Ueda Says BOJ Needs to Keep Raising Rates to Contain Inflation

The Bank of Japan needs to keep raising interest rates in response to developments in the economy and inflation, Governor Kazuo Ueda said in his final scheduled speaking event ahead of a closely watched policy meeting.

Should the economy evolve in line with the BOJ’s forecasts, which see the Mideast turmoil calming and inflation reaching its 2% target, “I think the Bank will continue to raise the policy interest rate at an appropriate pace,” Ueda said Wednesday in a speech at a forum in Tokyo.

“Based on the data and anecdotal information available thus far, the upside risks to prices appear to be greater overall and are likely to emerge sooner,” he said.

Ueda’s remarks indicate there’s a good chance of a rate hike this month, though they weren’t as explicit as comments he made telegraphing the previous two increases. (…)

The governor was speaking ahead of a June 15-16 board meeting, with traders assigning a roughly 85% chance as of Wednesday afternoon of a quarter-point hike that would lift the benchmark to the highest since 1995. The board held policy settings steady in April with a 6-3 vote, the biggest split under Ueda’s watch.

Two members who backed a hold at that gathering have since spoken in favor of a near-term hike without specifying a preferred timing, citing upside price risks stemming from the war in Iran. (…)

Even if the outlook is unclear but policymakers judge that upside risks to inflation outweigh downside risks to growth, “it will be necessary to thoroughly discuss the pros and cons of raising the policy interest rate,” Ueda said. (…)

The weak yen is also nudging the BOJ toward a rate hike this month. High oil prices stemming from the Middle East conflict have not only weighed on the currency, but have also upended the US Federal Reserve’s policy path, which now points to a rate hike by year-end. That’s adding pressure on the BOJ to close the gap between the countries’ benchmark rates, which would help support the yen. (…)

The yen touched 160 on Wednesday, the weakest level since April 30, when Japanese authorities conducted currency intervention for the first time since 2024. It was trading around 159.83 after Ueda’s remarks. (…)

Japanese companies are already feeling the pain from the geopolitical conflict. Producer prices rose in April at the fastest pace since 2014 compared with the previous month. Food and beverage companies seeking to pass on higher input costs will likely announce price increases on more than 10,000 items this year for a fifth consecutive year, according to Teikoku Databank.

Earlier Wednesday, Japan’s cabinet endorsed a ¥3.1 trillion ($19.4 billion) package to fund measures to cushion households with subsidies from inflation tied to Middle East turbulence, putting fiscal policy back in the spotlight for bond investors.

While investors are focusing on Takaichi’s efforts to control the nation’s finances, another market focus is the pace at which the BOJ is reducing its bond purchases. In addition to setting rates this month, authorities will discuss whether to continue paring those purchases by ¥200 billion each quarter next fiscal year.

Japan imports all its oil at much higher prices and pays for it in dollars raised selling a weakening yen. The weaker the yen, the higher the oil bill.

To keep the yen from falling too much, too quickly, the BOJ hikes interest rates. This increases the cost of servicing Japan’s huge debt load, worsening its deficit which worries financial markets, further pressuring interest rates up and the yen down simultaneously. A tough balancing act for the BOJ trying to keep the confidence of financial markets.

Meanwhile, rising rates and a weak yen rattle investors having borrowed in yen to lend in other currencies with higher interest rates, the carry trade.

This puts upward pressure on Treasury yields as Japan investors sell US bonds to get yens and/or Japanese bonds.

If everybody worries about Japan, they also worry about the USA.

So, what’s happening in Japan impacts the US.

What’s happening in Iran impacts Japan big time, the yen, and, eventually, US interest rates and the economy.

A little excursion…

• Emerging Markets Lead Rate Hikes as Iran War Fuels Inflation

Emerging-market central banks are leading a wave of interest-rate hikes as the war in Iran reignites inflation, moving faster than most developed-world peers, which remain on hold to assess the economic fallout.

Since fighting began in late February, at least 10 emerging and frontier-market central banks have raised rates, with Indonesia, Rwanda, South Africa and Sri Lanka tightening policy in the past two weeks. Policymakers in the US, Euro area, Japan and Canada have held fire, with Norway and Australia among the few developed economies to raise borrowing costs.

The hikes reflect “policymakers’ desire to keep hard-won credibility intact,” said Lauren van Biljon, senior portfolio manager at Allspring Global Investments. Emerging-market central banks are drawing on lessons from the last global tightening cycle, when many moved ahead of their developed-market counterparts to tackle the post-Covid inflation shock and were more cautious about cutting rates as price pressures eased, she said. (…)

EM central banks are also tightening policy to support their currencies and stem capital outflows, with more expected to follow. The Reserve Bank of India has pledged to curtail speculation on its currency and is said to be weighing a possible rate hike this week, while the central bank of the Philippines has indicated it may consider a large, off-cycle increase before its next scheduled meeting on June 18.

Turkey is also seen hiking the policy rate on June 11 after “heightened uncertainty” regarding a court decision to remove a main opposition party leader from office, according to JPMorgan analysts.

Meanwhile, the pressure to tighten is also building on developed markets. Euro-area inflation topped 3% for the first time in more than 2 1/2 years, cementing expectations for an interest-rate hike when the European Central Bank meets next week.

FYI:

Foreign investors now own a record $20 trillion, or ~19% of all US equities. This percentage has nearly TRIPLED since 2000.

Passive mutual funds and ETFs hold $17 trillion, an all-time high, accounting for ~15% of all US equity ownership. Since the 2008 Financial Crisis, passive fund ownership has TRIPLED.

Over the same period, the weight of active mutual funds has more than HALVED to $11 trillion, now at ~10% of total, the lowest since the early 1990s. (@KobeissiLetter)

OECD Warns of Severe Global Slowdown If Middle East Conflict Is Prolonged Duration matters a lot for the economic and social consequences

The global economy is set for a significant slowdown this year as higher energy costs weaken consumer spending and business investment, but it could become much more severe if the conflict in the Middle East drags on into 2027, the Organisation for Economic Co-operation and Development said.

In a quarterly report on the global outlook, the Paris-based research body said worldwide output is likely to grow by 2.8% in 2026 if energy production in the Persian Gulf starts to recover later this month and transport through the Strait of Hormuz returns to normal. That would mark a sharp slowdown from the 3.4% expansion recorded last year. (…)

The OECD said that should the disruption to energy production and shipping stretch well into next year, global growth could slide to 2.1% in 2026 and 1.8% in 2027.

If the latter outcome came to pass, it would be the weakest year of growth this century, with the exceptions of 2020, when the Covid-19 pandemic struck, and 2009, when the global financial crisis hit. (…)

In this “protracted” scenario, parts of Asia would be among the hardest hit. Much of the energy that usually transits through the Strait of Hormuz is heading for Asian ports. Japan and South Korea, among others, have large reserves of oil that have ensured the economic impact of the Strait’s closure has so far been limited.

That would change if the closure was long-lasting. But the impact wouldn’t be confined to those countries most reliant on the Gulf for their energy supplies.

“Many economies in Asia are likely to be hit heavily, reflecting their relatively high reliance on energy inputs from the Gulf economies, but higher inflation, shortages, tighter financial conditions and weaker confidence are also likely to weaken growth significantly in Europe and North America,” the OECD said. (…)

The OECD said the slowdown could be severe enough to push a number of economies into recession.

Should the conflict prove to be of shorter duration, the OECD continues to expect the U.S. economy to grow by 2% this year, outpacing the eurozone at 0.8% and Japan at 0.6%. It nudged up its growth forecast for China to 4.5% from 4.4% in March.

However, the OECD warned that a protracted disruption to supplies from the Gulf that led to a further rise in energy costs would likely weaken investment in artificial intelligence, which has been a key driver of U.S. economic growth.

It noted that energy accounts for 60% of the costs associated with data centers, while the manufacture of semiconductors requires helium—and a third of the world’s supply of that gas comes from the Gulf. In addition, higher energy costs in Asia would hit production of essential equipment.

“The production of…hardware that underpins AI systems is highly electricity-intensive, reflecting the energy demands of advanced lithography, clean-room operations, and cooling systems,” the OECD said.

As long as the duration of the conflict proves to be relatively short, the OECD said most central banks don’t need to raise their key interest rates. It expects inflation in the Group of 20 leading economies to rise to 4% this year from 3.4% in 2025, but fall back to 3.1% next year.

However, should the conflict prove long-lasting, it expects G-20 inflation to be 4.4% this year and 4.7% in 2027. In response, central banks would likely raise their key interest rates by between half and three-quarters of a percentage point.

The OECD said those central banks that are reducing their portfolios of bonds purchased under quantitative easing programs may have to suspend that process, and may even have to resume QE to calm bond markets.

US Job Openings Jump to Highest Since 2024 as Layoffs Fall

US job openings jumped in April to the highest level in almost two years and layoffs fell, adding to signs the labor market remained resilient even as businesses navigated rising energy costs sparked by the Iran war.

Available positions rose to 7.62 million from 6.89 million in March, according to Bureau of Labor Statistics data out Tuesday. The median estimate in a Bloomberg survey of economists called for 6.87 million openings.

One sector — professional and business services — surged to a three-year high, accounting for almost the entirety of the increase. The vast majority of the rise in openings was also from businesses with less than 10 employees. Both posted their biggest monthly advances on record.

The figures suggest labor demand is steadying this year after near-zero job growth in 2025. While vacancies still remain well below the levels seen in the pandemic reopening period, the stabilization could further undermine the case for interest-rate cuts as Federal Reserve officials increasingly discuss the possibility of rate hikes.

Even so, surveys suggest businesses and workers remain anxious about the labor market and economic conditions. The share of consumers who said jobs were plentiful fell in May to the lowest since 2021, according to The Conference Board.

The overall number of hires fell to 5.12 million in a broad-based decline, after surging in March to the highest level in more than two years. Layoffs also moderated, to 1.69 million.

The so-called quits rate, which measures the percentage of people voluntarily leaving their jobs each month, fell to 1.9%, matching the lowest since 2020.

The report also showed the number of vacancies per unemployed worker, a ratio Fed officials watch closely as a proxy for the balance between labor demand and supply, was little changed at 1 to 1. At its peak in 2022, the ratio was 2 to 1. (…)

Ed Yardeni says that “The rise is consistent with the upward trend we have been tracking in INDEED’s weekly job postings”.

But Ed omitted to update his chart to the latest Indeed data point (May 22) :

Goldman Sachs computes an average of JOLTS, Indeed and LinkUp data:

Trump Begins Rebuilding His Tariff Wall Citing Forced Labor

The US is proposing new tariffs of at least 10% on imports from 60 trading partners in President Donald Trump’s biggest move to rebuild his protectionist wall since his earlier levies were struck down by the Supreme Court.

Following an investigation into how trade partners handle goods allegedly produced by forced labor, a 10% tariff rate would apply to imports from Canada, Mexico, the European Union, Taiwan and the UK, among other places, according to a statement late Tuesday from the Office of the US Trade Representative.

Products from other major economies, including China, India, Japan, South Korea, Brazil and Switzerland, would be subject to a 12.5% levy.

USTR said it was imposing the lower rate on goods from economies that impose prohibitions on forced labor imports or have committed to doing so, while those “that have failed to impose and effectively enforce” them received a higher rate. (…)

The move is a major step in Trump’s push to reinstate the tariffs he imposed during his first year in office before they were deemed unconstitutional. The recommended duties are a result of probes launched under a separate legal authority known as Section 301 of the Trade Act of 1974.

A separate raft of 301 investigations includes a review of US trading partners’ excess manufacturing capacity, the findings of which may also be released soon. Trade analysts are speculating whether any future duties from that probe would be stackable on top of those proposed under the forced labor investigation.

“Trade partners will be understandably upset by this determination,” said Deborah Elms, head of trade policy at the Hinrich Foundation in Singapore. “You’ve opened a door now for a whole lot of new tariff and non-tariff adjustments,” she added. (…)

The levies won’t go into effect immediately and are subject to a public comment and review period before implementation, which could result in changes before any duties are codified. Written comments are due to be submitted by July 6, and a Section 301 panel is expected to convene public hearings beginning on July 7, according to the notice.

The USTR investigated whether the economies involved had failed to impose a forced labor import prohibition or effectively enforce such a prohibition. “None of the 60 economies whose acts, policies, and practices are the subject of these investigations effectively enforce a forced labor import prohibition,” it found.

“This creates a dynamic where American workers are forced to compete globally on an unlevel playing field,” US Trade Representative Jamieson Greer said in a statement. “We will no longer tolerate this disparity.”

Citing the Trafficking Victims Protection Reauthorization Act of 2005, the USTR flagged 34 goods in particular countries that are made with inputs produced with forced labor. Those included cotton used for garments, critical minerals for solar products, fish used for fish oil and fish meal, and palm fruit used palm oil.

The move will test the tolerance of the largest US economic partners, who have largely restrained from retaliating against Trump’s tariffs, opting instead to negotiate deals to lower import taxes and ensure market access. (…)

There are also several proposed exceptions to the tariff regime.

Apparel and textile imports from some countries would be able to enter the US at a reduced tariff rate — with those quotas set according to the volume of US exports of textiles to those nations.

Other products are exempt from the tariffs entirely, including beef, tomatoes, bananas, coffee, orange juice and other food items. Metals, which are already covered by other levies, are excluded, as are certain fuels and chemicals. (…)

Greer has said the goal was to complete a series of trade investigations to allow Trump to quickly enact new tariffs after the outgoing measures expire.

America’s Data Center Build-Out Is Falling Way Behind Schedule Google, which is raising a fresh $80 billion, has a strategy for getting around the biggest bottleneck

(…) Supply-chain backlogs, permitting fights and availability of power supplies are among the issues that have caused the construction of data centers to fall behind targeted timelines, with the gap growing wider in recent months: A JPMorgan analysis last month found that more than 60% of data-center capacity planned for completion in 2027 isn’t yet under construction, and another 7% is delayed. (…)

In its analysis, JPMorgan noted that delays in obtaining gas turbines and electrical transformers have contributed to the creep-up in data-center delays. (…)

AI Saves Time But Most Companies Waste the Gain, Study Shows

Employees across industries continue to adopt AI tools at a rapid rate, yet the technology’s impact on productivity and efficiency is uneven and muddled, according to a new study.

Some 74% of white-collar workers with no managerial duties count themselves as regular users of artificial intelligence, a 23 percentage point increase from a year earlier, according to Boston Consulting Group Inc.’s latest AI at Work report. But many enterprises struggle to convert AI-driven efficiency gains into measurable value, BCG said.

More than 40% of the regular AI users among the white-collar workers not involved in management reported saving a full work day or more per week from using such tools. Still, leaders and organizations are yet to learn how to derive value from the saved time, BCG said.

“Everyone is talking about AI replacing work, but it is in fact really about rethinking the human value-add inside,” said BCG’s Vinciane Beauchene, one of the report’s authors. “This is the role of leaders.” (…)

Nearly half the respondents said they spend more time managing and directing AI than doing the work itself. And while about two-thirds of regular AI users said the technology has improved job satisfaction, about 41% said it had increased cognitive load. That’s creating what the authors called a “joy paradox,” where AI makes work better and harder at the same time. (…)

For its study, BCG surveyed nearly 12,000 workers across industries in 14 countries and regions, examining AI adoption, workforce expectations, leadership and organizational transformation.

The survey highlights the emergence of AI agents, with 30% of respondents saying such tools are now integrated into workflows — more than double the number from a year earlier. Over 60% said they believe agents could do at least half their job within three years.

Non-managers in India, Brazil, and South Africa reported regular AI usage above the global average, while those in the US, France and Italy lagged behind, BCG said.

• Microsoft Launches AI That Works Like an Executive Assistant

Microsoft Corp. launched new artificial intelligence software designed to function like an always-active executive assistant, the latest evolution of its workplace AI efforts.

While AI bots like ChatGPT or Microsoft’s Copilot are only visible to the user, the new tool, dubbed Scout, will appear on internal email and calendar systems as if it were just another helpful employee, the software maker said on Tuesday.

This means Scout will able to handle a wider range of tasks autonomously, Charles Lamanna, who leads product development for much of Microsoft’s business applications and workplace AI teams, said in an interview.

For example, the assistant could autonomously ask a meeting organizer to reschedule if there is a timing conflict, he said. Salespeople could ask questions of their boss’s Scout assistant.

“It has its own identity and therefore is shareable,” Lamanna said. (…)

Anthropic PBC and OpenAI have each promoted AI assistants this year that can take actions by accessing users’ desktops. Scout’s uniqueness partly rests on the fact that it has been integrated with other Microsoft products.

Microsoft has spent years trying to package cutting-edge AI technologies in a way that’s palatable to cautious corporations. Scout is built on OpenClaw, a platform that turns the models behind ChatGPT and Claude into always-on agents. OpenClaw went viral earlier this year owing to its ability to handle complex tasks by taking control of a user’s computer but also spurred worries about potential cybersecurity vulnerabilities. (Internally, Microsoft dubbed its initiative Project Lobster.)

Lamanna didn’t disclose pricing for Scout, which will initially require a subscription to Microsoft’s GitHub Copilot coding assistant. Customers will likely be charged based on how much they use the software, rather than a flat subscription fee, he said. In the long run, as the cost of accessing AI models continues to tumble, Microsoft would like to include more AI products in subscription plans, Lamanna said.

Microsoft is working to encourage more customers to pay additional fees for its AI tools, including through a new software bundle dubbed “E7.” For now, only a small percentage of subscribers are also paying for Copilot, the flagship AI assistant.

Trump tells CNBC: ‘I don’t care’ if Iran negotiations are over

(…) “I really don’t care. I couldn’t care less,” Trump told CNBC’s Eamon Javers in a phone interview midday Monday, saying he thought the protracted discussions “started to get very boring.” (…)

Trump asserted that prices at the pump will drop “very quickly.” But he also repeatedly signaled he was in no hurry to restart the stalled negotiations with Iran.

“If they’re over, they’re over. If they’re not, you know, I think they took too much time. Frankly, I thought they started to get very boring,” Trump told CNBC.

CNBC also posted the full transcript of the interview. My picks:

• Well, that’s part of being a negotiator, but they don’t have any cards, because a lot of people would be very happy. Stock market is just down a little bit. Yeah, it’s alright.
• They would, if I wanted them to, but they would. I want them to. We don’t need them. We don’t need NATO. They were very, very weak and very sad. What they said, they said we’ll help you as soon as the war is over. NATO, Europe has lost its way. They have a tremendous immigration problem, and they have a tremendous energy problem, because all they want to do is build windmills all over the place, so anyway.
• Well, call me. You can call me tomorrow, and I’ll talk to you about it. Let’s see what’s going on – okay?

From Axios:

President Trump lashed out at Israeli Prime Minister Benjamin Netanyahu over Israel’s escalation in Lebanon during an expletive-laden call yesterday, Axios’ Barak Ravid and Marc Caputo report.

• Summarizing Trump’s remarks to Netanyahu, a U.S. official said: “You’re fucking crazy. You’d be in prison if it weren’t for me. I’m saving your ass. Everybody hates you now. Everybody hates Israel because of this.”
• A second source briefed on the call said Trump was “pissed” and at one point yelled at Netanyahu: “What the fuck are you doing?”

• “I had a very productive call with Prime Minister Bibi Netanyahu, of Israel,
  and there will be no Troops going to Beirut, and any Troops that are on their
  way, have already been turned back,” Trump
  wrote afterward.

• Israel didn’t intend to send troops to Beirut, but rather to conduct massive
  airstrikes that could have knocked down buildings in the southern suburbs of
  Beirut where some of Hezbollah’s headquarters are located.

Trump also claimed he’d had a “very good call” with “highly placed Representatives” of Hezbollah who agreed “that all shooting will stop — That Israel will not attack them, and they will not attack Israel.”

• It is not clear which representatives he was referring to.

“So, I spoke with Hezbollah, and I said no shooting, and I talked to Bibi [Israeli Prime Minister Benjamin Netanyahu], and said, no shooting, and they both stopped shooting each other.”

Trump claimed on Monday after his call with Netanyahu that the Iran negotiations “are continuing, at a rapid pace.”

In a short statement, Netanyahu said Israel’s position in Lebanon “remains unchanged” and his military will “continue to operate as planned in southern Lebanon.” (Bloomberg)

What’s so boring?

INFLATION WATCH

Commodity Prices and AI-Related Effects Continue to Boost Inflation (Goldman Sachs)

• Iran war effects: We have raised our December 2026 year-over-year headline PCE inflation forecast by 1.4pp since the start of the war, with most of the boost coming from higher energy prices.
• Oil prices have increased sharply since the start of the Iran war, with spot prices rising from $71/barrel on average in February to $117/barrel on average in April, $108/barrel on average in May, and $92/barrel today. Our oil strategists expect Brent crude oil prices to decline to $90/barrel by 2026Q4, but they see risks as two-sided with significant upside risks from potentially more persistent supply losses but meaningful downside risk from weaker demand. We expect higher energy prices to boost core PCE inflation by roughly 0.35pp this year.
• The war has also raised prices of other Gulf exports including chemical and metal products such as nitrogen fertilizer and aluminum. We expect higher fertilizer costs to boost food prices by roughly 1.0% this year.
• AI-Related effects: Strong demand for AI infrastructure has raised the prices of some key electronics inputs, including digital memory and batteries.
• For example, the producer price index for electronic components and accessories increased by 20% on a year-over-year basis in April.
  AI-related spending has likely put some upward pressure on software prices in recent years, as several companies have recently raised software prices.
• Strong demand for data centers is boosting electricity demand and power prices.
• Computer software and accessories prices in the PCE price index increased by 5.0% month-over-month in April after increasing by 4.0% in March and 6.5% in February. This likely reflects a combination of higher accessories prices as a result of memory cost increases and higher software prices.
• Tariff effects: We estimate that the share of tariff costs that has passed through to consumer prices reached 90% after 13 months.
  We estimate that tariffs have boosted current year-over-year core PCE inflation by 0.9pp and will contribute 0.1pp at the end of 2026. We expect core goods inflation to decelerate from a year-over-year pace of 2.8% in April 2026 to 1.8% in December 2026 and 0.5% in December 2027 as tariff cost passthrough to goods prices comes to an end.
• Inflation expectations: Inflation expectations have increased notably since the start of the Iran war. Short-term inflation expectations increased in both the UMich (+0.1pp to +4.8%, 1yr ahead) and NY Fed (+0.2pp to +3.6%, 1yr ahead) surveys. Long-term household inflation expectations increased notably in the University of Michigan survey (+0.4pp to +3.9%, next 5-10yr) while the New York Fed measure declined (-0.1pp to +3.0%, 5yr ahead).
  Financial market-implied expectations for annualized headline CPI inflation over the next few years were little changed over the past month but have increased sharply since the start of the Iran war.

GS inflation forecast: We estimate that core PCE inflation net of tariff effects stands at roughly 2.4% in April. Inclusive of tariff effects, we expect core PCE inflation to decline to 2.8% by December 2026. We expect core CPI inflation to decline from 2.7% in April to 2.5% in December 2026 and 2.1% in December 2027.

All 3 GS scenarios see inflation peaking in Q4’26 and lead to similar inflation numbers at the end of 2027…

I wonder if GS considered that the war in Iran and the AI boom have significantly driven China’s unit export prices upward (+5% YoY), after three years of decline. Conversely, China’s import price index surged 19% in RMB due to disrupted oil supplies and semiconductor shortages.

• Commodities in ‘Super-Squeeze’ as Hormuz Risks Build, HSBC Says

“The longer the strait is closed, the more inventories are run down, the more likely it is that we reach ‘tipping points’ in the markets for some commodities,” analysts including Paul Bloxham said in a June 1 report. Still, knowing exactly when that might happen is hard to determine, they added.

(…) “this is very different to earlier ‘super-cycles’, because it is driven by supply disruptions,” the analysts said. “Rather than a ‘super-cycle’, we have been calling it a ‘super-squeeze’,” they said, highlighting earlier bank research.

With Hormuz still all-but shuttered, oil stockpiles “may reach critical functional lows, which could see sharper — non-linear — price rises and genuine shortages,” they warned.

• S&P Global US Manufacturing PMI: Notable upturns in production and new orders amid stockpiling efforts but prices surge higher again

A sharp and stronger improvement in US manufacturing conditions was signaled by May’s S&P Global PMI data amid the sharpest upturn in production since April 2022.

New orders increased markedly again, but growth in both output and sales was in part driven by stock building as firms sought to protect themselves from supply chain disruption and steeply rising prices caused principally by the war in the Middle East, which remained a notable headwind for the sector.

Overall new orders increased at a sharp pace, albeit softer than in April and largely driven by client efforts to build stock given expectations of further price rises and supply delays.

Exports remained a notable source of demand weakness, falling overall for the eleventh month in a row.

Indeed, manufacturing input costs rose at a rate unmatched in nearly four years, whilst supplier delivery times deteriorated to the greatest extent since August 2022.

Manufacturers’ own charges rose to the greatest extent since September 2022 as they sought to pass through their own higher expenses to clients wherever possible.

 

The ISM report was similar as Wolfstreet shows, adding that “employment was still in contraction in May from April (48.6%)”.

 

Asian manufacturers are also feeling it: S&P Global says “both cost burdens and charges rose at substantial and historically marked rates.”

Actually, manufacturing inflation is global as JP Morgan Global Manufacturing data shows:

Average input prices rose to the greatest extent in almost four years, with accelerations in regions such as the US, the euro area and Japan more than offsetting weaker cost increases in nations including mainland China, India and South Korea.

Average selling prices also rose sharply, with the rate of increase staying close to April’s 45-month high.

China’s manufacturing inflation:

• US Lowers Tariffs to Boost Investment in Industrial Economy

The White House said it will reduce tariffs on farm and construction equipment such as harvesters and forklifts, in an effort to boost investment in the industrial economy through next year.

Under a proclamation issued late Monday, those import taxes would drop to 15% from 25%. Foreign companies could qualify for a lower 10% duty rate if capital equipment contains at least 85% US steel or aluminum, according to a White House fact sheet.

The changes take effect June 8 and would run through the end of 2027. (…)

In April, the administration lowered tariffs to 25% on some imported derivative goods deemed to be “substantially made” of steel, aluminum or copper while maintaining a higher 50% rate on many other imports containing the metals. (…)

Trump cited rising costs as a justification for the move.

“Among other things, the Secretary has informed me that recent circumstances have affected and are affecting domestic industries that use agricultural equipment, industrial equipment and machinery, and other related products,” the president’s proclamation reads.

• Eurozone inflation rises to 3.2% in May as ECB prepares to raise rates

America’s New Financial Middle: Not in Crisis, Not Thriving Either In a poll, more than half of respondents consider themselves financially ‘conflicted’

(…) “We’re like, ‘oh my God, what if we have an emergency?’” he said. “Are we going to be able to stand up from that?’”

Some 51% of U.S. adults place themselves alongside Wallace in this financial gray area, according to a new survey by Edward Jones and Gallup, their first on the topic.

The survey, expected to be released Tuesday, labels this group financially “conflicted,” with respondents describing feeling a mix of stability and uncertainty. Roughly 5,000 people were polled in late March and early April.

People feel conflicted because they are weighing more than today’s bills, according to Penny Pennington, managing partner at Edward Jones. They are looking ahead at the schools their children and grandchildren might attend, the lives they will lead and the cost of making it possible.

Just 16% of respondents expressed a state of confidence about their money, a separate bucket that the survey categorizes as financially “fulfilled.” On the other end of the spectrum, 32% said they were financially stressed.

The state of limbo cuts across income levels. Roughly seven in 10 households earning $135,000 or more said they don’t feel financially fulfilled.

Conflicted! Here’s why:

Investors are also conflicted as Ed Yardeni explains:

Now, there are some caveats to this market rally worth discussing, and even Walter Murphy is getting bothered, in this latest leg up, by the lack of breadth.

Almost every day when the S&P 500 goes up, he shows me how declining stocks are vastly outnumbering the advancers. Only one sector has made a new one-month high relative to the S&P 500.

By contrast, six are at, or near, multi-year relative lows. While the overall market is at all-time peaks, only two of the eleven sectors have managed to reach that status. It is indeed a very rare situation to be talking about a stock market at record highs at the same time that the Financials, of all sectors, are very nearly in correction mode (down almost -10% from their record highs).

Gold replaces US Treasuries as world’s top reserve asset, ECB says

Bullion accounted for 27 per cent of all global central bank reserve assets at the end of 2025, up from 20 per cent a year earlier, according to a report published on Tuesday by the European Central Bank. US Treasuries fell to 22 per cent from 25 per cent over the same period.

The share of euro-denominated reserve assets was unchanged at 15 per cent.

The shifting composition of reserve assets — highly liquid holdings that central banks use to support their currencies, meet international payment obligations and provide liquidity in times of financial turmoil — reflects an attempt by many countries to seek alternatives to the US dollar, the world’s de facto reserve currency. Those efforts have accelerated since 2022, when Washington used sanctions to freeze Russia’s dollar reserves over the full-scale invasion of Ukraine. “Geopolitical tensions continue to drive strong central bank demand for gold,” wrote ECB president Christine Lagarde in Tuesday’s report. (…)

But gold’s surge past US Treasuries — traditionally the bedrock of international dollar reserve holdings — is also the result of its spectacular price gains in recent years. The metal hit a high of more than $5,500 a troy ounce in January.

Dollar-denominated assets as a whole still make up the biggest chunk of reserves at 42 per cent, the ECB data showed. Central banks’ gold purchases slowed slightly to 850 tonnes in 2025 after three years of net purchases of more than 1,000 tonnes per year. The biggest accumulators of gold reserves since 2022 were China, Poland, Turkey and India, the report showed.

However, stablecoin company Tether became the single biggest buyer in 2025, purchasing more than 100 tonnes of gold.

After buying 220 tonnes of gold since the start of Russia’s invasion of Ukraine in 2022, Turkey in early 2026 enacted what the ECB called “one of the largest reserve drawdowns in recent years” as it sold or loaned 130 tonnes of gold after the start of the Iran war.

The ECB report said the international role of the euro grew “gradually but steadily over the past decade”. The issuance of international debt denominated in euros rose by 30 per cent to a “record high” of close to €1tn last year, while international investors poured a net €850bn into euro area assets, pushing foreign portfolio inflows “near peak levels since the creation of the euro”.

Also conflicted: the above is not totally unrelated to the below.

• Losing Trust in Justice Dept., Judges Call Out Its Lawyers’ Behavior

(…) In a scathing ruling on May 14, Judge McElroy called the government’s account “misleading, if not utterly false.” At issue in Judge McElroy’s view was the “awesome power” wielded by government lawyers and the trust that they will “play fair and be honest” with courts.

The Justice Department “has proven unworthy of this trust at every point in this case,” she wrote.

The opinion was one of several heated rulings from federal judges in recent weeks castigating the government’s lawyers for withholding information and making assertions that turned out to be at odds with the facts.

A judge in Chicago said transcripts of grand jury proceedings had been redacted to hide misconduct by her district’s U.S. attorney’s office. Another judge in Rhode Island referred an assistant U.S. attorney for potential discipline after he admitted that he had knowingly withheld information from the court.

Like the one involving the Rhode Island hospital, the complaints have come as administration lawyers seek to defend major parts of President Trump’s agenda.

The government lawyers whose honesty the judges have called into question are a mix of career civil servants, political appointees and newcomers brought in as the Justice Department makes a public hiring push to fill its depleted ranks. Their missteps in court come as the department’s leadership takes an unusually combative tone with judges who rule against them, and department lawyers try to balance judges’ demands against the often stubborn posture of the executive-branch clients they represent.

But regardless, an increasing number of judges appear to be questioning the longtime assumption that Justice Department lawyers can be taken at their word, part of the “presumption of regularity” that experts say allows federal courts to operate swiftly and smoothly. (…)

By giving voice to their lack of trust, the judges are heralding major risk to a legal order that has been in place since Watergate. Codified in a Justice Department reference text called the Justice Manual, the basic idea is that department lawyers should be held to a higher standard because they carry with them the reputation of the entire executive branch. (…)

“You can’t hide the ball. You have to be honest,” said Andrew C. Mergen, who served in the Justice Department for more than 30 years under presidents of both parties and now teaches at Harvard Law School. The pattern of judges accusing department lawyers of dishonesty, he said, “is such an extraordinarily awful look for the Justice Department.” (…)

Judges have over the past year called out the administration for making dodgy legal arguments, filing dishonest testimony and failing to comply with court orders. Some of the earlier problems stem from the fact that Justice Department lawyers often represent other government agencies in court, including the Homeland Security Department, which has proved to be a difficult client, particularly in immigration cases.

But judges have taken a distinctly harsher tone in recent weeks, assigning responsibility directly to individual Justice Department lawyers for their own representations in court.

“This reckless disregard for the duty of candor owed to a federal court is appalling,” wrote Judge McElroy, referring to lawyers’ ethical obligation to never knowingly present false evidence or make false statements of fact or law. She cited recent cases in Pennsylvania, Washington and Oregon in which other judges raised questions about the government’s honesty.

The same issue arose in Chicago, where Judge April M. Perry found that Justice Department lawyers had improperly influenced a grand jury in a case in which the government was seeking indictments against four activists who were protesting outside an immigration detention facility.

Beyond the potential misconduct with the grand jury, Judge Perry found the lawyers were dishonest with her by cutting out portions of transcripts they provided her about what had unfolded. (…)

In public statements, Justice Department officials have attacked “rogue judges” and “activist judges,” who they claimed were abusing their authority, and in some cases filed misconduct complaints against them. Judge DuBose and Judge Perry are appointees of President Joseph R. Biden Jr. Judge McElroy was appointed by Mr. Trump.

But Mr. Mergen, the Harvard law professor, said he has heard from career Justice Department lawyers who were demoralized by the pressures of the job, particularly the flood of petitions from immigrants challenging their detention. Pressure from the high workload, he said, was aggravated by a combination of a politicized institutional culture and judges’ growing skepticism — all of which could be contributing to the courtroom missteps.

“The risk is that the longer this goes on, the fewer good people are willing to stay,” he said. “Over time, it will get harder to do even the routine cases if judges don’t trust you.”

During prior administrations, a job as an assistant U.S. attorney was a coveted status marker for lawyers. Under the Trump administration, the department has borrowed lawyers from the Homeland Security Department and the military, posted job solicitations online and offered starting bonuses. Not only are applications down, but those who are applying are also generally less qualified, officials have said. (…)