28th May, 2025

European markets are expected to open slightly in negative territory this morning (Eurostoxx50 futures down 0.22%) on the back of a mixed picture from Asian markets, which failed to fully capitalize on the strong overnight performance from Wall Street where the S&P 500 surged 2.05% and the Nasdaq jumped an impressive 2.47%. The regional response remained fragmented, highlighting the diverging economic narratives playing out across Asia-Pacific economies.

South Korea emerged as the standout performer, with the KOSPI advancing 1.6% to reach 2,680 – its highest level since September. The rally was primarily driven by technology heavyweights, with Samsung Electronics advancing 3.25% and SK Hynix gaining 2.72%. Hong Kong's Hang Seng Index actually retreated 0.4% to 23,285. The persistent underperformance of Chinese equities perhaps reflecting ongoing investor caution, as economic indicators continue to signal potential weakness ahead.

Japan's Nikkei 225 managed a modest gain of 0.22% to approach the close at 37,838, benefiting from the regional tech rally but remaining well below its July peak of 42,438. The market continues to navigate yen volatility and complex bond market dynamics including an overnight auction of 40yr bonds that was the weakest since July (2.21x bid-cover). Despite today's gains, the index remains down 5.15% since the beginning of the year.

In the headlines, Trump said that he was encouraged the EU is speeding up negotiations on trade after extending the 50% tariff deadline to July 9. Elsewhere, the RBNZ cut its benchmark interest rate to 3.25% from 3.50%. This marked the RBNZ's sixth consecutive rate cut as the central bank attempts to balance inflation concerns with supporting economic recovery amid global trade uncertainties.

Looking ahead to the European session, investors will focus on Eurozone CPI expectations data, with one-year forecasts anticipated to ease to 2.8% from 2.9%, while three-year expectations are projected to hold steady at 2.5%. Germany will release its Import Price Index and unemployment figures, with the unemployment rate expected to remain stable at 6.3% despite forecasts of 13,000 newly unemployed individuals in May. France will contribute to the data flow with April PPI figures and finalised first-quarter GDP numbers.

The spotlight will shift to the United States later in the day, where the Federal Reserve will release minutes from its May 7th meeting. Market participants will scrutinise the document for insights into the central bank's thinking on inflation, growth prospects, and the potential timeline for interest rate adjustments. Additional US data releases include the Richmond Fed Manufacturing Index, Business Conditions for May, and Dallas Fed Services Activity, providing further context on the health of the world's largest economy.

Debt markets are set to see significant activity with several major sovereign bond auctions scheduled across Europe and the United States. The UK will kick off with the sale of GBP2.75bn of 2033 bonds, followed by Germany offering EUR2bn in 2038 and 2040 bonds. Later in the day, the US Treasury will conduct two separate auctions – USD28bn in 2yr FRNs and a substantial USD70bn in 5yr notes.

Meanwhile, corporate earnings will remain in focus with three Stoxx600 companies and six S&P500 constituents (including Tech giants Nvidia and Salesforce) set to release their latest results, potentially providing further direction for equity markets amid the current cautious sentiment.

The broader market sentiment reflects cautious optimism following Wall Street's strong performance, which was fuelled by improved consumer confidence data and President Trump's decision to delay tariffs on European goods. Technology shares continue to drive regional performance, though persistent concerns about global trade tensions, particularly between the US and China, continue to cast a shadow over the region's outlook.

For more on latest developments see the European Breakfast Briefing.

Wednesday's supply prospects

The mood was positive in Europe on Tuesday, following the long weekend in US and UK and on the back of expectations that an EU/US trade deal could be arrived at that was better than Trump's recent gambit that 50% was 'right'. The EUR market was quick out of the blocks and despite a lack of both SSA issuers (there was only 1 euro SSA transaction) and multi-tranche deals from US corporates (which have been a growing theme) we saw EUR11.8bn print on the day. For all the details see IGM’s DAILY EUR NICS & BOOKS. In addition, BT, along with its new long 9yr EUR line tapped the sterling market for a new hybrid bond with a 30.5NC5.5 structure pricing the deal at 6.5% (from 6.875-7% IPTs).

** Kingdom of Spain 10yr Euro benchmark maturing on 31st Oct 2035

** Ontario Teachers’ Finance Trust (ONTTFT) 6.5yr (4th Dec 2031) EUR Benchmark Green Bond

** BNG Bank N.V. (BNG) USD Benchmark 144a/RegS, senior unsecured 10yr. IPTs: SOFR m/s +74bps area (currently equiv to c. CT10+ 21bps)

** Bank Polska Kasa Opieki S.A EUR 500m (exp.) Reg S Bearer, Senior Non Preferred bond, 6NC5 maturity

** Natixis Pfandbriefbank AG (KNFP) 3yr (June 2028) Mortgage Pfandbrief EUR 250mn (will not grow)

In the US, the 30-day EU tariff reprieve provided a better-than-expected backdrop for those high-grade borrowers who were waiting in the wings to forge ahead with respective financing plans. So much so, that 10 issuers showed up on Tuesday, raising USD10.9bn in the process, see IGM's THE ENDGAME

What to watch Wednesday - Fed minutes

All times BST

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