Tarrif tensions and mixed economic data continue to challenge Central Banks
KUWAIT: In the last week of May 2025, markets experienced heightened volatility amid mixed economic data, influencing global asset classes. WTI crude oil futures dropped over 1 percent, dropping towards $60.3 per barrel, driven by renewed trade fears ahead of an anticipated OPEC+ meeting. US equities faced downward pressure, falling approximately 0.3 percent, after President Trump's accusations against China intensified trade uncertainty.
Concurrently, softening US inflation data reinforced expectations of potential Federal Reserve rate cuts. In currency markets, the Japanese yen advanced toward 142 per dollar, benefiting from heightened safe haven demand due to increasing US fiscal concerns and unpredictable trade policies. Meanwhile, the Australian dollar retreated to roughly $0.643, reflecting risk-off sentiment amid global economic uncertainties and expectations of further easing by the Reserve Bank of Australia, highlighted by persistently soft economic indicators and mixed regional economic data.
FOMC minutes
Minutes from the Federal Reserve's May 6th-7th meeting highlighted elevated risks to the US central bank's dual mandate, with officials warning of the possibility that inflation and unemployment could rise simultaneously. The unemployment rate stood at 4.2 percent in April, and rising inflation remains a concern. The Fed maintained its policy rate at 4.25 percent to 4.50 percent. Meanwhile, the US Court of International Trade ruled that President Donald Trump lacked legal authority to impose sweeping tariffs, including levies on Chinese goods. The administration intends to appeal.
US PCE moderates
The US Personal Consumption Expenditures (PCE) price index increased by 0.1 percent month-over-month in April 2025, matching market expectations. Core PCE, excluding food and energy, also rose 0.1 percent, aligned with forecasts. On an annual basis, headline PCE inflation eased to 2.1 percent, the lowest level in seven months, down from 2.3 percent in March and below the forecast of 2.2 percent. Core inflation similarly moderated to 2.5 percent, marking its lowest since March 2021, highlighting continued easing inflationary pressures. The US Dollar index closed the week at 99.129.
Canadian outpaces expectations
Canada's GDP expanded by 0.5 percent in the first quarter of 2025, maintaining growth from the previous quarter and surpassing market expectations. Growth was primarily driven by robust exports of goods and services, which rose 1.6 percent, alongside significant inventory accumulation driven by firms preemptively addressing US tariffs. However, underlying economic strength appeared mixed, with household consumption slowing to 0.3 percent from 1.2 percent previously and government expenditure contracting by 0.8 percent, marking its first decline in a year. On an annualized basis, Canadian GDP grew at 2.2 percent, exceeding forecasts of 1.7 percent. The USD/CAD currency pair closed the week at 1.3740.
Euro-zone inflation softens
Recent economic data from Europe highlights mixed trends. Germany's retail sales unexpectedly fell by 1.1 percent in April, marking the first decline in four months and missing expectations, driven by reductions in both food and non-food sectors. Meanwhile, Italy's inflation eased to 1.7 percent in May, marking its lowest rate since February and remaining below the European Central Bank's 2 percent target for the 20th consecutive month.
Similarly, Spain saw inflation decelerate to a seven-month low of 1.9 percent in May, driven by reduced leisure and transport prices, and a slower increase in electricity costs. Against this backdrop, European equity markets ended May broadly stable but achieved their strongest monthly performance since January, despite persistent uncertainty around US-China trade tensions and renewed tariff pressures. The EUR/USD currency pair closed the week at 1.1347.
Australia's inflation holds steady
Australia's Consumer Price Index (CPI) remained unchanged at 2.4 percent in April 2025, slightly exceeding the 2.3 percent forecast. The figure remains within the RBA's 2–3 percent target range, with mixed inflationary trends across sectors. Food and alcohol inflation moderated, while housing at 2.2 percent, recreation at 3.6 percent and health at 4.4 percent saw accelerated price gains. Transport inflation fell sharply amid a steep 12 percent drop in fuel prices. The trimmed mean CPI rose to 2.8 percent from 2.7 percent, and the core CPI excluding volatile items picked up to 2.8 percent, up from 2.6 percent in March, signaling persistent underlying inflation pressures.
Australia's Retail Sector Contracts in April
Australian retail sales unexpectedly declined by 0.1 percent month-over-month in April 2025, falling short of market forecasts of a 0.3 percent increase. This marked the first drop in retail turnover since December, driven largely by decreases in clothing, footwear, and personal accessories, as well as department store sales, each down 2.5 percent. Food retailing also dipped by 0.3 percent, reversing the previous month's gain. However, increases were seen in household goods (0.6 percent), other retailing (0.7 percent), and cafes and restaurants (1.1 percent). On a yearly basis, retail sales growth slowed to 3.8 percent, easing from March's recent peak of 4.3 percent.
RBNZ cuts rates
The Reserve Bank of New Zealand cut its official cash rate by 25 bps to 3.25 percent in May 2025, following similar cuts in April and earlier reductions in October, November, and February. The move, aligned with expectations, brings borrowing costs to their lowest since August 2022. While inflation remains within the 1 percent–3 percent target, the RBNZ flagged risks from US tariffs, global policy uncertainty, and weaker Asian demand as downside threats to growth. The bank now forecasts the rate will decline to 2.92 percent in Q4 2025 and to 2.85 percent in Q1 2026, reflecting a more dovish outlook amid growing concerns over export-driven vulnerabilities.
Yen strengthens
The Japanese yen strengthened past 144 per dollar following the release of stronger-than-anticipated Tokyo core inflation figures. The Tokyo Core CPI rose 3.6 percent year-on-year in May 2025, surpassing market expectations of 3.5 percent and marking the highest inflation rate in over two years. This robust inflation data reinforced expectations that the Bank of Japan (BOJ) might pursue further monetary tightening.
BOJ Governor Kazuo Ueda reiterated the central bank's commitment to meeting its inflation target, while highlighting global growth risks, trade uncertainties with the US, easing cost-push inflation, and falling crude oil prices as factors behind the recent downgrade in inflation forecasts. Despite these challenges, the BOJ affirmed its near-term policy decisions remain anchored to achieving its 2 percent inflation goal. The yen additionally gained support from renewed safe-haven demand amid renewed US tariff uncertainties.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Arab Times
9 hours ago
- Arab Times
Musk calls Trump's big tax break bill a ‘disgusting abomination,' testing his influence over GOP
WASHINGTON, June 4, (AP): Elon Musk blasted President Donald Trump's "big, beautiful bill" of tax breaks and spending cuts as a "disgusting abomination" on Tuesday, testing the limits of his political influence as he targeted the centerpiece of Republicans' legislative agenda. The broadside, which Musk issued on his social media platform X, came just days after the president gave him a celebratory Oval Office farewell that marked the end of his work for the administration, where he spearheaded the Department of Government Efficiency. "I'm sorry, but I just can't stand it anymore,' Musk posted on X. "This massive, outrageous, pork-filled Congressional spending bill is a disgusting abomination. Shame on those who voted for it: you know you did wrong. You know it.' The legislation, which has passed the House and is currently under debate in the Senate, would curtail subsidies that benefit Tesla, Musk's electric automaker. The tech billionaire followed his criticism with a threat aimed at Republicans. "In November next year, we fire all politicians who betrayed the American people,' he wrote in another X post. It's a sharp shift for Musk, the world's richest person, who spent at least $250 million supporting Trump's campaign last year. He previously pledged to help defeat Republican lawmakers deemed insufficiently loyal to Trump, but now he's suggesting voting them out if they advance the president's legislative priority. However, it's unclear how Musk will follow through on his criticism. He recently said he would spend "a lot less' on political campaigns, though he left the door open to political involvement "if I see a reason." The tech titan's missives could cause headaches for Republicans on Capitol Hill, who face conflicting demands from Trump and their party's wealthiest benefactor. Alex Conant, a Republican strategist, said "it's not helpful' to have Musk criticizing the legislation, but he doesn't expect lawmakers to side with Musk over Trump. "Senate Republicans are not going to let the tax cuts expire,' Conant said. "It just makes leadership's job that much harder to wrangle the holdouts.' Trump can change the outcome in Republican primaries with his endorsements, but Musk doesn't wield that level of influence, Conant said. "No matter what Elon Musk or anybody else says - and I don't want to diminish him because I don't think that's fair - it's still going to be second fiddle to President Trump,' said Republican West Virginia Sen. Shelley Moore Capito. Musk's business interests stand to take a hit if lawmakers approve Trump's bill, which would slash funding for electric vehicles and related technologies. Musk is the chief executive of Tesla, the nation's largest electric vehicle manufacturer, and SpaceX, which has massive defense contracts. Last month, Musk said he was "disappointed' by the spending bill, a much milder criticism than the broadside he leveled Tuesday. The budget package seeks to extend tax cuts approved in 2017, during Trump's first term at the White House, and add new ones he campaigned on. It also includes a massive buildup of $350 billion for border security, deportations and national security.
Kuwait Times
13 hours ago
- Kuwait Times
Global economy remains vulnerable to US tariffs
KUWAIT: The global economy remains vulnerable to US tariff policy with the recent US court developments injecting a new layer of uncertainty. In effect, as long as tariff cases are in front of the courts, not much progress can be expected in terms of US trade negotiations with trading partners. In the US, irrespective of court developments, the administration is sticking with its plans to impose tariffs, utilizing, if need be, other routes. In the Euro-zone, the ECB is set to cut rates again while the EU's trade negotiations with the US will likely be very difficult. In the UK, despite positive deal-making with the US/EU/India, the outlook is shaky amid limited policy support and global trade uncertainty. In Japan, soaring bond yields further complicate the BoJ's job and bring the public finances to the limelight. Finally, despite the recent heightened China-US tensions, a resumption of the de-escalatory bias between them will not be surprising. Irrespective of how the current tariff-related legal developments will unfold, the US administration will likely stick with its plans to impose tariffs, utilizing, if need be, several other routes. However, until the courts' final say on the current cases is clear, President Trump's bargaining power in his ongoing negotiations with the US's key trading partners is weakened substantially. Importantly, this means that not much can be expected from the US's trade negotiations with its main trading partners as long as the cases are in front of the courts. And while policy uncertainty has already been very high since Trump took office, another layer of court-related legal uncertainty has now been added. Court developments aside, a key date is July 9, which is the date when the pause on the 'reciprocal' tariffs would end. Earlier, the US and China had diffused their trade war, but negotiations have since stalled, and tensions re-escalated recently. While further escalation following the 90-day window is possible, we think the more plausible scenario is that a de-escalatory bias will resume as the world's two largest economies got a feel of the enormous economic damage that will ensue from a full-blown trade war. Meanwhile, the House passed the GOP's 'Big, Beautiful Bill', which is a step in the wrong direction given that it worsens an already unsustainable debt trajectory, although it is positive for economic growth in the short term. The bill is now in front of the Senate, where it is expected to undergo some amendments although it will very likely remain a debt-increasing bill. Meanwhile, GDP contracted in Q1 on tariff front-running, but the labor market remains broadly resilient with three-month average job gains at 155K/month. Hence, the Fed will likely remain in a wait-and-see mode while markets are currently pricing-in around two 25 bps rate cuts by year-end. In our view, a US recession will be avoided on condition that a major tariff escalation does not get re-ignited. The prior tariff de-escalation drove a V-shaped rebound in the S&P 500 index although the US dollar index remains 10 percent below a recent high reached in January. The Euro-zone economy started the year on a good note, growing by a higher-than-expected 0.3 percent q/q in Q1, strengthening from 0.2 percent in the previous quarter. Meanwhile, headline inflation is almost at target, standing at 2.2 percent y/y although further progress is needed in terms of core and services inflation. Nevertheless, more recent indicators are starting to reflect the tariff-related headwinds with the PMI dropping below 50 (49.5 in May) for the first time this year. The ECB has carried on with its easing policy, cutting rates seven times since June 2024, and near certain to cut again in its meeting this week. Despite the bank, back in March, dropping reference to their policy remaining 'restrictive', the futures market is still indicating additional one-to-two cuts in the second half of the year, reflecting the magnitude of the trade-related uncertainties ahead. Obviously, the EU's (US's largest trading partner) trade-related developments are a key factor shaping the outlook, especially following Trump's threat to hike the 'reciprocal' tariffs on the EU to 50 percent. Even if the courts upheld the initial ruling of blocking Trump's reciprocal tariffs, sectoral tariffs on autos and steel/aluminum (soon doubling) remain in place, while many other sectoral tariffs are in the pipeline, meaning that the Euro-zone will not be immune to further trade-related shocks. Irrespective of the court rulings, Trump's statements, on several occasions, exhibited high animosity towards the EU, which coupled with a high merchandise trade imbalance in favor of the EU, mean that US-EU negotiations will likely be very difficult. The structure of the EU, and its generally slow decision-making process, is another factor making these negotiations challenging. Having said that, EU officials have exhibited a strong preference not to escalate matters with the US. Notwithstanding an above-consensus GDP growth in Q1 (0.7 percent q/q), UK's outlook remains uninspiring as the rise came mainly on manufacturing and exports front-running US tariffs, while domestic consumption remained stagnant. The UK managed to strike a trade framework with the US, which should benefit UK auto exporters among others, but the 10 percent baseline tariff remained in place, the status of which is in front of the courts now. Talks are continuing to finalize details with still several key sticking points. In other positive developments, the UK successfully reset its post-Brexit trade ties with the EU and signed a long-awaited trade agreement with India. Despite these favorable trade-related developments, the Bank of England (BoE) warned of US' tariff policies and their indirect impact through disruptions to global supply chains. A continued subdued growth outlook would further pressure the public finances, noting that Chancellor Reeves, in March, had reduced some welfare and other spending items to help maintain her fiscal rule. Moreover, the hike in employers' national insurance contributions could continue to adversely impact employment levels. Accordingly, the BoE, in May, trimmed its growth forecast for the coming quarters, to only 0.1 percent q/q in Q2 and around 0.3 percent in Q3/Q4 while cutting the policy rate by 25 bps to 4.25 percent, but simultaneously guiding for 'a careful and gradual approach' and anticipating 'temporary' spikes in inflation over the coming months. CPI inflation jumped to a 15-month high of 3.5 percent y/y in April from 2.6 percent in March mainly on higher utility and other government fees, which the BoE does not expect to persist next year. Amid an uninspiring economic landscape but still elevated wage growth (5.6 percent y/y) and slow progress on services inflation (5.4 percent y/y), markets are currently pricing-in one to two 25 bps rate cuts by end-2025. Soaring bond yields in Japan further complicate BoJ's job and bring the public finances to the limelight. Japan's economy contracted by 0.2 percent q/q in Q1, its first decline in a year, driven by flattening consumption, a 0.6 percent q/q decrease in exports, and a sharp 2.9 percent rise in imports. Despite a robust 5.4 percent wage hike from the 2025 Shunto negotiations that built on a similar increase last year, real wages decreased in Q1, weighing on household spending while export performance deteriorated under the strain of US tariffs. Meanwhile, inflationary pressures continued with the core CPI (excluding fresh food) rising by 3.5 percent y/y in April, the highest since January 2023 with food inflation remaining particularly acute. In response to these challenges, the government recently rolled out a relief package worth JPY2.8 trillion ($20 billion) to support households grappling with the rising cost of living and to counter the negative impact of higher US tariffs. Trade negotiations with the US are continuing with the US-imposed 25 percent sectoral tariff on autos, a key sector for Japan, one of several important sticking points. Prime Minister Ishiba and President Trump are scheduled to meet in mid-June on the sidelines of the G7 meeting in Canada, and agreeing on some sort of a trade framework by then remains a possibility although a limited one given the court developments in the US. Meanwhile, increasing fiscal vulnerabilities coupled with the Bank of Japan's (BoJ) ongoing tapering of bond purchases have contributed to pushing long-term bond yields to multi-year highs. This is putting the BoJ in an even more difficult position, which has already been grappling with major growth headwinds and inflation that has exceeded target for around three years. The steep rise in bond yields will strain public finances, dampen growth, and risk delivering large losses to institutional investors' balance sheets. Despite the headwinds, the Chinese economy grew 5.4 percent y/y in Q1, beating expectations and the 'around 5 percent' government's growth target for 2025. Exports continue to be a main growth driver, surging by 12 percent and 8 percent y/y in March and April, respectively, easily beating expectations as lower exports to the US were more than compensated by higher exports elsewhere, especially to East Asian countries. The prior de-escalation with the US, although supposedly temporary given the 90-day window, was a major relief. In our view, China has emerged having the upper hand as, even before the recent court rulings in the US, and excluding the original 20 percent fentanyl-related deemed tariffs, US tariffs on Chinese imports stood at 10 percent, equal to the Chinese tariffs on US imports. Comparatively, almost all countries globally were slapped with that 10 percent baseline US tariff, that none had retaliated against. While renewed escalation following the 90-day window is possible (especially given the current stalled negotiations), we think the more plausible scenario is that a de-escalatory bias will resume, as mentioned before. Prior to the de-escalation with the US, overall sentiment weakened with the official PMI decreasing to 50.2 in April with the manufacturing PMI falling to a 16-month low of 49.0, before both improved slightly in May. Meanwhile, domestic demand remains muted with CPI inflation in negative territory for the third straight month in April and the PPI in deflation for more than 2.5 years. Given the headwinds, the central bank eased policy in May, cutting several of its policy rates and the reserve requirement ratio, among other measures taken. Looking ahead, while a stronger fiscal and monetary policy support may be forthcoming, a sustained de-escalatory stance with the US will lower the scale of such support.
Kuwait Times
21 hours ago
- Kuwait Times
Outgoing Chinese envoy praises growth in China-Kuwait ties
KUWAIT: The Chinese embassy in Kuwait hosted a farewell reception on Monday in honor of the outgoing Chinese Ambassador. During his speech, Chinese Ambassador to Kuwait Zhang Jianwei expressed his deep appreciation to Kuwaiti leadership, officials, and people as he concluded his diplomatic mission after three years of service, highlighting the remarkable development in China-Kuwait relations and the warmth of the Kuwaiti society. Ambassador Jianwei shared that his arrival in Kuwait on May 22, 2022, marked the beginning of a significant and unforgettable chapter in his diplomatic career. 'Over the past three years, I had the pleasure of witnessing Kuwait's remarkable journey toward progress under the wise leadership of His Highness the Amir Sheikh Meshal Al-Ahmad Al-Jaber Al-Sabah. The New Kuwait 2035 Vision has achieved tremendous success across multiple sectors, elevating Kuwait's regional and international standing,' he said. Regarding Kuwait's cultural richness, he said: 'From the majestic Grand Mosque to the vibrant Souq Al-Mubarakiya, from traditional Sadu weaving to modern architectural marvels like Al Hamra Tower and the Sheikh Jaber Al-Ahmad Cultural Centre, the blend of heritage and modernity left a deep impression on me.' The Ambassador highlighted key accomplishments during his term, adding that there were two meetings between Chinese President Xi Jinping and HH the Amir Sheikh Meshal that fostered strategic alignment. On economic cooperation, he mentioned that China remained Kuwait's largest trading partner for 10 consecutive years, explaining: 'Substantial progress was achieved in landmark ventures such as Mubarak Al-Kabeer Port and renewable energy initiatives.' He noted that the first Chinese Cultural Center in the Gulf was established in Kuwait during his tenure, and exchanges among students, academics, media and youth increased. The ambassador also welcomed the recent Chinese decision to grant visa exemptions to Kuwaiti passport holders, saying: 'We warmly welcome more Kuwaiti friends to explore China.' Concluding his remarks, the Chinese Ambassador affirmed his confidence in the bright future of China-Kuwait relations and pledged to continue promoting this enduring friendship wherever he goes.
