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Daily Economic Update
28.05.2025US: Consumer confidence rebounds but core capital goods orders fall. A Conference Board gauge of consumer confidence in May rebounded sharply to 98 from April’s five-year low of 85.7. This first increase after five straight months of deterioration is signaling that consumers are becoming relatively more upbeat following some de-escalatory trade developments, especially with China. Nonetheless, despite a sharp improvement, the measure remained substantially below the 2024 average of 104.5 as tariffs and the expected uptick in inflation continue to be the key concerns. Supporting a better consumer outlook is also rising household wealth, including a V-shaped recovery in equity markets after the early April slump and higher home prices. An S&P Case Shiller house price index (composite 20-city) showed that home prices rose 4.1% y/y in March, slowing from a 4.5% increase in February. On a monthly basis, prices fell 0.1%, a first monthly decline in 26 months, as elevated mortgage rates and an improving inventory of residential units available for sale along with rising economic uncertainty pressured prices in March. Finally, durable goods orders fell 6.3% m/m in April after recording a massive rise of 7.6% in March due to a large reduction in commercial aircraft orders, which tend to be volatile on a monthly basis. Excluding aircraft and defense, core capital goods orders still fell 1.3% m/m from an upwardly revised increase of 0.3% in March, indicating businesses’ wariness amid trade and economic uncertainty. Meanwhile, President Trump viewed the speedy progress on trade talks with the EU favorably, saying “quicky establish[ing] meeting dates… is a positive event”. A further de-escalation in trade hostility and signs of improvement in consumer confidence pushed US assets higher yesterday after Monday’s Memorial Day holiday, with the S&P 500 surging 2.1% d/d and UST 10Y yields falling by 6 bps to close at around 4.45%.
Japan: Demand for long-term bonds falls to its lowest level since July. The 40-year government auction today logged its lowest level of investor interest since July 2024, with the bid-to-cover ratio falling for the JPY500 billion 40-year bond to 2.21, lower than the last auction in March (2.92). The sluggish demand for long-term Japanese debt comes following the launch of the Bank of Japan’s tapering scheme, which has not been offset by foreign or private sector demand, especially from life insurance companies (which have reported rising unrealized losses over the past fiscal year). Moreover, fiscal sustainability concerns, rising inflation expectations and rate hike prospects have further dampened demand. The ministry of finance announced yesterday that it may shift toward increasing issuances of short-term debt while maintaining overall debt issuance levels, in a move to stabilize borrowing costs and reassure investors amid growing scrutiny of Japan's fiscal health and its implications for global financial markets.
Bahrain: Inflation turns negative on food price drop. Consumer price inflation fell into negative territory in April, dropping to -0.5% y/y from 0.1% the previous month. This is the first time since December 2023 that consumer prices have fallen into deflation territory, and driven primarily by lower food & beverage prices, which recorded the steepest drop (-4.2% y/y) in almost a decade (since Nov 2016). Meanwhile, the broad-based deflation that has been recorded in other categories continued in April, with negative price growth in furnishings & household equipment (-1.3% y/y), housing & utilities (-2.0%), clothing & footwear (-2.7%), and recreation & culture (-9.8%). This more than offset the increase in prices seen in the healthcare (5.9%), communication (3.4%), and restaurants & hotels (3.8%) categories. On a monthly basis, consumer prices eased by 0.3%.
Qatar: Production from the North Field Expansion to begin in mid-2026. In a press conference held last week, QatarEnergy’s CEO Saad Al-Kaabi announced that Qatar will start exporting LNG from its North Field East (NFE) expansion project by mid-2026, a slight delay from the planned starting date of Q1 2026. The NFE expansion project alone should result in a 42% increase in LNG production capacity (from 77 mtpa to 109 mtpa), though Mr. Saad did not clarify when full capacity would be reached. QatarEnergy has already signed deals to sell most of the planned production from the NFE, including long-term offtake agreements with Sinopec, Eni, Shell, and TotalEnergies. Additional gas expansion projects include the North Field South, which is expected to start production in 2027 and add 16 mtpa, and the North Field West, where construction is seen starting in 2027 and which will add an additional 16 mtpa, increasing total capacity to 142 mtpa by 2030. The higher output will have positive ramifications for the domestic economy (the IMF sees GDP growth at 5.6% in 2026 and 7.9% in 2027 and government revenues increasing by 9.2% y/y and 8.5%, respectively), though such a sizeable increase in the supply of LNG could weigh on natural gas prices if demand underperforms.