issues. Vietnam, for its part, aims to avoid formal currency manipulation designation and preserve its access to the U.S. market through diplomacy and incremental concessions.

The outcome of these talks will serve as a bellwether not only for Vietnam-U.S. trade relations, but also for other emerging market economies caught in the crossfire of shifting American trade policy under Trump’s second term.

If the third round of negotiations yields measurable progress, it may avert the worst-case scenario of full tariff implementation. Vietnam’s swift submission and its cooperative posture suggest willingness to compromise. However, the lack of transparency on the document’s content and the unpredictability of U.S. demands keep the risk environment elevated. Investors, exporters, and policymakers will closely monitor next week’s negotiations for any signs of a breakthrough.

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Economic

Macroeconomic Overview: Growth Without Consumption Support

Australian household spending, which accounts for over half of GDP, continues to underperform in real terms. According to the Australian Bureau of Statistics' new Monthly Household Spending Indicator (MHSI), seasonally adjusted spending rose by only 0.1% in April, following a -0.1% contraction in March. On an annual basis, growth has slowed to 3.7%, a notably weak figure when adjusted for population growth of 1.7%. This indicates near-stagnant per capita consumption, suggesting households remain cautious despite monetary easing.

The spending breakdown shows a stark divergence between goods and services. Goods spending fell by 1.1%, with sharp pullbacks in clothing, footwear, and vehicle purchases. By contrast, services spending rose 1.5%, buoyed by increased outlays on dining, recreational activities, and healthcare.

This bifurcation reflects shifting consumer priorities: Australians appear to be re-engaging with experiences and essential services while continuing to defer larger or discretionary goods purchases. Factors such as wage stagnation, debt overhang from the previous interest rate cycle, and lingering economic uncertainty may be tempering household confidence.

Implications for Monetary Policy and GDP

The Reserve Bank of Australia, which cut interest rates to 3.85% in May, had already revised down its consumption forecast. This April data supports market expectations for further easing as early as July, with futures pricing suggesting a terminal rate near 2.85% by Q1 2026. Given that Q1 GDP only grew by 0.2%, household consumption is failing to deliver the stimulus expected under looser monetary conditions.

The RBA's policy dilemma deepens: while easing is needed to support demand, its effectiveness is being muted by cautious consumer behavior. The tepid household spending also raises concerns about broader economic momentum, especially as external demand remains exposed to global uncertainties.

Outlook and Strategic Considerations

The MHSI will replace the narrower retail sales report starting July, offering a more accurate lens on household consumption patterns. Its broader coverage — 68% of total consumption compared to retail’s ~30% — should sharpen macroeconomic forecasting.

Policymakers, investors, and retailers must now reckon with a slower-than-expected recovery in domestic demand. While services may continue to provide modest tailwinds, the weakness in goods consumption suggests that any rebound in GDP will be gradual and uneven unless households regain confidence.

The data also strengthens the case for targeted fiscal measures to complement monetary policy, such as direct transfers or subsidies that can stimulate marginal spending among lower-income households. Without such intervention, the risk of prolonged demand-side stagnation remains.

Source: Reuters

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Economic

Mixed Momentum Amid Weak U.S. Data

After a strong run in global equities, Asian markets began to diverge. Japan’s Nikkei 225 dipped 0.2%, and Australia’s ASX 200 saw a modest 0.1% decline. In contrast, South Korea’s Kospi surged 2.1% on political optimism tied to newly inaugurated President Lee Jae-myung, who pledged renewed diplomacy with North Korea and closer trilateral security ties with the U.S. and Japan. Hong Kong’s Hang Seng rose 0.9%, while Shanghai’s Composite was flat.

This uneven momentum follows a U.S. session in which the S&P 500 held nearly flat and the Dow slipped 0.2%. The Nasdaq managed a 0.3% gain, but the broader market appeared hesitant amid conflicting signals from the economy.

Economic Uncertainty Clouds Investor Confidence

Investor sentiment was rattled by two key economic reports. The ISM’s services index unexpectedly showed contraction, with businesses citing tariff-related uncertainty as a major obstacle to planning. Meanwhile, the ADP employment report revealed slower-than-expected job growth in the private sector, raising concerns ahead of Friday’s official U.S. jobs data. These indicators suggest that the post-COVID U.S. expansion may be encountering friction from policy-related headwinds, especially Trump's tariff regime.

Bond markets reacted sharply: the 10-year Treasury yield slid to 4.35% from 4.46%, while the 2-year yield dropped to 3.86%. This signals growing expectations that the Federal Reserve will need to cut interest rates sooner to counteract weakening fundamentals. President Trump intensified pressure, blasting Fed Chair Jerome Powell for delaying action and urging immediate cuts on his Truth Social account.

Key Support and Resistance Levels

In equity markets, the S&P 500 remains near its record high but lacks momentum to break through resistance at the 6,100 level. Nasdaq's steady rise to 19,460 shows ongoing strength in tech but may face resistance if macro data continues to disappoint. Treasury yields’ downward move signals a short-term reversal from the recent uptrend, particularly as rate cut bets strengthen. Crude oil remains under pressure, with WTI at $62.77 and Brent near $64.87, indicating subdued demand expectations.

Currency markets showed mild fluctuations. The dollar firmed slightly to 142.87 yen, while the euro held steady at $1.1413. These reflect cautious positioning ahead of jobs data and further tariff developments.