May 22nd Financial News

Daily News

Summary:

Japan's manufacturing PMI contracting for the 11th consecutive month; Prime Minister says Israel will maintain full control over Gaza, reserves right to unilateral action against Iran; Iran's Foreign Minister reiterates Uranium enrichment stance for 5th time in 10 days......

[Quick Facts]

1. Factory activity in May continued to be affected by tariff issues, with Japan's manufacturing PMI contracting for the 11th consecutive month.

2. Prime Minister says Israel will maintain full control over Gaza, reserves right to unilateral action against Iran.

3. Barge traffic plummets as tariff policies impact U.S. inland waterway shipping.

4. White House says failure to pass tax bill would be the "Ultimate Betrayal".

5. Fifth round of Iran-U.S. Nuclear Talks to be held in Rome on May 23rd.

6. Bond market warns Trump and U.S. Congress over rising deficit risks.

7. Iran's Foreign Minister reiterates Uranium enrichment stance for 5th time in 10 days.

[News Details]

Factory activity in May continued to be affected by tariff issues, with Japan's manufacturing PMI contracting for the 11th consecutive month

A business survey on Thursday showed that Japan's manufacturing activity in May extended its nearly year-long downturn as factories continued to be impacted by U.S. tariffs on Japanese goods. While service sector activity showed some resilience and remained in expansionary territory, the weakness in manufacturing dragged overall Japanese business activity back into contraction. The preliminary au Jibun Bank Japan Manufacturing Purchasing Managers' Index (PMI) for May rose to 49.0 from April's final reading of 48.7 but remained below the 50.0 threshold that separates growth from contraction for the 11th consecutive month.

Prime Minister says Israel will maintain full control over Gaza, reserves right to unilateral action against Iran

On the evening of May 21st local time, Israeli Prime Minister Benjamin Netanyahu held his first press conference since December 2024. Netanyahu stated that the Israeli military had achieved phased results in its operations in the Gaza Strip but that the overall objectives had not yet been accomplished. He said Israel was prepared to implement a temporary ceasefire but reiterated that any truce must be "temporary." Regarding future arrangements for Gaza, Israel will maintain full control over the entire Gaza Strip. Netanyahu noted that Israel had successfully rescued 148 hostages, but 20 surviving hostages remain trapped in Gaza. He reiterated Israel's willingness to end the war under clear conditions ensuring national security, including the release of all hostages, the disarmament of Hamas, the expulsion of its leadership, and the complete demilitarization of Gaza. He warned that any calls for a ceasefire before Israel achieves these goals would effectively amount to accepting Hamas's continued rule. Addressing the threat posed by the Houthis, Netanyahu stated that Israel had not yet issued a final response.

Barge traffic plummets as tariff policies impact U.S. inland waterway shipping

The U.S. government's tariff policies have disrupted global trade while affecting the domestic economy. The Arkansas River shipping system, a vital part of America's inland waterway network, primarily transports agricultural products, timber, oil, coal, and other resources, supporting regional economic growth. However, according to U.S. media reports, cargo volumes on the Arkansas River have declined due to tariff policies. Data from the U.S. Army Corps of Engineers shows that total freight volume along the river in the first four months of this year was approximately 3.8 million tons, down 15% year-on-year, with a 21% drop in April alone.

White House says failure to pass tax bill would be the "Ultimate Betrayal"

President Donald Trump issued a stark warning to Republicans on Wednesday, stating that failure to pass his massive tax and immigration bill would constitute the 'ultimate betrayal.'

The White House Office of Management and Budget wrote that the House should pass this bill immediately to show the American people that they take seriously the principle of 'promises made, promises kept.' President Trump is committed to delivering on his promises. Republicans made some progress Wednesday in advancing Trump's tax bill. House Speaker Mike Johnson announced that he had reached a deal with lawmakers from high-tax states to raise the cap on state and local tax (SALT) deductions to $40,000, securing support from a key faction that had previously threatened to block the bill. "The SALT Caucus engaged in good-faith negotiations yesterday," said Republican Rep. Mike Lawler of New York on Wednesday. "We reached an agreement we believe in and can support."

Fifth round of Iran-U.S. Nuclear Talks to be held in Rome on May 23rd

On the evening of May 21st, local time, Omani Foreign Minister Badr announced via his social media account that the fifth round of nuclear talks between Iran and the U.S. will take place in Rome on May 23rd. The U.S. and Iran held indirect talks in Muscat, Oman, on April 12th, marking their first formal negotiations since May 2018, when then-President Trump unilaterally withdrew from the Iran nuclear deal. Subsequent rounds were held on April 19th in Rome, April 26th again in Muscat, and May 11th for the fourth round in Muscat.

Bond market warns Trump and U.S. Congress over rising deficit risks

Investors in the world's largest bond market are pushing back against President Trump's tax-cut plan. On May 21st, as government officials and Republican lawmakers finalized a tax-reduction deal, the yield on benchmark 30-year U.S. Treasuries surged to 5.1%, triggering declines in stocks and the U.S. dollar. Concerns are mounting that the tax bill could add trillions more to the already ballooning budget deficit in the coming years, even as global investor appetite for U.S. assets weakens. George Catrambone, head of fixed income, Americas at DWS, stated, "There's no question the bond market is casting its own vote on the budget bill." He also claimed that the president or Congress would not actually cut the deficit effectively. Late last week, Moody's stripped the U.S. of its top credit rating, shaking investor confidence in Treasuries. A surprisingly weak demand for 20-year bonds at Wednesday's auction further eroded sentiment.

Iran's Foreign Minister reiterates Uranium enrichment stance for 5th time in 10 days

On May 21st, Iranian Foreign Minister Araghchi reiterated that Iran will continue its uranium enrichment activities regardless of whether a deal is reached with the U.S., marking his fifth such declaration in 10 days. Supreme Leader Khamenei warned on May 20th that U.S. demands to halt enrichment were "ridiculous," while U.S. Secretary of State Rubio emphasized that negotiations must focus on Iran's enrichment capabilities. Araghchi also noted that Iran is still evaluating whether to attend the next round of nuclear talks and when it might occur. The U.S. and Iran have held four rounds of indirect negotiations on April 12th, April 19th, April 26th, and May 11th, but neither side has announced a date for the fifth session since the last meeting. Reuters reported on May 19th, citing sources, that the two sides were planning to hold the fifth round in Rome this weekend.

[Today's Focus]

15:15 France May Manufacturing PMI Flash

UTC+8 15:30 Germany May Manufacturing PMI Flash

UTC+8 16:00 Eurozone May Manufacturing PMI Flash

UTC+8 16:30 UK May Manufacturing PMI Flash

UTC+8 19:30 ECB Publishes April Monetary Policy Meeting Minutes

UTC+8 21:45 US May S&P Global Manufacturing PMI Flash

UTC+8 22:00 US April Existing Home Sales (Annualized)

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Gerik

Economic

Forex

Dollar Retreats Amid Deepening Fiscal Anxiety

The U.S. dollar came under renewed pressure on Thursday, retreating to a two-week low against the Japanese yen and weakening broadly as market sentiment soured in response to ongoing fiscal instability in Washington. The 143.27 yen exchange rate marked its softest showing since May 7, reversing earlier intraday gains and reflecting a broad-based loss of confidence in U.S. financial stewardship.

At the heart of this shift lies President Donald Trump’s proposed tax and spending bill, which is struggling to gain full Republican support. Nonpartisan analysts estimate the bill could add between $3 trillion and $5 trillion to the federal debt, already at a staggering $36 trillion. This reinforces fears over fiscal discipline, especially following Moody’s recent downgrade of the U.S. credit rating and a tepid response to a 20-year Treasury bond auction earlier this week.

The “Sell America” Trade Gains Momentum

Investors have begun actively repositioning away from U.S. assets. The poor bond auction was seen as confirmation of reduced international appetite for Treasuries, accelerating a narrative now widely referred to as the “Sell America” trade. This reflects not only concern over rising debt levels, but also a broader skepticism about the long-term value of dollar-denominated holdings.

Despite geopolitical tensions and falling U.S. equity prices—with the Dow down nearly 2% and the S&P 500 shedding 1.6%—the dollar failed to attract traditional safe-haven flows. Instead, investors turned to gold, the euro, and the yen. Gold climbed to a near two-week high of $3,325.79 per ounce, closing in on its April record, while the euro logged its third straight day of gains, holding at $1.1330.

Bitcoin and Yen Outshine Dollar as Hedging Assets

Bitcoin’s rise to a record $110,636.58 underscored a growing appetite for dollar alternatives. The cryptocurrency extended its rally on Thursday, gaining 1.6% in the latest session, as it continued to draw interest from investors looking to hedge against macroeconomic instability and currency depreciation. Similarly, the yen benefited from capital rotation, despite Japan's finance ministry stating that foreign exchange issues were not discussed at the recent G7 summit.

The Korean won also jumped to a six-month high at 1,368.90 per dollar earlier this week, after reports emerged that the U.S. had urged Seoul to strengthen its currency—suggesting potential White House interest in a weaker dollar policy, particularly against key Asian currencies. This reinforced suspicions that Washington may use dollar depreciation as a tool to manage trade balances or counteract the impact of domestic fiscal expansion.

Fiscal Indecision Undermines Dollar Stability

While Trump’s bill has cleared initial hurdles in the House, divisions within the Republican Party continue to stall momentum. House Speaker Mike Johnson acknowledged internal disagreements over whether the proposed bill sufficiently reins in spending—highlighting the political fragility underpinning America’s fiscal outlook.

Convera FX strategist James Kniveton observed that despite typical risk-off cues, the dollar has failed to behave as a defensive asset. “Safe-haven flows are going to gold and traditional foreign exchange counterparts,” he noted, adding that markets are skeptical of any near-term fiscal restraint emerging from Congress.

A Shifting Landscape in Global Currency Markets

With U.S. fiscal policy under scrutiny and debt projections accelerating, confidence in the dollar appears increasingly strained. As the dollar weakens, capital is flowing into bitcoin, precious metals, and currencies of economies with stronger balance sheet positions or less exposure to U.S. policy volatility.

The longer the debate drags on and the more erratic U.S. fiscal direction appears, the more credible the alternatives become. Whether this trend signals a long-term structural shift away from the dollar’s dominant role in global finance remains to be seen—but for now, markets are clearly voting with their wallets.

Source: Reuters

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Gerik

Economic

Bond Market Strains Reflect Worsening U.S. Fiscal Credibility

Investor sentiment soured on Thursday across global markets as long-term U.S. Treasury yields climbed sharply, highlighting deepening concerns over the United States' fiscal path. The yield on 30-year government bonds rose above 5%—a level not seen in over a year and a half—following lackluster demand in a $16 billion 20-year bond auction.

This surge in yields reflects a broader retreat from U.S. assets as markets react to a combination of mounting debt, fiscal expansion, and the downgrade of America’s credit rating by Moody’s last week. The proposed $3.8 trillion tax-and-spending bill from President Donald Trump has intensified fears that U.S. debt, already at $36 trillion, could spiral further.

From Caution to Capital Flight: The “Sell America” Narrative

A growing chorus of investors is opting to diversify out of U.S. assets, especially as fiscal credibility erodes. The U.S. dollar slipped near a two-week low against major currencies, while equities faced broad selloffs. The Dow declined nearly 2%, the S&P 500 dropped 1.6%, and Asian markets followed suit, with Japan’s Nikkei down 0.7% and Hong Kong’s Hang Seng falling 0.8%.

Vis Nayar of Eastspring Investments noted that investor confidence in Washington’s ability to finance its obligations is increasingly fragile. This view has contributed to a pivot toward emerging markets, viewed as offering more stable near-term growth trajectories amid U.S. fiscal turbulence.

Muted Demand for Treasuries Amid Surging Supply

The weak performance of the Treasury’s recent bond auction underscores waning enthusiasm for U.S. government debt. With yields pushing higher, bond prices are falling, suggesting buyers demand greater compensation for perceived fiscal and inflationary risks. The poor auction results reflect both near-term concerns and structural discomfort with America’s long-term borrowing trajectory.

Market skepticism is also evident in bond volatility, which has increased ahead of upcoming business activity surveys from Japan, the eurozone, and the U.S., which could validate or challenge perceptions of macroeconomic resilience in a global trade environment distorted by protectionism.

Bitcoin and Gold Rise as Safe-Haven Alternatives

The fiscal angst has triggered a rotation into alternative assets. Bitcoin continued its rally, hitting a record $110,636.58, extending its recovery from last month’s tariff-driven correction. Gold prices also rose for the fourth consecutive session, buoyed by the falling dollar and heightened demand for capital preservation.

In contrast, oil prices eased on Thursday after a surprise build in U.S. crude inventories raised fresh questions about the strength of underlying demand. This retracement followed a sharp price surge the day before, partly tied to geopolitical fears of conflict in the Middle East.

Uncertainty Ahead: Trade and Currency Risks Remain

Investor caution is also shaped by the precarious state of U.S. trade diplomacy. While markets welcomed modest recent progress, the broader landscape remains uncertain. The lack of resolution in key trade relationships, combined with speculation that currency exchange rates could become tools in future negotiations, has amplified volatility in forex markets.

At the G7 finance ministers' meeting in Canada, leaders presented a unified front on non-tariff issues, yet skepticism remains over any substantive policy alignment. Currency stability, particularly the USD/JPY rate, was reaffirmed by both nations, suggesting no imminent interventions, though concerns over future politicization of exchange rates persist.

The convergence of rising yields, fiscal deterioration, and policy unpredictability is testing market confidence in the U.S. financial framework. With a debt-heavy future increasingly priced into markets, the spotlight remains on Washington’s ability—or inability—to regain budgetary discipline. In the meantime, investors are recalibrating risk exposure and seeking safety, even as volatility promises to define the global investment landscape in the months ahead.

Source: Reuters

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Olivia Brooks

Economic

Political

US Secretary Scott Bessent and Japanese Finance Minister Katsunobu Kato did not discuss foreign exchange levels during a meeting in Canada, according to a statement from the Treasury Department. The news sent the yen lower.

Bessent and Kato “reaffirmed their shared belief that exchange rates should be market determined and that, at present, the dollar-yen exchange rate reflects fundamentals,” the department said Wednesday.

The officials met on the sidelines of a meeting of finance ministers and central bank governors from the Group of Seven nations being held in Banff, Canada.

Bessent and Kato discussed issues relevant to the US-Japanese economic relationship, including global security and the ongoing bilateral trade discussions between the two nations, the department said.

The yen weakened as much as 0.5% to ¥144.40 against the dollar after the news. Japan’s currency was the worst performer among its Group of 10 peers against the dollar on Thursday morning in Tokyo.

Still, the reaffirmation on the currency helps Kato lower the risk of a rapid weakening of the yen after his ministry has struggled to clearly reverse course in the last few years.

The outcome of the meeting suggests the US has no major issue with the yen’s appreciation after President Donald Trump accused of Japan taking an unfair advantage by lowering the value of the currency.

Any rapid movement in the strength of the yen could increase the chance of a recession, regardless of direction, especially as Japan and the US continue negotiations on a trade agreement.

A much weaker yen would fuel inflationary pressures while a stronger currency would squeeze corporate profits and wage momentum as trade concerns are already hurting consumer sentiment. Japan’s economy contracted in the first quarter.

This was the pair’s second face-to-face talk in a month after the two met in April.

Source: Bloomberg Europe

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Frederick Miles

The European Central Bank isn’t far from achieving its 2% inflation target, helped by a stronger euro and falling energy costs, according to Vice President Luis de Guindos.

Those two factors will give a “downward push” to the retreat in consumer prices in the 20-nation euro zone, the Spanish official told Bloomberg Television. The impact of US tariffs is less clear but will be deflationary in the short term, he said.

“The disinflationary process is ongoing,” Guindos said Wednesday. “Sooner than later we’ll be able to reach our definition of price stability on a sustainable basis.”

Officials are expected to cut interest rates again in June and may be open to further easing. Belgium’s Pierre Wunsch told Bloomberg Tuesday that “mildly supportive” policy may be needed to secure an economic recovery and ensure inflation doesn’t dip below 2%. He called market bets for a terminal rate of 1.75% in 2025 “reasonable.”

Euro-zone inflation held at 2.2% in April due to a surge in underlying prices, but analysts forecast a reversal in May — probably pushing inflation even below 2%.

The European Commission this week said that consumer prices will probably rise by 2.1% this year and 1.7% in 2026.

Source: Bloomberg Europe

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Julia Daniels

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European Central Bank Governing Council member Jose Luis Escriva said the euro and energy prices have been weighing on consumer-price growth, while the fallout from US tariffs is more complicated to evaluate.

“In the short term there are things that have even surprised us: the dollar depreciation and euro appreciation it’s not the kind of normal reaction in a situation such as this,” the Spanish said Wednesday in Alcalá de Henares, near Madrid.

Speaking about the ECB’s upcoming new economic forecasts, he said that “we need to incorporate to our analysis something that has an impact in more volatile components of inflation — we’ve seen a widespread decrease on energy and raw materials that will impact inflation in the short term.”

Those new projections for growth and inflation are set to be published on June 5, when the ECB Governing Council next sets borrowing costs. A quarter-point interest-rate cut is almost certain — the eighth such move in this cycle — with some officials suggesting more might be needed after that.

Policymakers aren’t sure how long the current disinflationary trend will continue and have repeatedly highlighted that the outlook is uncertain — primarily because of US President Donald Trump’s trade policy.

“What we’re seeing on tariffs is more difficult to calibrate” because their impact will depend on whether Europe retaliates, Escriva said, adding that the ECB will be presenting several scenarios in addition to the baseline.

Source: Bloomberg Europe

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Christopher Hayes

Japan’s manufacturing sector shrank for an eleventh straight month in May, purchasing managers index data showed on Thursday, as softer local and overseas orders, amid concerns over increased U.S. trade tariffs, dented output.

The au Jibun bank flash manufacturing PMI read at 49 for the first three weeks of May as expected, although it improved slightly from the 48.7 seen in the prior month. A reading below 50 indicates contraction, with factory activity shrinking for an eleventh consecutive month.

May’s reading improved mildly from April on softer fells in new orders and export business. But production remained weak as export orders were pressured by increased U.S. trade tariffs, while domestic demand was also seen steadily cooling amid heightened economic uncertainty.

The au Jibun data also showed that overall Japanese business sentiment remained among the lowest seen since the COVID-19 pandemic.

Japan’s services sector fared slightly better, with the au Jibun bank flash services PMI remaining in expansion at 50.8 in May. But the sector slowed from the 52.4 seen in April, with client demand also seen slowing.

This saw overall business activity shrink for the second time in three months, with the au Jibun flash composite output index down to 49.8 in May from 51.2 in April.

Japan’s manufacturing sector was battered by increased U.S. trade tariffs, which weighed heavily on the electronics, industrial, and most importantly, the automobile sector.

Tokyo has engaged in steady trade talks with Washington, but has so far seen little progress towards the removal of all U.S. tariffs.