Difficult Day for Equities and the Dollar – Currency Thoughts
Difficult Day for Equities and the Dollar
May 23, 2025
The sharp rise earlier this week in long-term sovereign debt yields around the world has been partly trimmed but at the expense of a difficult Friday session for equities. Major U.S. stock futures are down between 1.4% and 2.1%. Similar slides have occurred in the four largest European stock exchanges, and the Shanghai Composite index closed 0.9% lower.
Dollar losses overnight range from 0.3%-0.5% against the won, loonie, euro and both sterling and the Australian dollar upwards to 0.7% against the Swiss franc, 0.9% relative to the Japanese yen and 1.0% vis-a-vis the New Zealand dollar. At $1.1375, the euro touched a 2-week high earlier today, and the yuan hit a one-month peak of 7.18. The weighted DXY dollar index touched its lowest intra-session low (99.14) since late April.
Investors continue to be troubled by the House-passed budget bill and are also digesting fresh trade-related saber-rattling by U.S. President Trump, who is threatening the European Union with a 50% tariff after June 1 if an accommodating deal not reached beforehand. Trump also is insisting that Apple I-phones be manufactured entirely in the United States, or else.
In other financial market developments overnight, ten-year sovereign debt yields retreated nine basis points in Germany, eight bps in the United States, seven bps in France and Spain, six bps in Italy, five bps in the U.K. and four basis points in Japan. Bitcoin, which set a record high price yesterday, fell 2.4% overnight, and West Texas Intermediate oil is 0.9% lower. Gold‘s price is up 1.6%, however.
G7 finance ministers and central bank chiefs met in Banff, Canada. A tradition of periodic discussions by those officials from the United States, Canada, Germany, France, Italy, Japan, and Great Britain goes back to 1987 and was then initiated to coordinate efforts to halt a steep decline of the dollar in the wake of the September 1985 Plaza Accord that sought a more competitive dollar to rectify the large U.S. trade deficit at that time. Currencies were not mentioned in the joint statement from Banff, but the text does say this:
International organizations signaled at our last meeting that trade and economic policy uncertainty was high and weighing on global growth. We acknowledge that economic policy uncertainty has declined from its peak, and we will work together to achieve further progress. We also shared our concerns over unsustainable global macro imbalances. In this respect, we also underscore the need to address excessive imbalances and strengthen macro fundamentals, given potential global spillovers.
Two data releases of note today involved revised first-quarter GDP growth in Germany and Japanese consumer prices in April.
The measurement of quarterly non-annualized German growth was doubled to 0.4%, making last quarter the strongest in ten quarters. Consumption, machinery and equipment business investment, and construction respectively grew by 0.5%, 0.7% and 0.5%, each faster than in the final quarter of 2024. The 3.2% expansion of exports easily outpaced that of imports (1.1), but net inventories exerted a considerable drag on growth during the quarter. Compared to the first quarter of 2024, GDP fell 0.2% but was unchanged when adjusted for differences in the number of calendar days in the period.
Regarding Japanese consumer prices, inflation excluding fresh food jumped half a percentage point to a 39-month high of 3.5%, while the index excluding energy too rose only marginally to a 14-month high of 3.0%. Energy went up 9.3% year-on-year versus a 6.6% advance in the year to March.
Yet another data highlight today came from a pronounced deceleration of negotiated wage growth in Euroland to a 13-quarter low of 2.38% last quarter from 4.12% in the prior period and 5.43% in the third quarter of 2024. This encouraging news supports the belief of analysts that the ECB will cut its interest rate again when the Governing Council reviews policy on June 6.
Among other reported data today, consumer confidence in May worsened to a 5-month low in France but improved to a 2-month high in the U.K. this month.
Producer price data were released in several economies. Such dipped 0.1% on month in South Korea and slowed to a 17-month low pace of 0.9% on a year-on-year basis. PPI inflation of 1.0% in April was at a 3-month low in Latvia and a 6-month low of 5.4% in Iceland. In Singaporean, PPI inflation printed at 0.9% for a third consecutive month. That level represents the lowest since February 2021.
British retail sales leaped 1.2% in April, far outpacing expectations and lifting the 12-month rate of increase more than twofold from 1.9% in March to a 38-month high of 5.0%. In New Zealand, retail sales last quarter were 0.8% more plentiful than in the previous quarter, and their year-on-year 0.7% advance was the most in 10 quarters.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British retail sales and consumer confidence, G7 statement, German GDP, new U.S. tariff threats
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