Investors Gear up for Treasury Auction, Nvidia Earnings, Fed Minutes: May 28, 2025 

Wall Street is tilting to a defensive posture this morning ahead of a series of market-moving events this afternoon. While the economic calendar prior to noon featured Fed regional surveys from Richmond and Dallas, developments in the later hours will likely have much greater impact. Investors are gearing up for a $70 billion auction for five-year Treasury notes, minutes from the Federal Reserve’s meeting earlier this month and last but certainly not least, earnings results from semiconductor behemoth and AI leader Nvidia. Bulls are hopeful that the fixed-income offering will see robust demand, similar to yesterday’s strength for 2-year debt. Additionally, commentary from the US central bank signaling cuts on the way and persistent ordering for advanced hardware technology that depicts continued big-tech momentum can drive another pair of legs in the rallies of rates and stocks. For now, however, traders are nervous ahead of the significant news, reducing their exposures to equities across sectors, Treasuries, cryptocurrencies and non-energy commodities. Meanwhile, they are adding to volatility hedges and scooping up futures tied to the greenback, crude oil and natural gas as well as forecast contracts.

Richmond and Dallas Factory Activity Contract

This most recent releases of Federal Reserve regional surveys depict May contractions in services activity in both the Richmond and Dallas districts. The former region also reported declining goods production activities, following the latter’s similar dynamic released yesterday.

The Dallas and Richmond Fed Services Revenue indices slipped to -4.7 and -11 from 3.8 and -7. Encouragingly, the Richmond index of factory conditions improved, but it also sported a negative reading, coming in at -9, a shallower pace of decline then April’s -13. New orders and employment were sluggish across all three prints while price and capital expenditures were mixed. Compensation trends were strong, however, as wage bills remained lofty.

Bond Vigilantes Are Buyers Here

It seems that sentiment got pretty washed out in the rates complex in the past few weeks, with news of Japan potentially reducing 40-year debt issuance sparking a ferocious rally in fixed-income. I’m expecting yields to continue drifting south from here, as inflationary pressures are in control across most of the world while the US is likely to close trade negotiations with over half of the global economy by Labor Day. Price fears related to the tariffs have not manifested and term premiums appear long in the tooth. Sovereigns have been running deficits and adding to their debt piles for decades and the market has known that. The GOP taxation package is no motivation for the cost of capital to soar and that’s why the bond vigilantes have stepped up and bought, defending 4.50% on tens and 5% on 30s. The consensus is underestimating the revenue possibilities of the proposed legislation folks.

International Roundup

South Korea Business and Consumer Sentiment Strengthens

The South Korea Composite Business Sentiment Index, which covers all industries, hit 90.7 for May, up from 87.9 in from April, according to the Bank of Korea (BoK). In a positive development, the outlook for the coming month climbed by 3.2 to 89.5. The gain is attributed to the US and China agreeing to a 90-day trade war truce, which lowered tariffs that had escalated as the conflict intensified.

Within the Composite Sentiment gauge, the non-manufacturing segment advanced from 84.5 to 88.1 and expectations for next month were up 3.3 to 87.1. The manufacturing component, furthermore, was 1.6 loftier, reaching 94.7. In this category, entrepreneurs’ view of June was 93.1, 3.3 higher than in April but new orders dropped from 79 to 77. The other components, such as business conditions, sales and profitability, all improved.

Australia Inflation Is Hotter Than Expected

Australia’s weighted mean Consumer Price Index for April, at 2.4% year over year (y/y), was unchanged from the past two months, but it exceeded the consensus target of 2.3%. The modestly hotter than expected reading comes just one week after the Reserve Bank of Australia reduced its key interest rate 25 basis points to 3.85%, a two-year low, in response to concerns that the global trade war would weigh on the economy. Australian shoppers shared the pain experienced in the US regarding egg prices, with the cost of the item climbing 18.6%, a result of the bird flu. On a favorable note, rent climbed only 5%, the lowest rate since early 2023. When removing more volatile priced items, inflation rose 2.8%, according to the trimmed mean CPI. That result was up from 2.7% in March.