Bond markets last week reflected investor concerns about ballooning U.S. debt and deficits, further exacerbated by Moody's downgrading the country's top credit rating. Rising long-term bond yields, in particular, have raised widespread concerns about the economic outlook amid high borrowing costs and uncertainty from tariffs. The Republican-controlled U.S. House of Representatives on Thursday passed a sweeping tax and spending bill that would implement much of Trump's policy agenda. If the bill becomes law, it would add about $3.8 trillion to the federal government's current $36.2 trillion debt over the next decade.

But investors worry that further volatility in 30-year bonds could set off a chain reaction in global markets. In equities, the market sees the recent rally as coming to an end. While valuations have been repaired, downside risks remain. The dollar is heading for a bad week, and the dollar has resumed its decline, fearing its worst weekly performance in more than a month. Although data released on Thursday showed that business activity accelerated beyond expectations, investors remain cautious about how the fiscal situation will affect demand for U.S. assets. In commodities, gold is expected to post its biggest weekly gain in more than a month. Meanwhile, oil prices are expected to see their first weekly decline in three weeks. OPEC+ is weighing the possibility of another significant increase in production in July, which could further increase supply pressure in a market that is already expected to be oversupplied.

Review of market performance last week:

Last week, US President Trump once again put pressure on trade issues, not only threatening Apple by name, but also proposing a 50% unified tariff on EU goods from June 1. The news has heated up the market's risk aversion. Last Friday, major US stock indexes fell across the board, with all three major indexes falling more than 2% this week. The Dow Jones closed down 256.02 points, or 0.61%, at 41,603.07 points; the S&P 500 closed down 39.19 points, or 0.67%, at 5,802.82 points; and the Nasdaq Composite closed down 188.53 points, or 1.00%, at 18,737.21 points.

Gold prices rose more than 4.8% last week to a near one-week high of about $3,366 per ounce as renewed trade tensions boosted risk aversion. Gold prices were supported not only by trade concerns but also by growing unease about the U.S. fiscal outlook. President Trump's new tax bill, which recently passed the House of Representatives and now heads to the Senate for an expected vote in August, is expected to expand the U.S. budget deficit by nearly $3 trillion over the next decade. Earlier this week, gold prices also found support from rising geopolitical tensions following reports that Israel may take action against Iranian nuclear facilities.

Silver prices rose above $33,700 per ounce last week and recorded a gain of about 3.66%, driven by demand for safe-haven assets amid growing concerns about the U.S. fiscal outlook. Investor anxiety was fueled by President Trump's new budget bill, which raised concerns about worsening deficits and a widening national debt. Also reinforcing bullish sentiment was a statement by Federal Reserve Governor Christopher Waller that the Fed still sees room for rate cuts later this year, depending on the outcome of ongoing tariff policy developments, which could support precious metals.

The aftermath of the "downgrade bomb" dropped by Moody's rating agency last week has not yet subsided, and the size of the US Treasury debt of $36 trillion is becoming a nightmare for global investors. The yield of 30-year US bonds continues to fluctuate above 5%, but strangely, this surge in yields has not attracted capital inflows as usual, but has instead triggered a large-scale withdrawal of foreign capital. The euro has become one of the winners in this wave of dollar selling. Earlier, US President Trump rekindled trade tensions by announcing that negotiations with the European Union had "made no progress" and proposed to impose a 50% tariff on EU goods from June 1. More strikingly, the Japanese yen, once regarded as a safe haven, has also joined the ranks of besieging the US dollar, reflecting the market's unprecedented concerns about the health of the US fiscal health. The US dollar index has fluctuated and weakened again, currently falling to a two-week low of 99.04, giving up all gains, and a weekly decline of about 1.69%, which will be the first weekly decline in five weeks.

The euro fell against the US dollar last week, at $1.1172. The euro fell 0.67% last week, the largest single-week decline since early February. As trade tensions ease and risk appetite reignites, the cost of using credit default swaps (CDS) to insure euro-denominated credit defaults has fallen. USDJPY rose 0.21% to 145.69 last week. Data on Friday showed that Japan's gross domestic product (GDP) shrank for the first time in a year in the first quarter, highlighting the fragility of Japan's economic recovery in the face of the threat of US President Trump's trade policy.

The pound rose to $1.3546 last week, close to its highest level since February 2022, with a weekly increase of 2.06%. Boosted by optimistic economic data and easing in the cost of living. Secondly, the dollar continued to be under pressure due to sovereign rating downgrades, providing support for the pound. The current market is reassessing the divergence of the policy paths of the UK and the United States. With the interweaving of long and short factors, the pound may remain high in the short term. The Australian dollar rose to around $0.6458 last week, up 0.88% for the week, recovering the position lost in the previous two weeks as the dollar weakened again due to concerns about the domestic fiscal outlook in the United States. In addition, the Australian dollar is also supported by improved global trade sentiment.

WTI crude oil spot Last weekend, driven by short-covering operations before the US Memorial Day long weekend, international oil prices rose slightly. In addition, the uncertainty of the US-Iran nuclear talks also exacerbated market concerns about crude oil supply disruptions. Brent crude futures rose 0.5% on Friday to $64.8 per barrel, but still recorded the first weekly decline in three weeks; WTI crude oil rose 0.5% last week to $61.50 per barrel, but still recorded the first weekly decline in three weeks as the market expected OPEC+ to increase production again.

Last week, Bitcoin hit $111,977, and the bulls hit a record high. US President Trump held a "secret dinner" for buyers of TRUMP meme coins. He said at the meeting that it is necessary to ensure that the dominance of cryptocurrencies is in the hands of the United States. Trump's USD1 is listed on Binance, and major US banks are jointly entering the stable currency.

The 10-year U.S. Treasury yield fell to 4.45% on Friday from a three-month high of 4.64% in the previous session before the weekend, after President Trump issued a new tariff threat, causing the market to refocus on the impact of uncertain trade policies on growth. The move also weakened market expectations that the White House may prioritize reducing tariffs with Chinese opponents. The announcement erased the surge in long-term bond yields because the tax bill passed by the House of Representatives will expand the federal budget deficit more than expected, and Moody's credit rating downgrade attracted attention, focusing on the Treasury's unsustainable debt issuance.

Market Outlook This Week:

Trump's tariff threats shake the market and fuel the "sell-US" trend

The market is preparing for another turbulent week driven by President Trump's new tariff threats against the European Union and Apple.

The rebound in the U.S. stock market in the past month and a half came to an abrupt end as U.S. President Trump suddenly escalated his tariff threats before the weekend. In addition to the unpredictable impact of the U.S. President's remarks this week, there are many events that are enough to cause market shocks, such as the Federal Reserve meeting minutes, Nvidia's earnings report, key U.S. inflation data, and Japan's ultra-long-term government bond auction.

In his latest attack last Friday, Trump threatened to impose a 50% tariff on the European Union from June 1, and said he would impose a 25% tariff on Apple and other mobile phone manufacturers. The market is still waiting to see whether these threats will be implemented, because the US government has done too many "changes in policy" recently.

Trump's tariff remarks put pressure on US assets, and the trend of "selling America" ​​has become more obvious. The trade war initiated by Trump and concerns about the US fiscal situation have triggered capital outflows from US stocks, bonds and dollars. For Apple, an American company, the escalation of the trade war has hit US stock indexes, and Wall Street is still under pressure before the close.

As an intuitive tool to measure "Trump's abuse of policy space", the US long-term Treasury yield has become the most important trading indicator. The minutes of the Federal Reserve meeting and PCE inflation data released this week will become a window for investors to observe US inflation and monetary policy makers' concerns about tariffs.

At the same time, the US House of Representatives passed Trump's tax bill, which has now been sent to the Senate for discussion and voting. The bill will increase the already swollen national debt by nearly $3.8 trillion. At the same time, due to the deterioration of the US fiscal outlook, the yield on 30-year US Treasury bonds has risen to more than 5%.

The US dollar hegemony is facing a "confidence crisis"! Global capital is fleeing the US dollar; where is the next safe haven?

Last week, the US dollar index fluctuated and weakened again, falling about 1.69% for the whole week, and will see its first weekly decline in five weeks. The aftermath of the "downgrade bomb" dropped by Moody's rating agency last week has not yet subsided, and the scale of US$36 trillion in US Treasury bonds is becoming a nightmare for global investors.

The bond market sends a more dangerous signal. The 30-year US Treasury yield continues to fluctuate above 5%, just one step away from the high of 5.179% set in October 2023. But strangely, this surge in yields did not attract capital inflows as usual, but instead triggered a large-scale withdrawal of foreign capital from the US dollar. This is not a sign of economic improvement, but a vote by the market to protest the out-of-control fiscal deficit and snowballing interest payments in the United States.

This US dollar confidence crisis is reshaping the global capital flow pattern. The eurozone has become an unexpected beneficiary, finally ushering in a strong rebound after four consecutive weeks of decline. Analysts pointed out that this is not only the result of capital rotation, but also a strategic adjustment after global investors reassessed risks. 

This dollar crisis is by no means a short-term fluctuation, but the prelude to a profound change in the global economic order. When the world begins to question the sustainability of the dollar's hegemony, every investor should think: Where is the next safe haven? Once the "Pandora's Box" of the US fiscal policy is opened, it may not only release market fluctuations, but also the end of an era.

The Federal Reserve is expected to cut interest rates twice before the end of the year. If the Fed's policy does not meet market expectations, the trend of the US dollar may adjust accordingly.

36 trillion debts have triggered a "tsunami" in US bond yields! How can gold take it?

The biggest pressure on the gold market comes from the sharp fluctuations in US bond yields. The yield on 30-year U.S. Treasury bonds hit a 19-month high, while the auction of $16 billion in 20-year U.S. Treasury bonds on Wednesday was cold, and the demand for sovereign bonds is undergoing structural changes. It is worth noting that the U.S. Treasury market is forming a strange "polarization". Short-term Treasury bonds are supported by the good data that the number of initial jobless claims has dropped to 227,000, while long-term Treasury bonds are sold off due to the worsening fiscal deficit. This steepening of the yield curve usually indicates the risk of economic stagflation, which should be good for gold according to historical laws, but it has triggered a margin call-style selling wave in the short term.

The current gold market is being pulled by multiple forces. In the short term, the technical rebound of the US dollar and the selling of U.S. Treasury bonds do pose pressure. However, in-depth analysis shows that the three major factors of currency depreciation pressure brought about by the $3.8 trillion fiscal expansion, the safe-haven demand caused by the damaged credit of U.S. Treasury bonds, and the increasingly obvious stagflation risks are building long-term support for gold.

Historical experience shows that when the 30-year US Treasury yield soars 50 basis points in a single month, it often indicates that greater financial system pressure is brewing. Investors should perhaps pay attention to the layout opportunities created by this wave of pullbacks, rather than being confused by short-term fluctuations. In an era when the US dollar hegemony is facing challenges and the global debt bubble is expanding, the monetary attributes of gold may be reawakening.

Comprehensively analyzing the current market environment, gold still has abundant upward momentum. Technically, the gold price has successfully broken through the short-term resistance level and formed a new upward channel; fundamentally, the three major supporting factors of the weak US dollar, geopolitical risks and economic uncertainty are unlikely to subside in the short term. In particular, the long-term trend of monetization of the US fiscal deficit and the potential risk of deterioration in the situation in the Middle East may become catalysts for further increases in gold prices.

Crude oil faces a triple blow of OPEC production increase + Iran nuclear talks + inventory surge

The current crude oil market is in a sensitive period of "expectations first": the news that OPEC+ may finalize a July production increase of 411,000 barrels/day at the June 1 meeting has become the main reason for suppressing oil prices; the surge in US crude oil storage demand to the level of the epidemic period indirectly confirms the market's concerns about oversupply; and the results of the fifth round of Iran nuclear talks are about to be released, and its impact on the return of Iranian oil to the market adds uncertainty.

Even with geopolitical risks, including reports that Israel plans to attack Iran's nuclear facilities and new sanctions on Russian oil flows by the European Union and the United Kingdom, they have failed to offset supply-driven market sentiment. The decline in the two oils in the market {WTI and Brent} is a response to OPEC+'s expectations of expanding production quotas.

The crude oil market is still biased to the downside as technical resistance levels have not been broken and multiple fundamental factors point to increased global supply. Unless the support levels of $60.00 for WTI and $61.50 for Brent hold and drive a turnaround in market sentiment, the path of least resistance in the short term still seems to be bearish.

Conclusion:

As the size of US debt surges, market concerns about the risk of US debt default or dollar depreciation may intensify, and the expanding debt may weaken the credit of the US dollar. The US debt/GDP ratio has exceeded 124%. If it continues to rise, the market may worry about the sustainability of US fiscal policy and even trigger expectations that the Federal Reserve will be forced to print money to repay debts in the future, thereby dragging down the value of the US dollar. In addition, if the debt crisis ferments, the market may expect a policy shift to easing, further weakening the attractiveness of the US dollar.

Although gold prices fell from a nearly two-week high on Thursday due to factors such as the rebound of the US dollar index, in the medium and long term, fiscal deficits, debt crises and inflation risks will become key factors supporting gold prices. Gold will be sought after as the ultimate safe-haven asset. At the same time, fiscal expansion policies may push up inflation and enhance gold's anti-inflation properties. If the market doubts the long-term value of the US dollar, central banks and investors may accelerate their gold holdings to hedge risks. In the medium and long term, fiscal deficits, debt crises and inflation risks will become key factors supporting gold prices.

Overview of important overseas economic events and matters this week:

Monday (May 26): Fed Chairman Powell delivered a graduation speech at Princeton University's graduation ceremony, European Central Bank President Lagarde delivered a speech, and the U.S. stock market was closed due to Memorial Day

Tuesday (May 27): Bank of Japan Governor Kazuo Ueda delivered a speech, the Eurozone May Economic Sentiment Index, the U.S. May Conference Board Consumer Confidence Index, and the U.S. April Durable Goods Orders Data

Wednesday (May 28): The Reserve Bank of New Zealand announced its interest rate decision and monetary policy statement, and the OPEC+ ministerial meeting

Thursday (May 29): The Federal Reserve announced the minutes of the May monetary policy meeting, the revised annualized quarterly rate of real GDP in the first quarter of the United States, and the Bank of Korea announced

Friday (May 30): U.S. core PCE price index for April, final value of the University of Michigan consumer confidence index for May

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