Global Risk Monitor: Weekly Update – May 30

Global markets ended the month of May on relatively firm footing, with equity indexes rebounding modestly, inflation easing slightly, and consumer confidence stabilizing. However, beneath this surface calm lies a deeper undercurrent of concern—a growing alarm over sovereign debt and deficits that is beginning to reverberate through financial markets, particularly in the U.S. bond market. As summer approaches, deficits and debt sustainability are poised to dominate financial and policy discourse, propelled by mounting warnings from influential voices in finance and an increasingly precarious fiscal landscape.

Market Snapshot

Markets digested a mix of macroeconomic signals during the holiday-shortened week. U.S. equities rallied early on news that President Trump postponed a 50% EU tariff, but ended the week below their highs due to revived trade friction with China and legal uncertainties surrounding the administration’s tariff authority.

Treasury yields, which had spiked the previous week, cooled off, with the 30-year bond slipping from its psychological 5% threshold. Meanwhile, PCE inflation data—closely watched by the Federal Reserve—showed a continued moderation, offering tentative hope for rate cuts later in the year.

Globally, the ECB is widely expected to cut rates in June, while Japan and China are contending with both inflation pressures and deteriorating industrial output. Latin America’s current accounts remain manageable, but risks tied to global trade policies persist.

Spotlight on Debt & Deficit

The most urgent issue facing global markets is not immediate trade disruption or short-term inflation—it is the increasingly untenable trajectory of U.S. government debt. This theme was sharply underscored in two pivotal developments this week:

1. Jamie Dimon’s Alarm Bell: The JPMorgan Chase CEO warned that the U.S. bond market could “crack” under the weight of federal debt expansion. “I just don’t know if it’s going to be a crisis in six months or six years,” he cautioned, referencing rising yields, foreign investor retreat, and mounting Treasury issuance.
2. Wall Street’s Pushback on Trump’s Tax Plan: According to a Washington Post investigation, top Wall Street executives have privately warned the Trump administration that its new tax package—projected to add at least $2.3 trillion in new debt—could destabilize bond markets and raise borrowing costs across the economy.

Investors are increasingly vocal, describing the tax plan as a “poisoned chalice” that could exacerbate term premiums and crowd out private investment. The Treasury’s ballooning $29 trillion market, already strained by high rates, faces diminished demand from foreign buyers and banks, many of which are urging regulators to ease bond trading restrictions to prevent a liquidity crunch.

Why This Matters: The Long-Term Implications

Rising deficits may feel abstract, but their impact is concrete: higher interest rates on mortgages, car loans, and business credit; lower government spending on essential services due to growing debt-service obligations; and potential erosion of confidence in the U.S. dollar as the global reserve currency.

The convergence of fiscal expansion, global de-dollarization trends, and mounting geopolitical tensions suggests that the bond market is at a critical inflection point. With the Congressional Budget Office projecting debt-to-GDP to exceed WWII-era highs and rating agencies like Moody’s already downgrading the U.S., this is not a distant threat—it is a present and pressing one.

Outlook: Summer of Reckoning

The summer of 2025 may mark a pivotal period in global market evolution. With major fiscal legislation under debate, expected central bank moves in the U.S., Europe, and Asia, and judicial rulings looming over tariff legality, investor sentiment may become increasingly reactive. The Treasury market will likely serve as a sensitive barometer for investor confidence in U.S. fiscal responsibility.

Expect further volatility in long-duration bond yields, persistent debates over deficit-financed growth strategies, and a growing chorus of market voices calling for structural fiscal reform.

Recommended Summer Reading: Understanding Debt and Deficits

To deepen understanding of these pivotal issues, consider these insightful books:

• “This Time is Different” by Carmen Reinhart & Kenneth Rogoff – A historical analysis of sovereign debt crises and why fiscal excess often ends badly.
• “Fiscal Reckoning: The Looming Debt Crisis and What It Means for You” by James L. Payne – A clear-eyed examination of the political and economic roots of America’s debt problem.
• “Debt: The First 5,000 Years” by David Graeber – A broader anthropological and historical take on the social contracts behind monetary debt.

Markets may appear stable for now, but this equilibrium is fragile. As summer begins, the conversation must shift from short-term trade skirmishes to long-term fiscal strategy. The U.S. bond market’s ability to absorb vast new issuance without significant dislocation will define not only domestic financial conditions but also global capital flows and investment strategies. Investors, policymakers, and voters alike must confront the reality that fiscal sustainability is no longer a theoretical debate—it is an urgent, market-moving imperative.

Markets

U.S. Market Analysis

• U.S. equity markets posted weekly gains despite late-session volatility, driven by easing Treasury yields and improved consumer confidence data.
• The S&P 500 rose 1.88%, while the Nasdaq led major indexes with a 2.01% gain; small-cap indexes underperformed but finished in positive territory.
• Treasury yields cooled after a strong 7-year auction, with the 30-year yield pulling back below 5%, calming recent rate pressure.
• Trade tensions re-emerged after President Trump accused China of violating their trade deal, briefly reversing earlier gains in tech stocks.
• Positive inflation data and delayed EU tariffs helped sustain bullish momentum through most of the week.

Global Market Analysis

• European stocks advanced modestly, supported by softening inflation and postponed U.S. tariff hikes; the STOXX Europe 600 added 0.65%.
• Japan’s Nikkei 225 rebounded 2.17% as U.S.-Japan trade talks showed signs of progress, while BoJ policy remained steady amid strong Tokyo inflation.
• Chinese markets declined slightly due to light economic data and limited trade news; infrastructure stimulus is expected to support growth in the near term.
• Hungary’s central bank left its base rate unchanged at 6.50%, citing persistent inflation risks and uncertainty tied to global trade dynamics. Policymakers flagged potential upside risks to inflation from international market volatility and maintained a restrictive stance.
• South Korea’s central bank cut its policy rate by 25 bps to 2.50%, responding to expectations of slowing domestic growth. Officials noted stable inflation near 2% but expressed concern over rising household debt and currency volatility under accommodative conditions.

Economics

U.S. Economic Overview

• April’s core PCE inflation cooled to 2.5% YoY—the lowest since 2021—boosting market expectations for potential Fed rate cuts later in 2025.
• Consumer confidence rebounded sharply in May, with the Conference Board index rising to 98.0, breaking a five-month decline.
• The U.S. bond market remains under scrutiny as Wall Street and policymakers grow increasingly concerned over the sustainability of federal deficits.
• Jamie Dimon and other financial leaders warned of an impending “crack” in the Treasury market if debt levels continue rising unchecked.
• A federal court’s temporary block on Trump’s tariffs raised short-term uncertainty, though markets appeared resilient in the face of legal and policy volatility.

Global Economic Overview

• The ECB is widely expected to cut rates next week as headline inflation eased in Spain, Italy, and France, reinforcing a dovish policy outlook.
• Germany reported a larger-than-expected increase in unemployment and weakening business sentiment, highlighting diverging growth patterns across the EU.
• Japan’s Tokyo core CPI rose to 3.6% YoY in May, the highest in over two years, while industrial production and job data signaled a mixed outlook.
• China’s economy showed signs of stabilization, but structural reforms remain elusive; planned infrastructure investment may support momentum into Q3.
• Hungary’s inflation outlook remained elevated, with core inflation at 5.0% in April. Central bank officials emphasized caution amid tariff-related uncertainty and vowed to maintain tight monetary conditions to anchor expectations.
• South Korea’s economic growth forecast was revised down, with policymakers anticipating modest recovery in domestic demand. Inflation is expected to hover around 2%, while exports face downside risks from U.S. tariffs and slowing global demand.

Week Ahead

Key U.S. & Global Events

• Markets will watch for White House commentary following renewed tariff threats against China and the EU.
• G7 meetings in mid-June may set the stage for broader policy coordination on trade, fiscal strategy, and geopolitical risk.
• Legal proceedings related to U.S. tariff authority could shape investor sentiment around trade and inflation expectations.

Upcoming Economic Data

• Monday: ISM Manufacturing Index, Construction Spending
• Tuesday: Factory Orders, Conference Board Consumer Confidence
• Wednesday: ADP Employment Change, ISM Services Index, EIA Petroleum Status
• Thursday: Initial & Continuing Jobless Claims, Revised Productivity, Trade Balance
• Friday: Nonfarm Payrolls, Unemployment Rate, Core PCE, Average Hourly Earnings

Notable Earnings Reports

• Tuesday: Dollar General, CrowdStrike, Hewlett Packard Enterprise
• Wednesday: Dollar Tree, MongoDB, Five Below
• Thursday: Broadcom, Lululemon, Samsara
• Friday: No major earnings scheduled

Source: https://global-macro-monitor.com/2025/05/31/global-risk-monitor-weekly-update-may-30/