Trump says pharma tariffs coming – BoJ decision uneventful ahead of FOMC and BoE

EU mid-market update: World watches Middle East tit-for-tat exchanges as US considers hand; Trump says pharma tariffs coming; BOJ decision uneventful ahead of FOMC and BOE.

Notes/observations

- Red across Europe and US futures but FTSE outperforms due to US and UK officially signing trade deal. Reminder the deal reduces tariffs on specific sectors like automotive, steel, aluminum, and agriculture, with the UK lowering its average tariff on US goods from 5.1% to 1.8%, while the US maintains a 10% baseline tariff on most UK goods. Also removes some nontariff barriers and secures export opportunities, including $5B for US farmers and producers.

- Middle East tensions remains center stage, escalating with Trump calling for evacuation of Tehran, and suggesting Israel attacks won’t let up, prompting fresh wave of attacks from Iran (including hundreds of advanced drones). Trump is spending US morning in ‘situation room’. Analysts keep watch of US air tanker refuellers which moved closer in Europe. Separately, two oil tankers collided near Strait of Hormuz, although owner of the ship says ‘unrelated to security issues, its a navigation issue’. Oil is up 1-2%. Gold is flat. US treasuries pull back slightly.

- For central banks, BOJ decision was completely inline, leaving policy unchanged. Gov Ueda comments also aligned with market expectations, reinforcing a cautious approach to monetary policy amid global uncertainties like US tariffs and Middle East tensions.

- German and Euro Zone ZEW surveys beat consensus. Economists see combination of German Govt spending and ECB rate cuts helping economy leave stagnation.

- Macro catalysts coming from Fed decision tomorrow and BOE on Thurs.

- On copper, a Westpac economist noted ‘trade war de-escalation, if it extends, reduces
near-term downside risk, but ongoing uncertainty means end-demand is likely to be softer than what was expected before Liberation Day. Expects electrification and China stimulus will support demand and prices through 2026’.

- Asia closed mixed with Nikkei225 outperforming +0.7%. EU indices -0.5% to -1.3%. US futures -0.5%. Gold -0.2%, DXY +0.1%; Commodity: Brent +1.4%, WTI +1.4%; Crypto: BTC -0.5%, ETH -1.9%.

Asia

- Bank of Japan (BOJ) left Target Rate unchanged at 0.50% (as expected) for its 3rd straight pause under the current phase of its tightening cycle. Statement noted that the decision to keep policy steady was unanimous (9-0). Voted 8-1 to reduce JGB purchases by ¥200B per quarter from Apr 2026 (as speculated). Tamura (hawk) was a dissenter in proposing the bank reduce BOJ purchases by ~¥400B per quarter.

- New Zealand May Food Prices M/M: 0.5% v 0.8% prior.

- South Korea May Export Price Index M/M: -3.4% v -1.5% prior; Y/Y: -2.4% v +0.4% prior; Import Price Index M/M: -3.7% v -2.3% prior; Y/Y: -5.0% v.

Global conflict/tensions

- President Trump will cut short his attendance at the G7 summit in Canada to return to Washington amid rising tensions in the Middle East. Reiterated that Iran could not have a nuclear weapon. White House stated that departure on “what’s going on in the Middle East. Earlier reports circulated that Trump would not sign the G7 draft statement that would urge de-escalation between Israel and Iran

- Axios reported the White House was considering a meeting this week between US envoy Witkoff and Iranian Foreign Minister Abbas Araghchi, aimed at reviving nuclear talks and halting the conflict between Israel and Iran.

Americas

- Senate Republicans unveiled their version of President Trump’s tax and spending package. prioritizing deeper Medicaid cuts and a softer approach to the so-called “revenge tax” on foreign investors. raises the debt ceiling by $5 trillion and omits a deal on the politically contentious SALT deduction, keeping the $10,000 cap as a placeholder.

Trade

- G7 meeting in Canada touched on trade.

- Trump and Canadian PM Carney agreed to pursue a deal within 30 days, despite differences over tariffs.

- Trade negotiations between Trump and Japanese Prime Minister Ishiba ended without agreement.

- Trump and UK PM Starmer unveiled a trade agreement that includes tariff cuts on British auto exports and exemptions for the UK aerospace sector. However, a resolution on steel tariffs was deferred.

- Trump downplayed urgency on new Russia sanctions.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.74% at 542.86, FTSE -0.44% at 8,836.10, DAX -1.09% at 23,433.23, CAC-40 -0.77% at 7,682.59, IBEX-35 -1.59% at 13,889.67, FTSE MIB -1.38% at 39,387.00, SMI -0.64% at 12,035.30, S&P 500 Futures -0.55%].

Market focal points/key themes: European indices opened lower across the board and declined through the early part of the session; Iceland closed for holiday; rising geopolitical tensions seen sapping risk appetite; energy sector the only one managing gains with materials in small negative; sectors leading to the downside include financials and communication services; reportedly CVC looking to sell UAX; focus on US retail sales later in the day; earnings expected in the upcoming US session include Jabil.

Equities

- Consumer discretionary: Colruyt [COLR.DE] -3.5% (earnings), Ashtead Group [AHT.UK] -0.5% (earnings), Asos [ASC.UK] -1.0% (CFO change), Pierer Mobility [PMAG.AT] +5.0% (restructuring plans for KTM AG, KTM Components GmbH, and KTM Forschungs & Entwicklungs GmbH are legally binding).

- Energy: Frontline [FRO.NO] +1.5% (Statement: Ship incident near Strait of Hormuz is un-related to regional conflict; earlier, United Arab Emirates (UAE) reports oil tanker collision between two ships in Sea of Oman - press (Adalynn and Front Eagle)), Vestas Wind Systems [VWS.DK] +2.5% (Senate Republicans release their version of the tax bill; Would end wind and solar credits).

- Industrials: Morgan Sindall [MGNS.UK] +17.5% (trading update).

Speakers

- ECB's Stournaras (Greece) noted that the first point of equilibrium had been reached.

- Russia Dep PM Novak global oil prices were not appropriate for most of the key oil producers. Oil prices to rise as market shocks were leveled out.

- Japan BOJ Gov Ueda post rate decision press conference reiterated forward guidance to raise rates if economy and prices improve as expected. Reiterated overall economic assessment that domestic economy was recovering moderately with some weakness. Growth likely to moderate as trade policies led to slowdown. Long term rates to be formed in financial markets. To conduct JGB bond buying operations flexibly in case of sharp yield rise. During Q&A he noted Mid-East conflict could have secondary impact on trend inflation. Risk inflation affected price expectations and expected effects of trade policies to appear more. Inflation expectations were not yet anchored around target. Not appropriate to comments on near-term rate hike prospects; move to be data-dependent.

- Bank of Korea (BOK) May Minutes noted that one member believed Board should maintain easing monetary policy stance to respond to weak economic conditions.

- Senior Iranian army commander noted that attacks against Israel to intensify in next hours; New wave of hundreds of advanced drones to hit Israel.

- Pres Trump stated during an interview with CBS that wanted a real end to Iran nuclear program; Might send JD Vance or Witkoff to meet with Iran, to decide when he gets back to DC; To monitor Israel-Iran from situation room in the morning.

- IEA Monthly Oil Report (OMR) cut its demand while raising its supply forecasts for 2025 and 2026. It saw weak Q2 oil deliveries in US and China. IEA cut the 2025 global oil demand growth from 741K bpd to 724K bpd and cut 2026 global oil demand growth from 760K bpd to 739K bpd. It raised the 2025 global oil supply growth from 1.6M bpd to 1.8M bpd and raised 2026 global oil supply growth from 970K bpd to 1.1M bpd.

Currencies/fixed income

- USD was steady as the focus remained on the Middle-East. Some risk-off sentiment aiding the greenback.

- USD/JPY was at 144.80 by mid-session after BOJ kept its policy steady and unveiled a plan to step back from the bond market at a slower pace from next year. Dealers noted BOJ could raise interest rates later in the year.

- EUR/USD steady despite another improvement on the German ZEW reading. Pair at 1.1560 by mid-session.

- 10-year German Bund yield at 2.55% and 10-year Gilt yield at 4.56%. 10-year Treasury yield at 4.43%.

Economic data

- (SE) Sweden May Unemployment Rate: 9.7% v 8.9% prior; Unemployment Rate (seasonally adj): 9.0% v 8.6%e; Trend Unemployment Rate: 8.7% v 8.7% prior.

- (HU) Hungary Apr Average Gross Wages Y/Y: 9.8% v 8.3%e.

- (ES) Spain Q1 Labour Costs Y/Y: 3.8% v 3.6% prior.

- (HK) Hong Kong May Unemployment Rate: 3.5% v 3.5%e.

- (DE) Germany Jun ZEW Current Situation Survey: -72.0 v -75.0e; Expectations Survey: 47.5 v 35.0e.

- (EU) Euro Zone Jun ZEW Survey Expectations: 35.3 v 11.6 prior.

Fixed income issuance

- (UK) DMO sold £4.5B in 4.375% Mar 2030 Gilts; Avg Yield: % v 3.977% prior; bid-to-cover: x v 3.23x prior; Tail: bps v 0.4bps prior.

- (SE) Sweden sold total SEK750M vs. SEK750M indicated in 2030 and 2036 I/L Bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:25 (CH) Switzerland to sell 3-month Bills.

- 05:30 (DE) Germany to sell combined €1.5B in 2029 and 2033 bonds.

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (ZA) South Africa to sell combined ZAR3.75B in 2037, 2040 and 2053 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 06:00 (IE) Ireland Apr Trade Balance: No est v €23.4B prior.

- 06:30 (EU) ESM to sell €1.1B in 6-month Bills.

- 06:30 (TR) Turkey to sell bonds (2 tranches).

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 08:30 (US) May Advance Retail Sales M/M: -0.6%e v +0.1% prior; Retail Sales (ex-auto) M/M: 0.2%e v 0.1% prior; Retail Sales (ex-auto/gas): 0.3%e v 0.2% prior; Retail Sales (Control Group): +0.3%e v -0.2% prior.

- 08:30 (US) May Import Price Index M/M: -0.2%e v +0.1% prior; Y/Y: 0.0%e v 0.1% prior; Import Price Index (ex-petroleum) M/M: 0.1%e v 0.4% prior.

- 08:30 (US) May Export Price Index M/M: -0.2%e v +0.1% prior; Y/Y: No est v 2.0% prior.

- 08:30 (US) Jun New York Fed Services Business Activity: No est v -16.2 prior.

- 08:30 (CA) Canada Apr Int'l Securities Transactions (CAD): No est v -4.2B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:15 (US) May Industrial Production M/M: 0.0%e v 0.0% prior; Capacity Utilization: 77.7%e v 77.7% prior; Manufacturing Production: +0.1%e v -0.4% prior.

- 10:00 (US) Jun NAHB Housing Market Index: 36e v 34 prior.

- 10:00 (US) Apr Business Inventories: 0.0%e v 0.1% prior.

- 10:30 (CA) Canada to sell 1-month, 3-month, 6-month and 12-month bills.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 11:45 (PT) ECB’s Centeneo (Portugal).

- 13:00 (US) Treasury to sell 5-Year TIPS Reopening.

- 16:30 (US) Weekly API Crude Oil Inventories.

- 17:00 (NZ) New Zealand Q2 Westpac Consumer Confidence: No est v 89.2 prior.

- 18:00 (CL) Chile Central Bank (BccH) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 5.00%.

- 18:45 (NZ) New Zealand Q1 Current Account Balance (NZD): -2.2Be v -7.0B prior; Current Account to GDP Ratio YTD: -5.8%e v -6.2% prior.

- 19:50 (JP) Japan May Trade Balance: -¥897.8Be v -¥115.6B prior (revised from -¥115.8B); Exports Y/Y: -3.8%e v +2.0% prior; Imports Y/Y: -5.8%e v -2.2% prior.

- 19:50 (JP) Japan Apr Core Machine Orders M/M: -9.5%e v +13.0% prior; Y/Y: 4.6%e v 8.4% prior.

- 20:30 (AU) Australia May Westpac Leading Index M/M: No est v -0.0% prior.

- 21:10 (KR) Bank of Korea to sell KRW1.0T in 3-year Bonds.

- 23:00 (NZ) New Zealand May Non-resident bond holdings: No est v 61.6% prior.

- 23:00 (TH) Thailand to sell THB15B in 2035 Bonds.