Week ahead: one shot for sentiment (Nvidia), one giant hole in the fiscal and tariff hull

From AI hype to rate reality—now it’s Nvidia or nothing

This week’s market tone was less "AI euphoria" and more "rate reality check." After a monster run-up in equities, the rally hit a wall as investors were forced to stare down the growing fiscal chasm and rising geopolitical risk. The 30-year U.S. Treasury yield punched through 5%, back to levels we haven’t seen since late 2023, and that’s before we even get into the firebomb Trump tossed at the EU and Apple.

But the center of gravity next week is Nvidia. It’s the last of the "Magnificent Seven" to report, and it’s arguably the only one with the narrative weight to turn sentiment around—or break it. With the stock still sitting near the apex of the AI hype curve, Wednesday’s earnings will either reignite the trade or confirm that the fuel tank’s running low. Analysts are expecting a 45% jump in earnings on a whopping $43.2 billion in revenue. That’s not a beat—it’s a statement.

The bigger question? Whether AI budgets are actually growing or just recycling CapEx. If Nvidia signals momentum is stalling—particularly after that $5.5 billion hit tied to export restrictions on China—the market may finally admit that AI is not immune to geopolitics or trade blowback. And with U.S.-China tensions still unresolved despite the April tariff truce, NVDA’s outlook might double as a proxy read on semiconductor flows across the Pacific.

Speaking of tariffs, Trump’s latest shot across the bow at Europe—threatening a 50% tariff on EU goods and a 25% hit on Apple iPhones not made in the U.S.—rattled what was already a jittery tape. It’s no longer just China in the trade war crosshairs; Brussels is next. That turns this from a bilateral skirmish into a full-on trade cold war redux.

Layer in Moody’s U.S. sovereign downgrade and the $3.8 trillion Trump tax-and-spend bill clearing the House, and it’s easy to see why bond markets are revolting. Long-end yields are rising globally, not just in the U.S., and equities are feeling the squeeze as the “real rate” narrative comes back into focus. Stocks aren’t just facing valuation pressure—they’re now in direct competition with a 5% risk-free yield.

The bottom line is that Nvidia will either be a line of defence for bullish sentiment or the trigger that pulls the rug out. The setup is volatile, the risk-reward skewed, and the macro overlay anything but stable. Between fiscal sprawl, trade fragmentation, and an AI cycle that may already be peaking, this market doesn’t need a miss—it just needs a crack in confidence. Keep your eyes on NVDA, but don’t ignore the bond tape—it’s still calling the shots.

Glide Path or Stall Speed? Powell’s Balancing Act Begins

On the macro front the economy’s not flying—but not crashing either. That’s exactly where we are now. Last week’s economic dashboard didn’t scream recession or recovery—it just blinked a slow, steady yellow. The April Chicago Fed National Activity Index, which rolls 85 macro signals into one, came in at –0.25. Below trend, sure—but hardly a panic number. It was the first full print after April 2’s tariff slap, and it says glide path, not nosedive. The three-month average is still in positive territory, which tells me this thing still has pulse—just not pace.

Bloomberg’s economic surprise index backs that read. It’s hugging the zero line. Not ripping higher, but also not collapsing like it did during last summer’s near-miss panic. Back then, data missed by miles. Now? It’s inches. Hard data—jobs, output—continue to outperform the gloom. Soft data—surveys, vibes, confidence—are still licking wounds, but the delta’s shrinking. The real economy’s doing better than the narrative.

May’s flash PMIs added some color. Both services and manufacturing bounced north of 52. It’s not a boom, but it’s a beat. The kicker? That rebound came after the tariff ceasefire and a little equity market sugar high. Confidence is hanging on—barely. I’m watching next week’s Dallas Fed factory read and the Conference Board consumer print to see if it’s real or just another dead cat bounce.

Here’s where it gets tricky for the Fed: this in-between zone—where growth is soft but not broken—is a hell of a place to set policy. If the Fed cuts, they risk triggering an inflation bid just as tariffs begin showing up in sticker prices. But if they sit tight or, worse, hike, they could tip an already-wobbly consumer into caution. Meanwhile, the market’s already moving. The 10Y yield is drifting up as traders back out cuts and brace for the fiscal blowback from Trump’s “Big, Beautiful Bill”—which isn’t just beautiful, it’s expensive.

Higher long-end yields are tightening financial conditions in stealth mode. Mortgage rates are rising, refinancing’s slowing, and corporate issuance is getting more expensive. All of this before the Fed’s even moved.

So we float. Levitation, for now, is powered by decent hard data, decent earnings, and geopolitical de-escalation. But gravity is waiting—higher yields, higher prices, and a deficit that doesn’t balance itself. The real test for Powell’s crew is whether they can hold this mid-air posture without losing altitude—or control—once that tariff bill hits the CPI print and the bond market scoreboard lights up in red.

Tariff Tempest: Trump Lobs 50%, FX Seas Get Choppy

The FOREX tape drifted like a becalmed schooner all week—until Trump fired a 50-percent broadside at Europe and the seas turned white-capped in a heartbeat. His deadline: June 1. His message: fork over real concessions or watch every container slipping across the Atlantic get hit with a toll large enough to buckle hulls.

Brussels thought it had ballast: a €50 billion olive branch stuffed with LNG, soybeans, zero-tariff autos, and joint AI pipelines. They even pushed their own retaliation window back to Bastille Day to show good faith. Washington shrugged. Gesture diplomacy, they imply, won’t plug a €198 billion goods gap—or, at least, won’t satisfy the campaign trail soundbite that “Europe is eating our lunch.”

Strip away the theater and you still have a raw imbalance—German SUVs roll in duty-light while U.S. light trucks face a 25 percent wall. In Trump’s world, nuance is for footnotes; scoreboard politics is what matters. And a 50-percent tariff is the scoreboard writ large.

Yet this could still be classic brinkmanship. Recall the U.S.–China “weekend miracle” in early May: threats on Friday, handshake by Sunday night. The White House loves cliffhangers; traders hate them—but we trade them anyway.

This time, though, the tone is darker. Trump brands the EU “nastier than China,” and the political cost of punching Brussels is lower. The EU isn’t rolling over: a €95 billion payback list and the new Anti-Coercion Instrument sit on a hair trigger, aimed squarely at Big Tech, public procurement, and cross-border capital. That’s not tit-for-tat—it’s precision-guided asymmetry.

Volatility sprang to life on cue. Euro Stoxx 50 dumped 3 percent, autos skidded 5. Two-year EUR swaps sank 6 bp as traders penciled in another ECB cut. EUR/USD knifed 0.6 before clawing back; EUR/JPY sagged, underscoring my view that the yen—and selective Asia FX—will soak up the dollar outflow once this dance moves to full on execution. No, EUR isn’t on USD reserve-currency deathwatch; this is flow-front-running inflows, not dollar funeral rites.

If the 50-percent hammer actually drops, Eurozone GDP probably loses 0.6 ppt—enough to flirt with recession—while the U.S. imports a fresh dose of stagflation just as the Fed tries to thread a soft-landing needle. Future Powell problem; present-day campaign talking point.

Bottom line: the summer seas are turning rough. June and July could trade like a rolling squall line—tariff headlines whipping across risk assets, FX vols staying punchy, safe-haven yen ready to pounce. Maybe we still get that late-night deal, but if we do, it won’t be pretty—it’ll be the bruised handshake of two prizefighters agreeing to answer the bell again tomorrow.

Dollar-Asia feels heavy and—frankly—I’m not sure whether to credit China-demand optimism or Washington’s quiet jaw-boning for stronger Asian FX. Either way, the bid keeps melting. Roughly two-thirds of America’s goods deficit runs through this region, and Treasury would love nothing more than a firmer pack of Asian currencies.

So while headlines toggle between “U.S.–China détente” and “tariff tripwires,” the path of least resistance is lower in $/Asia. Until we see a hard catalyst—like Beijing backing away from negotiations or the White House easing up on the strong-currency drumbeat—expect the dollar to stay on the offer against CNY, KRW, TWD, and friends. In short: rallies are for trimming shorts, dips are for pressing.

Asia for Asia: The Great Capital Reversal Starts Now

I’m doubling down on Asia FX because the region’s own money is about to boomerang home. For years, Japanese, Korean, Singaporean and Taiwanese investors plugged the U.S. deficit, reaching for yield in Treasuries and tech. But as JGBs crawl back toward 2 % and Korean paper inches higher, the risk-reward on shipping capital across the Pacific just isn’t there.

Add it up: strip out official reserves and Japan, South Korea, Singapore, Taiwan and Hong Kong still sit on a combined net international investment position north of $5 trillion. That’s dry powder. When domestic curves finally offer carry worth the currency risk, the natural trade is repatriation—back into local bonds, equities, and, yes, a steady drip into physical gold.

At the very least, remember this math: Asian real-money accounts are stuffed with US bonds, and every basis-point drop in hedge costs is jet fuel for local-currency demand. As the Fed eases and the cross-currency basis narrows, it takes only a tiny uptick in hedge ratios to unleash a wall of repatriation flows. One percent more hedging on a multi-trillion-dollar book isn’t a tweak—it’s a tidal surge of KRW, JPY, TWD, and SGD buying that can pound the dollar without a single headline trade deal. In this market, cheapened hedge carry is the silent catalyst; watch the basis, not the bluster.

The flow math is massive:

• Japan: Every 10 bp move higher in 10-year JGBs frees lifers and regional banks to dump a chunk of their Treasury book and plug ALM gaps at home.

• Korea & Taiwan: Export surpluses already funnel dollars into central-bank coffers; higher local yields turn that passive accumulation into active currency support.

• Singapore & Hong Kong: Sovereign funds and private wealth desks are re-tilting toward “Asia for Asia,” especially with U.S. policy risk now a headline, not a footnote.

Treasury may want a stronger Asia FX bloc to narrow trade gaps, but the region’s own bid will do the heavy lifting. Net result: $/Asia stays offered, yen and won catch a persistent tail-wind, and CNY stability becomes the floor rather than the ceiling. Any spikes in $/Asia are rallies to fade until the repatriation story is fully priced—and we’re nowhere near that yet.

The Dollar’s Starting to Feel Like a Leaky Lifeboat

The greenback tried to stage a comeback in May—but last week the floorboards gave way. DXY slipped back under 100, erasing a month’s worth of timid short-covering. Next support? The 99-handle lows from early May, then the April trough at 97.92. If those splinter, we’re talking fresh YTD territory.

This wasn’t a selective bleed; it was broad-based. The Scandis led the G10 charge—NOK +2.6 %, SEK +2.5 %, EUR +1.7 %—while KRW stole the EM show with a 2.4 % pop. Irony alert: the dollar sold off even as Treasury yields steepened and equities sagged. That’s a big tell—investors are dumping Uncle Sam despite juicier coupons.

Why the sudden cold shoulder? Fiscal dread. Moody’s finally yanked America’s last AAA badge, reminding everyone that the U.S. is sprinting toward a debt/GDP north of 130 % by 2035. Layer on Trump’s “One Big Beautiful Bill” (CBO pegs it at $2.8 tn—closer to $4.6 tn if the goodies never sunset) and the macro math gets ugly: deficits back to 7 % of GDP by 2026, bond vigilantes licking their chops.

That alone would bruise the buck, but we’ve also got a currency-diplomacy subplot. Word on the tape is that Washington is leaning on trade partners—Korea, Taiwan, maybe even Japan—to let their FX drift stronger in exchange for dodging 50 % “reciprocal” tariffs after the 9 July deadline. Seoul swears “nothing’s decided,” and White House economist Stephen Miran insists the strong-dollar mantra is intact. Traders aren’t buying the denial. If Treasury’s nudging Asia Inc. to re-price, that’s a structural headwind for $/Asia and, by extension, DXY.

Bottom line: the dollar is caught between a widening fiscal sinkhole and a quiet campaign to let surplus economies revalue. Until Capitol Hill finds a spending brake—or the White House stops saber-rattling over tariffs—every rally in DXY looks like a selling opportunity, not a trend change. Keep a close eye on that 99 shelf; if it cracks, the dollar bulls may discover there’s no keel left under the boat.

Alternate Universe Theory: The US Fiscal Premium Hoax

Sure, it feels like the kind of long weekend where you come back in on Monday (or Tuesday if you're in the U.S.) expecting calm—but FX never plays by the script. I’ve been pretty vocal about my bullish yen view all year, but let’s be real: I’m not just loading the boat and going to the beach. I’ve been bouncing around more than a bunny on a trampoline—scaling in, trimming, reloading. Because if you’ve spent any time in FX, you know one thing: nothing is ever as it seems.

Outside Asia FX—where I’ve laid out the case for local repatriation flows and capital staying closer to home—the broader G10 dollar story is becoming more reflexive. Investors are beginning to reassess their dollar exposure not just because of rate differentials, but because the foundations under the reserve currency itself are getting questioned. Treasuries, particularly the long end, are taking incoming fire from both directions: deteriorating fiscal optics and growing competition from higher-yielding alternatives that don't come with Washington’s political circus.

But let’s hit pause and plug in an alternate universe scenario—one where the so-called “U.S. fiscal premium” is a hoax. Strip out the emotion and the punditry, and ask: what if the market's fear of a bond market implosion is completely misplaced?

There’s a whole cottage industry built around the “fiscal ruin is nigh” narrative. We’ve heard it for decades: deficits will kill the dollar, the bond market will collapse, debt-to-GDP over 120% means game over. But here’s the uncomfortable truth for that crowd: the bigger the deficit, the lower the yield. Since 1980, U.S. debt has ballooned—and the 10-year Treasury yield has gone from 15% to under 5%. The correlation isn’t positive—it’s inverse. More debt, more demand for safety and carry. It's not a crisis. It's the trade.

Consider Japan: 220% debt-to-GDP, and the 10-year JGB didn’t struggle to stay below 1% for decades. If fiscal Armageddon were a real concern in fiat systems, Japan would have blown sky high long ago. It hasn’t—and neither will the U.S., as long as it issues in dollars.

The idea that ballooning deficits automatically necessitate a surge in long-end yields simply doesn’t hold. Sure, deficits can ignite inflation or lead to currency weakness, but those are different matters. They’re not linked to term premia unless real rates break out—and that’s not occurring yet. The bond market doesn’t react to tweets—it operates on structure, depth, and central bank effectiveness.

So what happens if the fiscal panic narrative collapses under its own weight?

The dollar would likely catch a bid. That’s the reflexive flip. If markets suddenly realize the fiscal premium was mispriced, and Treasuries don’t require a higher risk discount, long-end yields would compress, allowing the USD to regain some footing—not on strength, but on reversion. Additionally, with rate differentials still somewhat USD-favorable in the short term, especially if the Fed doesn’t pivot as quickly as the market anticipates, that creates a tactical squeeze.

It also means you start watching the long-end of the curve more closely—not just for direction, but for reflexivity. If 30s rally while inflation expectations stay muted, the dollar might firm even as rate cuts creep in. That’s not a contradiction—it’s a recalibration.

Bottom line: fiscal doomers have been shorting bonds for 40 years. They’ve lost carry, credibility, and countless P&L. What they’ve misunderstood is the difference between narrative risk and balance sheet reality. In a fiat system with central bank support, fiscal blowouts don’t blow up bond markets—they just create noise and mispricing.

So when the market wakes up to that? Don’t be surprised if the dollar trades like it just got its second wind—not because it deserves to, but because the fear that’s been weighing on it never had legs to begin with.

Alternate Universe Theory: The Tariff Inflation Hoax

Everyone’s racing to slap the "inflationary" label on Trump’s tariff revival like it’s 1979 all over again—but that’s lazy analysis, not market thinking. If you actually crack open the mechanics, this is more deflationary drag than reflationary risk. Tariffs don’t create sustained inflation—they’re just a one-time price pop, like a VAT hike. They push prices up once, then fade into the baseline.

This isn’t Econ 101. This is macro price calculus. Sustained inflation needs demand strength chasing limited supply. Tariffs are the opposite. They’re a tax on consumption, not a booster shot. They crimp margins, discourage imports, and ultimately hit the consumer in the wallet—demand down, not up. It’s fiscal tightening in disguise.

Just ask Japan. Three VAT hikes since the '90s sent CPI fluttering higher for a minute—then the economy folded and JGBs rallied. Why? Because those policy-induced jolts didn’t create real inflation—they created slack. Same here. The U.S. might see a near-term bond tantrum on the headlines, but if these tariffs land hard—especially on European goods and consumer-facing tech—margin compression and demand destruction will start bleeding into growth and expectations.

This is still bad for the dollar, no two ways about it. Short- to medium-term, you’ve got slower growth, policy-induced demand destruction, and a market rethinking yield differentials in real time. Tariffs may not be the inflation bomb some fear, but they are a drag on margins and consumption—and that means lower terminal rate expectations and more dovish pressure, whether Powell wants to admit it or not.

The Fed should be easing here, not sitting on their hands watching the long end do all the tightening for them. Every basis point higher in 10s and 30s just tightens financial conditions and digs the hole deeper. Meanwhile, the curve is flattening, the dollar is losing friends globally, and capital is looking for a new home.

So yes, the inflation narrative is overplayed. But the dollar still takes the hit—not because inflation is running hot, but because growth is cooling faster than the Fed’s reaction function. That’s a recipe for dollar weakness, not strength. Watch the reflexivity in rates. And don’t assume the Fed can just sit this out while the world does the heavy lifting.