This week begins with several key developments shaping global market sentiment. The United States and China are set to initiate preliminary trade discussions in Switzerland, raising hopes of easing tensions. Meanwhile, the People's Bank of China introduced monetary easing by cutting its key rate and reserve requirements, aiming to stimulate lending. Germany’s unexpectedly strong factory orders likely reflect businesses moving ahead of potential US tariffs. In currency markets, most Asian emerging market currencies continue to retreat, though the South Korean won and Philippine peso showed resilience. Despite recent military activity between India and Pakistan, financial market impact has been minimal, with India’s rupee slipping modestly and Pakistani equities posting sharp losses.

Asia Pacific Markets

The Japanese yen faced volatility following a recent rally in the US dollar that peaked near JPY146, before retracing to the JPY142 range. A rebound brought it back above JPY143, with markets largely ignoring PMI data and awaiting Q1 GDP figures. The Bank of Japan remains unlikely to change course based on current indicators.
In Australia, the local dollar reached its highest level in five months, briefly trading above $0.6500 and holding above its 200-day moving average. However, it faced selling pressure that pushed it lower.

European Markets

In the eurozone, the euro gained strength after breaking above recent trading ranges, supported by a significant jump in German factory orders, which exceeded expectations and hinted at a temporary boost before new US tariffs. Optimists suggest industrial conditions may be stabilizing, though key indicators like the PMI remain cautious.
The British pound saw a brief surge past $1.34 amid speculation of a US-UK deal potentially softening tariff impacts. However, it faced immediate resistance and fell back. Markets now await the Bank of England meeting, with multiple rate cuts already priced in for the rest of the year.

American Markets

All eyes are on the Federal Reserve, though no immediate policy changes are expected. The Fed is likely to acknowledge weaker Q1 GDP but maintain a generally upbeat assessment of the economy. Rate cut expectations have shifted from June to July, with markets now pricing in nearly three cuts for 2025. The dollar has shown mixed movement, with recent trade talk announcements having limited effect. The Dollar Index remains in a narrow range after posting a bearish signal earlier in the week. While no dramatic shifts are anticipated from the Fed, subtle adjustments in tone and updated economic forecasts will guide market expectations moving forward.