The Davy Digest - 23rd June 2025

Geopolitics dominated the landscape last week, as safe-haven demand returned for bonds and the US dollar. We also saw 40% of the world’s central bank policymakers convening to set interest rates. The US held interest rates at 4.5%, taking a wait and see approach to growth and inflation uncertainty. In Switzerland, the policy rate was reduced to 0% – its lowest level since 2022. May inflation prints for both the UK and Eurozone were released with the measures falling to 3.4% and 1.9% year-on-year, respectively. In Asia, Chinese industrial production data disappointed as global trade uncertainty continued to weigh on activity. In the US, data on international holdings of US Treasuries attracted unusual levels of attention amidst ongoing geopolitical tensions. Investors’ concerns were somewhat alleviated however, as foreign selling of US bonds appeared limited in the immediate aftermath of Liberation Day.

Last week's highlights

	Retail Sales (17/06) – Fell 0.9% in May, worse than expected Fed Interest Rate Decision (18/06) – Held rates, as expected Treasury International Capital data (18/06) – Showed only a mild reduction in foreign holdings of US Treasuries
	Eurozone Inflation (18/06) – Fell to 1.9% year-on-year in May Swiss National Bank Meeting (19/06) – Reduced interest rates to 0% Norway and Sweden central banks cut interest rates (Norway for 1st time) Eurozone Consumer Confidence (20/06) – Decreased to -15.3 (vs -14.9 expected)
	UK Inflation (18/06) – Rose 3.4% year-on-year in May, down from April’s 3.5% BOE Interest Rate Decision (19/06) – Held rates at 4.25%, as expected Retail Sales (20/06) – Decreased to -1.3% year-on-year
	China Industrial Production (16/06) – Up 5.8% in May, less than expected BoJ Interest Rate Decision (17/06) – Held rates steady at 0.5% PBoC Interest Rate Decision (20/06) – Held rates, as expected

This week, Purchasing Manager Index (PMI) surveys will be released in the US, UK, and Europe. Additionally, in the US we will receive core personal consumption expenditure (PCE) data. In Asia, inflation data for Tokyo will be released early on Friday morning. Finally, this week’s NATO Summit will be closely watched given the likely fiscal and geopolitical implications.

What's on the radar

	US S&P Manufacturing & Services PMI (23/06) Q1 GDP (26/06) Michigan sentiment data (27/06)
	Eurozone HCOB Manufacturing & Services PMI (23/06) French and Spanish inflation releases (27/06) NATO Summit (23/06 & 24/06) German Federal Budget (24/06)
	UK S&P Manufacturing & Services PMI (23/06) BoE’s Governor Bailey speech (24/06) Q1 GDP (27/06)
	Tokyo Inflation (26/06)

Chart of the moment

An unbreakable bond

Source: Bloomberg, Davy as of 17/06/2025. Data up to April 2025.

• Contrary to the narrative that foreigners are stepping away from US dollar assets, foreign investors continue to buy US bonds.
• The dollar value of foreign debt holdings is increasing, while proportional ownership has remained at about 33% since 2022, following a step-change reduction during Covid.
• Foreign investors are drawn to US debt because it offers a rare combination of safety, liquidity, and attractive real yields.
• The US dollar’s status as the world’s reserve currency remains intact with no obvious alternative emerging.