Category: Market Update

Institutional investors are increasingly favoring hedge funds in Europe and Asia over the United States, marking the first such shift since 2023, according to BNP Paribas’ latest survey. The move reflects growing concerns over U.S. policy uncertainty and trade tensions, prompting diversification into more stable and growth oriented regions.

Europe led global inflows in the first half of 2025, with 37% of investors adding capital to European hedge funds. Asia-Pacific also saw rising interest, while only 14% of respondents planned to invest in North American funds. Credit hedge funds attracted the most inflows around $4.5 billion followed by multi-manager and equity strategies. Smaller funds managing under $10 billion received the bulk of new capital, signaling a preference for agility and specialization.

Despite the shift in allocations, the investor base remains U.S. centric, with 73% of hedge fund allocators based in the United States. A BNP Paribas survey covered 140 financiers across 16 countries, representing $960 billion in hedge fund assets.

The eurozone’s manufacturing sector showed further signs of recovery in May, edging closer to stabilization, according to the latest survey data. The HCOB Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 49.4 in May from 49.0 in April, reaching its highest level in nearly three years. Although still below the neutral 50.0 mark that separates growth from contraction, the steady improvement signals a gradual rebound.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted, “The continued upward movement in the PMI suggests that the recovery is gaining traction.” Manufacturing output expanded for the third consecutive month, with the output index holding firm at 51.5—matching its highest reading since March 2022. New orders showed signs of stabilizing after nearly two years of decline, while export demand hit a 38-month high. Employment in the sector declined at the slowest pace since September 2023, and purchasing activity contracted at its mildest rate in almost three years, indicating improving business sentiment.

Among individual eurozone economies, Greece led the pack with a PMI of 53.2, unchanged from April. Spain returned to growth territory with a reading of 50.5, while France edged closer to stabilization at 49.8, its best performance in over two years. Germany, although still lagging with a PMI of 48.3, experienced one of its softest downturns in recent years.

“Production is rising across all four major eurozone economies, underscoring the broad-based nature of the recovery,” de la Rubia added.

Looking ahead, manufacturers expressed the highest level of optimism since February 2022, despite concerns over potential U.S. tariffs on European goods. The future output index jumped to 61.6 from 58.0. Input costs continued to fall for the second month in a row, with the pace of decline accelerating to a 14-month high. In response, manufacturers reduced their selling prices for the first time since February, potentially easing inflationary pressures.

Investor demand for Japan’s long term government bonds showed renewed signs of fragility this week, as a ¥500 billion (approximately $3.5 billion) auction of 40 year securities drew significantly weaker interest than expected. The bid to cover ratio a key indicator of demand fell to 2.21, the lowest level recorded since July 2024. This metric reflects the number of bids received relative to the amount of bonds sold, and a lower ratio typically signals reduced investor confidence or appetite.

The subdued outcome follows a similarly disappointing 20-year bond auction last week, which saw the weakest demand in over a decade. In response, the Japanese Ministry of Finance announced plans to scale back the issuance of very long dated bonds. The move is aimed at calming market volatility and maintaining stability in the government debt market, which has come under pressure amid shifting investor sentiment and rising concerns over Japan’s ballooning public debt.

Japan’s debt to GDP ratio is among the highest in the developed world, and the government’s reliance on long term borrowing has made it particularly sensitive to changes in investor appetite. The recent auctions suggest that investors may be growing wary of locking in capital for extended periods, especially in an environment where inflation expectations and interest rate trajectories remain uncertain.

The combination of fiscal restraint and central bank signaling has helped to ease upward pressure on long term yields for now. However, they cautioned that market participants remain alert to the evolving supply demand dynamics in Japan’s bond market, especially as the government balances the need for fiscal support with long term sustainability.

The European Central Bank (ECB) has raised concerns that financial markets may be overly optimistic, despite a backdrop of persistent geopolitical tensions and trade related uncertainties. In its latest Financial Stability Review, the ECB highlighted a range of vulnerabilities that could threaten economic resilience. The report pointed to a mismatch between buoyant credit and equity markets and the broader economic outlook, which remains clouded by risks such as escalating trade disputes, sluggish growth, and potential disappointments in monetary policy expectations.

“Equity prices remain elevated and credit spreads appear misaligned with actual credit risk,” noted ECB Vice-President Luis de Guindos in the report’s foreword.

The ECB emphasized that trade policy uncertainty poses a significant threat to economic performance. It estimated that a notable rise in trade uncertainty could reduce median GDP growth forecasts by 0.15 percentage points within a year.

The central bank also warned that such uncertainty could have a pronounced impact on the financial sector, citing data showing that banks’ share prices could fall by over 10% within six months, while their bond market borrowing costs could rise by 7 basis points. Additional risks outlined in the review include the growing threat of cyberattacks, the concentration of investments in illiquid private markets, and the increasing—though still limited—interconnection between cryptocurrencies and traditional financial systems.

Several macroeconomic factors are shaping EUR/USD’s trajectory. Recent inflation data shows consumer prices rising by 2.3% year-on-year, slightly lower than the previous month. Core inflation remains at 2.8%, suggesting that price pressures are easing. While the Federal Reserve is expected to cut rates later in the year, markets are pricing in two 25-basis-point rate cuts by December. A more dovish Fed could weaken the dollar, supporting further euro strength. The European Central Bank has maintained a cautious stance, balancing inflation control with economic growth. If the ECB signals a pause in rate hikes or hints at future easing, it could limit the euro’s upside. However, stable Eurozone economic data could support further gains. Global trade tensions, particularly between the U.S. and China, continue to impact currency markets. Any resolution or escalation in trade negotiations could influence the dollar’s strength, indirectly affecting EUR/USD movements.

From a technical perspective, if EUR/USD breaks above 1.115, the next resistance is 1.12, followed by 1.22 in the longer term. A weaker dollar and stable Eurozone data could support this move. On the other hand, a rejection at 1.11 could push the pair lower, with 1.024 as a key support level. Technical indicators suggest the pair is approaching overbought conditions, increasing the likelihood of a pullback.

The EUR/USD pair has been gaining strength, currently testing the 1.115 level on the monthly timeframe. This bullish movement mirrors the early presidency of Donald Trump, when the euro also showed resilience against the U.S. dollar. Based on historical trends, traders are eyeing a potential rally toward 1.22 if momentum continues. However, a rejection at 1.115 could trigger a reversal, potentially bringing the pair back to 1.024 and reinforcing a bearish pattern.

The Dollar Spot Index has reached its lowest level in six months, reflecting heightened concerns over U.S. trade policies and economic outlook. The index has dropped nearly 6% this year, as uncertainty surrounding tariff implementation and global trade tensions continues to weigh on investor sentiment.

The decline accelerated after U.S. President Donald Trump reaffirmed plans to impose tariffs on consumer electronics, dampening hopes for an exemption. Wall Street analysts warn that the tariff-driven erosion of business confidence may further pressure the dollar. Additionally, speculative traders have increased short positions on the dollar, while demand for currency hedging has surged to a five-year high. Major investment banks, including JPMorgan Chase and Goldman Sachs, predict sustained weakness for the dollar, particularly against the yen and euro, amid growing recession risks.

The Federal Reserve has downplayed expectations of intervention, leaving investors uncertain about the future of U.S. monetary policy. With tariff effects continuing to ripple through markets, the dollar’s trajectory remains a focal point for traders and policymakers.

European pharmaceutical companies are raising concerns over potential U.S. tariffs that could accelerate a shift in investment and manufacturing toward North America. The European Federation of Pharmaceutical Industries and Associations (EFPIA), representing major firms such as Bayer, Novartis, and Novo Nordisk, has urged the European Commission to take immediate action to prevent the sector from relocating key operations abroad.

Although pharmaceuticals were initially exempt from the broader tariffs announced by U.S. President Donald Trump, new levies targeting the industry are expected soon. This uncertainty has led drugmakers to reconsider their long-term strategies, with many already expanding production facilities in the United States.

EFPIA argues that Europe’s current regulatory framework needs urgent reform to remain competitive against the U.S., China, and emerging markets. Industry leaders have called for stronger intellectual property protections, streamlined clinical trial procedures, and improved digitalization of the healthcare system. Furthermore, the trade association warns that U.S. tariffs could significantly disrupt global medicine supply chains, affecting availability and pricing across Europe.

In response, the European Commission has proposed 25% counter-tariffs on various U.S. goods, including agricultural products and consumer items. However, industry leaders stress that without meaningful reforms, Europe risks losing its competitive edge in pharmaceutical innovation and further incentivizing companies to relocate their operations abroad.

Global oil markets have faced renewed volatility as crude prices plummeted to their lowest levels since 2021. The downturn comes amid escalating trade tensions between the United States and China, fueling concerns over demand for raw materials and the broader economic outlook. Brent crude and U.S. West Texas Intermediate crude futures both lost over 10% in the past week, as investors reacted to increasing uncertainty. Analysts note that the decline in oil prices has outpaced losses in equities, signaling deeper concerns about recession risks and geopolitical instability.

The downward pressure on oil prices has been exacerbated by OPEC+ plans to boost supply, further unsettling markets already grappling with sluggish demand. Wall Street banks, including Goldman Sachs and Morgan Stanley, revised their forecasts downward, reflecting the growing pessimism surrounding future price stability. Meanwhile, energy traders are closely monitoring China’s latest response to U.S. tariffs, Beijing announced additional 34% levies on American goods, amplifying fears of a prolonged economic slowdown. As demand expectations weaken, natural gas prices have also followed suit, with benchmark European contracts hitting their lowest levels in several months.

With oil now trading at multi-year lows, investors remain on edge, questioning whether the market downturn will persist or eventually stabilize. Some analysts anticipate value-buying opportunities, while others warn that further price corrections may be inevitable if recession fears continue to dominate sentiment.

As the trade dispute between the United States and China intensifies, global investors remain optimistic about the resilience of Chinese equities. Recent tariffs imposed by the U.S. have raised concerns over economic growth, leading asset managers highlight several factors that position Chinese stocks to endure.

Chinese shares have demonstrated remarkable resilience, with indices such as the CSI 300 showing only modest declines amid ongoing economic headwinds. Analysts attribute this stability to proactive measures by Beijing, including fiscal support and stimulus aimed at driving innovation and corporate growth. While uncertainties persist, industry leaders suggest that market dips could be viewed as opportunities for strategic investment. UBS Global Wealth Management, for instance, plans to monitor markets for openings to increase exposure to China due to its pro-business tilt.

Despite challenges, including export disruption and geopolitical risks, some analysts believe China could leverage its leadership in trade and technology to maintain a steady trajectory. The nation’s commitment to long-term innovation and consumer revival continues to attract global investment interest.

Inflation in the eurozone continued its downward trend in March, reaching 2.2 percent, according to data from Eurostat. This marks a slight decrease from 2.3 percent in February. The decline is primarily driven by lower prices for services and energy, which have become less expensive compared to the previous year.

The European Central Bank (ECB) aims to maintain inflation at 2 percent, and with the current figures, that target is coming into view. However, the situation in the Netherlands remains different. According to Statistics Netherlands (CBS), Dutch inflation stood at 3.7 percent in March, a minor drop from 3.8 percent in February. Eurostat, using a slightly different calculation method, recorded a Dutch inflation rate of 3.4 percent, down from 3.5 percent in the previous month.

Rising wages, along with government policies on excise duties and VAT, contribute to the relatively high inflation in across the eurozone, inflation rates vary significantly. France recorded the lowest rate at 0.9 percent, while Estonia, Slovakia, and Croatia reported the highest inflation at 4.3 percent. With inflation gradually approaching the ECB’s target, attention now turns to potential monetary policy adjustments.