Market navigator: week of 26 May 2025
US long-term Treasury yields jumped above 5% amid fiscal concerns while Bitcoin reached new records. Key Fed communications and earnings from Nvidia dominate this week.
Summary
- What happened last week: US Treasury yields surged above critical thresholds amid Moody's downgrade and mounting fiscal concerns, while the Reserve Bank of Australia implemented dovish rate cuts and cryptocurrency markets achieved new milestones
- Markets in focus: Trump's 'One Big Beautiful Bill' threatens to expand fiscal deficits significantly, Japan's Nikkei approaches technical resistance levels, and Bitcoin establishes fresh record highs supported by regulatory clarity
- The week ahead: Fed communications and critical inflation data dominate the economic calendar, while major technology earnings from Nvidia and Chinese tech giants will provide insights into artificial intelligence development trends
What happened last week
- US Treasury bond sell-off: Moody's credit rating downgrade, weak auction demand, and mounting debt concerns from Trump's tax bill weighed on US government bonds. Both 20-year and 30-year Treasury yields jumped above 5.1% while the 10-year yield crossed 4.6%. Federal Reserve officials signalled holding rates for the next two meetings while observing tariff effects.
- UK inflation surge: The inflation rate rose sharply from March's 2.6% to 3.5%, driven by utility bill and airfare increases. Several economists have lowered Bank of England rate cut expectations from two to one.
- Reserve Bank of Australia (RBA) cuts rates: The Australian central bank reduced its policy rate by 25 basis points to 3.85%. The RBA expressed dovish concerns on downside risks to price stability and labour markets given uncertain macroeconomic conditions. Futures markets increased July cut probability from 36% to 57%. AUD/USD dropped slightly to 0.6421 after the announcement.
- Bitcoin rally continues: A weakening US dollar and progress in stablecoin regulatory frameworks boosted the broader cryptocurrency market. Bitcoin surged past its January all-time high, reaching $111,977.
- Strong new listing performance: After debuting as the year's largest initial public offering on Tuesday, CATL rose 31% from its IPO price on the Hong Kong exchange. Hengrui Pharma was oversubscribed by over 450 times and gained 25% on its first trading day.
Markets in focus
'One Big Beautiful Bill's' fiscal implications
US major equity indices retreated on concerns that Trump's new tax legislation would significantly exacerbate the nation's debt burden. The 'One Big Beautiful Bill Act' is projected to increase the current deficit of $36.2 trillion by an additional $3.8 trillion through 2034, substantially exceeding the revenue anticipated from Trump's tariff policies (economists estimate tariffs will generate $2 to $3 trillion over the next decade).
The proposed legislation encompasses extensions of tax reductions implemented during Trump's initial term, exemptions for taxes on tips and overtime compensation, increased caps on federal deductions for State and Local Taxes (SALT), while simultaneously tightening Medicaid eligibility requirements and eliminating the Supplemental Nutrition Assistance Program (SNAP) for low-income households. Beyond equity markets, US Treasury bonds and the US dollar also exhibited negative reactions.
From a technical analysis perspective, the US Tech 100 Index reversed direction after failing to penetrate the 21,500 resistance level. This development suggests a potential retracement towards 20,500 before advancing further to challenge the February peak at 22,223. Should the index decisively break below 20,500, the 19,600 level should provide crucial support.
Figure 1: US Tech 100 index (daily) price chart
Nikkei approaches 200-day moving average resistance
Trade negotiations between the US and Japan continued over the weekend as Japan's chief trade negotiator Akazawa travels to the US for the third round of discussions. Japan's Prime Minister Ishiba will also conduct a bilateral meeting with President Trump during the G7 summit in Canada in June. Tariffs on cars and components will play a pivotal role in these negotiations. Market participants widely anticipate an agreement will be reached in June before the pause on 24% reciprocal tariffs expires, potentially providing relief to the Japanese economy, which contracted by 0.7% per annum due to reduction in exports. Equity markets responded positively to trade talk progress.
On the other hand, Japan's core inflation accelerated to 3.5% year-on-year in April, surpassing market expectations. Food price served as the primary driver of this acceleration; rice prices, for instance, surged 99% compared to April 2024. Although the inflation rate has persistently exceeded the Bank of Japan's (BoJ) 2% target since early 2022, the BoJ maintains a cautious approach regarding further rate hikes amid uncertain trade policy developments. Any additional hawkish signals from the BoJ may exert downward pressure on equity markets.
Technical analysis reveals the Japan 225 index trading within a narrow range. With current levels receiving support from the 100-day simple moving average (SMA), the index may test the upper boundary of this range, coinciding with the recent high observed on 12 May at 38,774. Should it cross and sustain above the 200-day SMA, the index may continue its bullish trajectory. Conversely, the 50-day SMA will provide minor support at 35,750.
Figure 2: Japan 225 index (daily) price chart
Bitcoin establishes new record high
Since the substantial correction in early April, Bitcoin has delivered gains across seven consecutive weeks, representing the longest winning streak since December 2024. Last week's rally was primarily driven by US dollar weakness and favourable regulatory developments. Last week, both US and Hong Kong authorities advanced their efforts to establish comprehensive regulatory frameworks for stablecoins by defining requirements in areas including reserve asset management and anti-money laundering protocols, facilitating broader cryptocurrency adoption.
The minimal resistance encountered at the previous record high of $109,576 demonstrates exceptionally strong upward momentum. Additionally, profit-taking volume was reported to be less than half of that observed when Bitcoin first reached $100,000 in December, providing further evidence of sustained investor confidence.
Technical analysis suggests Bitcoin's bullish trend is likely to continue, though a short-term technical correction may occur with support anticipated around $102,000-$102,500, given elevated valuations and excessively bullish market sentiment. The relative strength index (RSI) has exceeded the 70 threshold, while the Crypto Fear and Greed Index registers 'extreme greed' levels, indicating overbought conditions. A 100% Fibonacci extension of the uptrend between September and December 2024 suggests the cryptocurrency could potentially advance towards $130,000.
An additional noteworthy development is the significant underperformance of Ether, the second-largest cryptocurrency. Year-to-date, Bitcoin has returned over 18%, while Ether has declined 21%. While Bitcoin has established a new price record, Ether continues trading 45% below its all-time high achieved in November 2021. We may observe a narrowing of this performance divergence.
Figure 3: Bitcoin (daily) price chart
Figure 4: Year-to-date performance of Bitcoin and Ether
The week ahead
The week ahead presents critical economic data releases and corporate earnings announcements. Federal Reserve Chair Powell's speech on Monday and Federal Open Market Committee (FOMC) minutes scheduled for Thursday release will provide crucial insights into US monetary policy outlook. Key inflation indicators include Australia's Consumer Price Index (CPI) data and the US Core Personal Consumption Expenditures (PCE) Price Index. China's purchasing managers' index (PMI) readings on Saturday will assess whether the world's second-largest economy's activities continued their deceleration. Corporate earnings will spotlight major technology companies, with Chinese technology giants Meituan and PDD reporting results alongside US mega-cap Nvidia, potentially revealing trends in artificial intelligence development and e-commerce growth amid evolving market conditions.
In its upcoming earnings report, Nvidia is anticipated to deliver revenue growth exceeding 60% and net income growth surpassing 40%. Investors should monitor revenue contributions from innovations including Blackwell Ultra graphics processing units (GPUs), the impact of China export controls, progress on the $500 billion investment in US artificial intelligence infrastructure, and the maintenance of premium pricing despite intensifying competition. Despite recent volatility, analysts maintain predominantly bullish ratings on the stock.
Figure 5: TipRanks analyst ratings and 12-month forecast on Nvidia
Key macro events this week
Monday 26 May 2025
- 2.40am (HK time) – US Fed Chair Powell Speech
Tuesday 27 May 2025
- 8.30pm (HK time) – US Durable Goods Orders month-on-month (MoM) (April): previous 7.5%, consensus -8.1%
- 10.30pm (HK time) – US CB Consumer Confidence (May): previous 86.0, consensus 88
Wednesday 28 May 2025
- 9.30am (HK time) – Australia Monthly CPI Indicator (April): previous 2.4%, consensus 2.3%
Thursday 29 May 2025
- 2.00am (HK time) – US FOMC Minutes
- 1.00pm (HK time) – Japan Consumer Confidence (May): previous 31.2, consensus 31.8
- 8.30pm (HK time) – US GDP Growth Rate quarter-on-quarter (QoQ) 2nd estimate (Q1): previous 2.4%, consensus -0.3%
Friday 30 May 2025
- 7.30am (HK time) – Japan Unemployment Rate (April): previous 2.5%, consensus 2.5%
- 7.50am (HK time) – Japan Industrial Production MoM preliminary (April): previous 0.2%, consensus-1.4%
- 8.30pm (HK time) – US Core PCE Price Index MoM (April): previous 0.0%, consensus 0.1%
- 8.30pm (HK time) – US Personal Income MoM (April): previous 0.5%, consensus 0.3%
- 8.30pm (HK time) – US Personal Spending MoM (April): previous 0.7%, consensus 0.2%
Saturday 31 May 2025
- 9.30am (HK time) – China NBS Manufacturing PMI (May): previous 49.0, consensus 49.5
- 9.30am (HK time) – China NBS Non-manufacturing PMI (May): previous 50.4, consensus 50.6
Key corporate earnings
Monday 26 May 2025
Tuesday 27 May 2025
Wednesday 28 May 2025
Thursday 29 May 2025
Friday 30 May 2025
Source: Trading Economics, AASTOCKS, Reuters (as of 25 May 2025)
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