By Mike Dolan
LONDON (Reuters) – What matters in U.S. and global markets today
By Mike Dolan, Editor-At-Large, Financial Industry and Financial Markets
In an already bad week for long bonds, an aggravated inflation picture around the world has added another irritant. I discuss this and all the market news below.
Be sure to check out my column today, where I explore why key foreign creditors might be reassessing their holdings of U.S. debt and what this could mean for funding America’s rising deficit.
Today’s Market Minute
* President Donald Trump’s tax cut and spending bill faces a critical stress test on Wednesday as Republicans try to overcome internal divisions about cuts to the Medicaid health program and tax breaks in high-cost coastal states.
* Companies importing goods into the United States from China are rushing to convert warehouses into facilities that are exempt from President Donald Trump’s tariffs until they are ready to sell the merchandise.
* Oil prices gained more than 1% on Wednesday after reports of Israel preparing a strike on Iranian nuclear facilities raised fears that a conflict could upset supply availability in the key Middle East producing region.
* Britain suffered a bigger-than-expected inflation surge in April, including in areas watched closely by the Bank of England which investors now believe will have to slow its already gradual pace of interest rate cuts.
* Morgan Stanley upgraded its stance on U.S. equities to “overweight”, citing a slowing but still expanding global economy despite policy uncertainty.
* Japanese exports rose 2% in April from a year earlier but shipments to the U.S. fell 1.8%, data from the Ministry of Finance showed on Wednesday.
* Global electricity generation from solar farms is set to exceed output from nuclear reactors for the first time this summer, marking an important milestone in the continuing growth of solar power within global energy systems.
Bad week for bonds
Britain and Canada reported above-forecast core inflation jumps for April over the past 24 hours – cutting across interest rate easing expectations in both countries and sending long-term government borrowing costs higher for both.
On top of that, the crude oil prices jumped more than 1% on Wednesday and briefly clocked their highest in a month after CNN reported Israel was preparing to strike Iran’s nuclear facilities.
The darker global inflation picture comes as U.S. Federal Reserve officials remain wary of tariff-related price hikes in America.
Atlanta Fed chief Raphael Bostic said U.S. businesses may have run out of strategies to delay changing prices or employment in response to higher import taxes and the economy could soon face a wave of price increases.
“If these pre-tariff strategies have run their course, we’re about to see some changes in prices, and then we’re going to learn how consumers are going to respond to that,” said Bostic.
Another Fed interest rate cut is now not fully priced into futures markets until October.
This latest bout of inflation anxiety comes at a nervy moment in bond markets, with Japan’s ultra-long government bond yields spiking sharply this week after a poor debt auction there.
The U.S. Treasury is now due to sell some $16 billion of 20-year bonds later on Wednesday on the heels of Moody’s decision last Friday to remove the last U.S. AAA credit rating. Both 20 and 30-year Treasury yields are back above 5% and stalking their highest levels since 2023.
With long-term bond markets on edge, the bumpy passage of President Donald Trump’s fiscal plan doesn’t help.
Trump’s tax cut and spending bill faces a critical stress test on Wednesday as Republicans in the House of Representatives try to overcome internal divisions about cuts to the Medicaid health program and tax breaks in high-cost coastal states. The gate-keeping House Rules Committee scheduled an unusual overnight hearing expected to run well into daylight hours.
The bill would extend the 2017 tax cuts that were Trump’s signature first-term legislative achievement, and also add tax breaks on income from tips and overtime pay that were part of his election campaign trail. Nonpartisan analysts say it could add $3 trillion-$5 trillion to the federal government’s $36.2 trillion debt pile.
If it clears the committee, House Speaker Mike Johnson could push for a vote on the House floor as soon as Wednesday – with Republicans holding a narrow 220-213 seat majority.
U.S. stock futures were down again ahead of today’s open, after the S&P 500 closed 0.4% in the red on Tuesday.
The dollar fell again too, with traders keeping one eye on the G7 finance chiefs meeting in Canada this week for any signs of U.S. pressure for a weaker dollar as part of its bilateral trade negotiations.
Britain’s pound was the big gainer – hitting its highest since February 2022 against the dollar after the hot UK inflation report.
In today’s column, I discuss the recent turbulence in Japan’s bond market and how it signals a potential change in appetite from Japanese investors that could have significant implications for U.S. government debt.
Chart of the day
President Donald Trump’s approval rating ticked lower this week to just 42% – matching the lowest level of his new term as Americans overall took a dim view of his handling of the economy. While low by historical standards, Trump’s popularity remains higher than it was for much of his first term as president and also higher than his Democrat predecessor Joe Biden enjoyed in the second half of his 2021-2025 presidency. The partisan split among those polled also remains extreme. But on his economic policy performance overall, the Reuters/IPSOS poll shows more than 50% disapprove – 12% of those identifying as Republican voters and 94% those voting Democrat gave the thumbs down. Of those with no voting preference, almost 60% disapproved of the economic record so far. One-in-five Republicans disapproved on the cost of living record.
Today’s events to watch
* Canada April house prices (0830EDT)
* U.S. Treasury sells $16 billion of 20-year bonds
* G7 finance ministers and central bankers meet in Banff in Alberta, Canada
* Richmond Federal Reserve President Thomas Barkin speaks; European Central Bank Vice President Luis de Guindos and ECB chief economist Philip Lane speak
* U.S. corporate earnings: Target, Lowe’s, TJX, Medtronic, Progressive
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(by Mike Dolan; editing by Hugh Lawson)
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