Stocks, Treasuries, dollar dumped on “Sell America” theme
Updated Updated Wed, 2025 May 21 09:25
* USD sinks closer to long-term lows on worries over US fiscal outlook
* UK inflation surge prompts traders to pare bets on BoE cuts
* ECB warns of ripple effect from investors questioning US assets
* Stocks sink as markets go lower amid tax bill debate
FX: USD traded lower for a third day as investors again fled US assets. US Treasuries were lower, which meant yields went higher with the 10-year above 4.5% and the 30-year above the key 5% marker. Concerns around the tax-cut bill are sparking wider worries about the US debt and deficit. The bill is estimated to add $2.3trn to the deficit over the next decade. The Dollar Index dropped through a long-term low from July 2023 at 99.57. The recent April low sits at 97.92.
EUR rose for a third consecutive day on little eurozone news flow. ECB officials continue to back a June rate cut, but this is being trumped by the US fiscal outlook and the Treasury markets. Focus turns to today’s survey data including the IFO German Business figures and the PMIs.
GBP popped up to a new three-year high at 1.3468 on the release of the hot CPI data. All measures beat expectations with stagflation vibes strong, but services inflation was likely heavily influenced by one-off factors which the BoE is likely to look through. That said, rate cuts bets were pared with around 5bps of easing by December taken out. The previous top was 1.3434 with the psychological 1.35 above.
USD/JPY fell for a seventh straight day. The last time we saw that was in April 2021 when prices slid nine days in a row. The Nikkei reported that Japan’s Economy Minister Akazawa, who is the country’s top tariff negotiator, is to visit the US for the third time on Friday.
AUD conformed to recent choppy trading with a better day and prices once again hitting the 200-day SMA at 0.6554. The commodity dollars outperformed with CAD strong too. The major dropped sharply and is nearing the cycle low at 1.3749. Tuesday’s hotter than expected CPI data saw BoC June rate cut bets reined in and a narrowing in US-Canada rate differentials.
US stocks: The S&P 500 lost 1.61% to settle at 5,845. The tech-laden Nasdaq finished down 1.34% at 21,080. The Dow closed 1.91% lower at 41,860. Only one sector, communication services was in the green, with real estate, health and financials all losing over 2%. Alphabet jumped over 2.8% on new AI investments, but Target and Lowe’s each fell after their results. Both signalled that tariffs were set to eat their profits though the former didn’t say if it would raise prices due to the levies. Apple’s CEO Cook met President Trump at the White House on Tuesday.
Asian stocks: Futures are in the red. Asian markets traded modestly higher again, shrugging off the muted Wall Street handover. The Hang Seng and Shanghai Composite were in the green again though gains were capped with continued trade uncertainty, this time around chip controls. The Nikkei 225 faded after initial gains on mixed trade data and a stronger yen. The ASX 200 was helped by gold miners and strength in utilities.
Gold climbed for a third day and moved above the minor Fib retracement level (23.6%) of the November to April rally at $3,272. Ongoing concerns about the fiscal health of the US economy, and the latest geopolitical news from the Middle East have seen a bid in bullion.
Day Ahead – PMIs
PMIs have historically been a good lead indicator for economic strength or weakness. But recently, the divergence between this soft survey data and hard data has been quite pronounced. The latter hasn’t entirely backed up the weakness in the soft numbers. Eurozone and UK PMI figures have typically been the ones most watched by markets.
An uptick in May data is expected across Europe. A better manufacturing outlook is likely as domestic demand holds up and US trade policies de-escalate. However, as global demand uncertainty remains high, most of the UK numbers are likely to remain in contraction territory, barring UK services, which is forecast to move above 50 into expansionary territory, benefiting from an uptick in sentiment. The US-China 90-day tariff truce now in place might bring some relief on trade sentiment, but domestic cost pressures and demand fragility are likely to persist in the UK.
Chart of the Day –Bitcoin makes record top
The world’s most popular cryptocurrency posted a fresh all-time intraday high at $109,500. This is remarkably a roughly 50% surge from one year ago. Strong institutional demand continues to build with $6.9bn flowing into the US-listed ETF in recent weeks. Less negative market sentiment is also helping BTC, while open interest in Bitcoin futures has reached record levels. This points to strong expectations for more price advances, attracting both retail and institutional traders.
