TL;DR

China extends deflation, US-China trade talks open, PBOC boosts liquidity, Bitcoin tops $107K.

Highlights

• China’s May CPI fell 0.1% YoY, extending deflation to four months; exports to the US dropped 34.5% amid tariff escalation1.
• PBOC injected $139B and 173.8B yuan via reverse repos, supporting a rally in Chinese and Hong Kong equities; Hang Seng Tech Index rose over 3%4.
• Hong Kong Monetary Authority intervened with HK$129.4B to defend the USD peg as local rates hit record lows; 80% of offshore yuan payments now processed via Hong Kong3.
• Japan faces rising JGB yields and considers super-long bond buybacks as debt-to-GDP reaches 250%; Japanese investors sold German bunds at the fastest pace since 20145.
• Taiwan’s May exports to the US surged 38.6% YoY, driven by AI demand and pre-tariff shipment acceleration19.
• US-China trade talks begin in London, with China agreeing to resume rare-earth exports; rare-earth export licenses under review2.
• Ukraine intercepted a record 479 Russian drones and 20 missiles; Poland scrambled jets and raised air defense alert after Russian strikes near its border67.
• NATO chief called for a 400% increase in European air and missile defense capabilities10.
• Qualcomm to acquire UK’s Alphawave for $2.4B; IonQ to acquire Oxford Ionics for $1.08B, both targeting semiconductor and quantum tech growth1112.
• UK announced a £1bn AI investment and Nvidia partnership to train 7.5 million workers by 203014.
• JPMorgan now accepts Bitcoin ETFs and Ethereum as collateral; Bitcoin topped $107,000, with risk of large short liquidations1617.
• WPP CEO Mark Read to retire in 2025 as shares decline and Publicis overtakes as largest ad group20.

Commentary

China’s ongoing deflation and sharp drop in exports to the US underscore persistent domestic demand weakness and the impact of renewed tariff pressures1. The PBOC’s substantial liquidity injections have stabilized sentiment, fueling gains in Chinese and Hong Kong equities, particularly in tech4. However, the trade environment remains challenging, with US tariffs weighing heavily and rare-earth export concessions from Beijing setting the stage for this week’s London trade talks2. Taiwan’s surge in US-bound exports, driven by AI demand and pre-tariff shipment acceleration, further highlights shifting supply chain dynamics in the region19.

In fixed income, Japan’s rising long-end yields and consideration of super-long JGB buybacks reflect a significant shift in the country’s rate environment, with implications for global bond flows—evidenced by Japanese investors’ notable reduction in German bund holdings5. Hong Kong’s defense of its USD peg amid capital flow volatility and ultra-low local rates continues to support local property and bond markets, but ongoing scrutiny of the peg’s sustainability remains a theme3.

Geopolitical risk remains elevated. The record Russian drone and missile attacks on Ukraine, Poland’s air defense escalation, and NATO’s call for a major increase in missile defense all point to persistent security concerns in Eastern Europe6710. These developments may continue to influence energy and defense sectors, as well as broader risk sentiment.

Corporate activity in tech and AI remains strong, with Qualcomm ’s Alphawave acquisition and IonQ ’s Oxford Ionics deal signaling continued investment in semiconductor and quantum computing1112. The UK’s AI investment and collaboration with Nvidia further reinforce the sector’s momentum14. In crypto, JPMorgan’s acceptance of Bitcoin and Ethereum as collateral and Bitcoin’s move above $107,000 reflect ongoing institutionalization and volatility, with technical levels likely to drive near-term price action1617.

Key watch points: outcomes of US-China trade talks, Asian central bank liquidity actions, Japanese bond market developments, and any further escalation in Eastern Europe. Tech and AI sectors remain in focus, while crypto volatility is set to persist.