Core Viewpoint - A high-level U.S. business delegation is set to visit China, signaling potential discussions to restart commercial negotiations amid ongoing trade tensions [5][6][7]. Group 1: U.S.-China Business Delegation - The delegation is organized by the U.S.-China Business Council and led by Raj Subramaniam, CEO of FedEx, with confirmed participation from Boeing executives [5]. - This visit marks the highest-level business delegation sent to China since the new round of tariffs initiated by President Trump in April [7]. Group 2: U.S.-EU Trade Agreement - A new trade agreement between the U.S. and the EU has been reached, which includes a 15% tariff on EU products imported to the U.S. and a commitment from the EU to invest an additional $600 billion and purchase $750 billion worth of U.S. energy [2][9]. Group 3: U.S. Tariff Policy - U.S. Commerce Secretary Gina Raimondo announced that the U.S. will not extend the tariff deadline set for August 1 [3][11]. Group 4: U.S. National Debt - The U.S. national debt has surged to a record $36.7 trillion, prompting the Treasury Department to allow citizens to make voluntary donations via Venmo and PayPal to help reduce the debt [16]. - The donation program, which has been in place since 1996, has raised only $6.73 million, representing a mere 0.0002% of the current national debt [16].

Core Viewpoint - Brazil is facing a significant risk of fiscal crisis due to rising budget deficits, with former Finance Minister Maílson da Nóbrega warning that the country has "signed a contract for fiscal crisis" if structural reforms are not implemented promptly [1][2]. Fiscal Situation - Over 90% of Brazil's federal budget is locked into fixed expenditures, leaving less than 4% available for discretionary spending [1]. - If the rigid budget trend continues, there could be a "government shutdown-style fiscal collapse" by 2027 [1]. Structural Issues - The key reason for the budget imbalance is the mandatory spending obligations set by the 1988 Constitution, which restricts the government's ability to freeze or cut budgets [1]. - In comparison, most countries have about 50% of their fiscal space available for discretionary arrangements, with the U.S. reaching 70%, while Brazil's is only 4% [1]. Government Response - Recent discussions between Finance Minister Fernando Haddad and congressional leaders were disappointing, offering only "fragmented and shortsighted" suggestions without addressing fundamental issues [1][2]. - Nóbrega suggests that the government should quickly advance a new round of pension reforms and eliminate the linkage between minimum wage and retirement benefits [2]. Economic Outlook - Nóbrega emphasizes the need for Brazil to exit its current "fiscal convalescence" state and rebuild rational, sustainable budget rules to enhance market confidence and stimulate investment and productivity growth [2]. - Without improving total factor productivity, Brazil will struggle to return to a path of sustained growth and achieving wealth [2].

Core Insights - The recent volatility in the U.S. Treasury market is primarily driven by foreign investors' reluctance to finance the U.S. fiscal deficits, leading to a decline in confidence regarding the U.S. fiscal situation [1][5] - The U.S. government debt has surpassed $36 trillion, with $6.5 trillion in Treasury securities maturing by June 2025, raising concerns about the long-term repayment capacity of the U.S. [4] Group 1: Market Dynamics - The U.S. bond market has faced significant selling pressure, with the 20-year Treasury auction on May 21 yielding a bid rate of 5.047%, marking the second instance of surpassing the 5% threshold [3] - The bid-to-cover ratio fell from an average of 2.57 to 2.46, indicating a decrease in demand for U.S. Treasuries [3] - A rare "triple whammy" occurred in the U.S. market, with simultaneous declines in the stock market, bond prices, and the U.S. dollar index [3] Group 2: Foreign Investment Trends - Global investors are accelerating their withdrawal from U.S. asset markets, particularly highlighting the critical role of Asian investors as major fund providers for U.S. deficits [4] - Many countries are quietly reducing their holdings of U.S. Treasuries as the attractiveness of dollar assets diminishes [4] Group 3: Fiscal Challenges - The U.S. government is projected to spend over $1.1 trillion on debt interest payments in the fiscal year 2024, a 30% increase from the previous fiscal year, marking a 15-year high [4] - Interest payments on U.S. debt are expected to account for approximately 3.93% of GDP, the highest level since 1998 [4] Group 4: Federal Reserve's Role - Deutsche Bank warns that the Federal Reserve's monetary policy interventions may not effectively address the current crisis, as foreign investors remain unwilling to finance U.S. fiscal deficits [5] - The bank suggests that potential solutions include significant modifications to current fiscal policies or a substantial depreciation of the U.S. dollar to attract foreign investors back [5]

Group 1 - Former U.S. Treasury Secretary Larry Summers warns President Trump to reconsider his proposed tax agenda, suggesting he should make concessions similar to those made on tariffs [1][2] - Summers highlights the simultaneous sell-off of U.S. bonds, stocks, and the dollar as indicators of rising economic vulnerability, stating that a recession could occur soon if current trends continue [1][2] - The U.S. financial markets experienced significant declines, with the 30-year Treasury yield reaching 5.09%, the highest in 2023, and major stock indices such as the Dow Jones, S&P 500, and Nasdaq all falling [2] Group 2 - Summers draws parallels between the current U.S. fiscal crisis risks and the 2022 UK financial crisis, referring to it as a "Liz Truss moment," which could have severe implications for both the U.S. and global economies [2] - He commends Trump's recent retreat on aggressive tariff proposals, indicating that sometimes concessions can be beneficial, despite his usual criticism of the administration [2]

Group 1 - The core viewpoint of the report is that despite recent market gains and a strong dollar, continuing to chase these gains is no longer attractive due to weakening economic data and rising term premium risks, which may lead to market adjustments [1] - Citi's report highlights that the reduction in DOGE spending and declining tariff revenues could trigger a surge in term premium, potentially resulting in a "triple whammy" of falling U.S. stocks, rising bond yields, and a weakening dollar [1][10] - The report indicates that the upcoming labor market report in May may start to reflect the negative impacts of recent policies, which could elevate expectations for Federal Reserve rate cuts from the current 50 basis points back to 100 basis points [5] Group 2 - Citi emphasizes the need for investors to connect the policies of the Trump administration, noting that the DOGE plan aimed to cut costs while tariffs were intended to increase revenues, but the chaotic implementation has led to a potential increase in fiscal deficits [6] - The report expresses concern over the high level of U.S. term premium, with expectations that the 30-year swap spread will narrow further to -95 basis points later this year [6][10] - Historical data suggests that the state of rising term premium may persist, especially as budget issues come to the forefront, compounded by low foreign demand for U.S. debt, which could exacerbate fiscal risks [10] Group 3 - The analysis suggests that the current dollar rebound presents an opportunity to sell dollars at better prices, with a belief that the dollar's weakness this year is cyclical rather than structural [13] - Analysts are particularly focused on the attractiveness of long positions in Swiss francs as a safe haven, while noting that the Swiss National Bank cannot intervene in tariff issues without being perceived as currency manipulation [16] - Investors are advised to closely monitor whether the 30-year U.S. Treasury yield breaks the critical 5% level and whether the yield curve steepens, as these could signal increased term premium risks and potential adjustments in risk assets and a weakening dollar [18]