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US Treasuries faced significant selling pressure amid concerns over the rising national debt, exacerbated by a sweeping tax and spending cut bill passed by House Republicans. While the bill could add trillions to the existing $36 trillion debt, the US's credit quality remains high, and Treasuries are still viewed as a safe haven. The Federal Reserve is poised to intervene if market conditions worsen, and expectations of policy easing later this year could lead to lower yields, making high-grade bonds attractive for income-seeking investors.
UBS anticipates a 25 basis point rate cut by the Reserve Bank of New Zealand (RBNZ) to 3.25%, reflecting optimism in the country's economic outlook. This initial cut is expected to be followed by a steady rate, with strategic fiscal shifts and pro-growth budgets aimed at stimulating investment and enhancing trade with China.Key indicators such as a recovering housing market and rising milk prices bolster confidence, while projections suggest further rate cuts to 3% and a potential rise in the NZDUSD exchange rate, presenting opportunities for investors.
Gold prices are rising amid concerns over the US budget deficit and discussions surrounding US debt, particularly following Moody's downgrade of the US credit rating. Investors are closely monitoring upcoming speeches from Federal Reserve representatives for potential monetary policy insights. The recent easing of US-China trade tensions, marked by mutual tariff reductions, adds to the uncertainty in the market.
The G7 meeting reaffirmed its commitment to free-floating exchange rates, avoiding competitive devaluations, while expressing concerns over unfair trade practices and macro imbalances, particularly regarding China's trade surplus. US Treasury holdings have decreased by $30 billion since April, with anticipation building for the upcoming TIC data release. Despite lower realized FX volatility, expected volatility remains high for EUR/USD and USD/JPY, indicating investor caution ahead of significant events.
Deutsche Bank's George Saravelos highlights the precarious position of a twin deficit country, emphasizing its reliance on external support. He suggests that such nations are vulnerable and must navigate their economic challenges with caution, as they depend on the goodwill of foreign investors.
US stock markets declined as bond yields surged amid cautious investor sentiment and concerns over rising debt from proposed tax legislation. In Australia, the ASX 200 saw limited gains following a 25 basis points rate cut by the RBA, as rising long-term yields pressured key sectors like financials and real estate, which make up about 50% of the index.
The US dollar faces pressure following Moody's downgrade of the country's credit rating from "Aaa" to "Aa1," attributed to rising debt levels. Additionally, the US House of Representatives has approved Trump's tax plans, which aim to extend $4.5 trillion in tax relief, pending Senate approval. Investors are also anticipating upcoming speeches from Federal Reserve officials for insights into monetary policy.
UBS forecasts the Bank of England will reduce interest rates to 3.75% by the end of 2025 to combat inflation and wage growth. Following a rate cut in May, the central bank is expected to pause in June before further reductions in August and November, navigating a complex economic landscape influenced by global challenges and tariff uncertainties. Investors should closely monitor these developments, as changes in monetary policy could significantly impact market dynamics, borrowing costs, and economic growth.
Swiss tenants are expected to benefit from lower rents this year, as UBS anticipates the benchmark mortgage interest rate will remain stable at 1.5%. The Swiss National Bank is projected to further reduce its key interest rate to 1.25%, influenced by falling inflation and a strong franc. Consequently, growth in existing rents is expected to slow from 3.1% in February 2025 to 1.5% by year-end.
UBS is considering relocating its headquarters abroad, with London and Singapore expressing willingness to entertain such an application, although it is seen as a tactic in negotiations with Swiss authorities over stricter capital rules. Following the Credit Suisse crisis, UBS may be required to hold up to USD 25 billion in additional capital, with the government proposing legislation to ensure the bank can absorb losses from foreign subsidiaries at 100% of its equity. Currently, UBS's foreign holdings are backed by about 60% equity, and the final details of the proposed law are still pending.
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Investors Concerned as US Debt Burden Grows Amid Policy Changes
15:01 23.05.2025
UBS Predicts RBNZ Rate Cut Amid Optimism in New Zealand's Economy
14:10 23.05.2025
Gold Prices Surge Amid US Debt Concerns and Fed Speeches
13:05 23.05.2025
G7 Meeting Reaffirms Commitment to Free Floating Exchange Rates Amid Trade Concerns
12:18 23.05.2025
Twin Deficits Highlight Dependence on Foreign Support, Says Deutsche Bank Expert
11:17 23.05.2025
Global Markets React to Inflation Data and Central Bank Rate Decisions
05:52 23.05.2025
Moody's Downgrade and Trump's Tax Plans Impacting EUR/USD Currency Pair
22:35 22.05.2025
UBS Forecasts Bank of England Rate Cuts Amid Inflation and Wage Growth Challenges
17:01 22.05.2025
Swiss Tenants to Benefit from Stable Mortgage Rates and Lower Rents
09:48 22.05.2025
ubs considers headquarters relocation amid capital rule disputes
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