Morgan Stanley Predicts 10% US Dollar Drop; Brazil Scraps Offshore Fund Tax After Selloff
Key Takeaways
- Morgan Stanley forecasts a 10% US dollar drop this year, potentially boosting US equities.
- Brazil scrapped offshore fund tax after currency selloff, reverting IOF tax to zero.
- Lagarde warns international trade will be permanently altered due to tariff tensions.
- Argentina proposes tax overhaul, allowing $43,700 transfers without questions.
- Germany suggests delaying new bank capital requirements until the US clarifies its stance.
Top Stories
Morgan Stanley predicts 10% US dollar drop this year.
On 2025-05-22, Morgan Stanley's Mike Wilson forecasted a further 10% decrease in the US dollar's value this year. He suggested this depreciation could positively influence US equities.
Brazil scraps offshore fund tax after currency selloff.
On 2025-05-23, Brazil’s Finance Ministry initially announced a tax on transfers to offshore funds, causing a currency selloff. Later that day, the plan was scrapped, and the IOF tax was reverted to zero following dialogue and technical evaluation.
Lagarde warns trade will be forever changed.
On 2025-05-22, European Central Bank President Christine Lagarde cautioned at the Group of Seven meeting of finance officials in Canada that international trade will be permanently altered due to tariff tensions. She noted that while international trade will never be the same, further negotiations are anticipated.
Argentina proposes tax overhaul, eases data collection.
On May 22, 2025, President Javier Milei proposed an overhaul of Argentina’s tax system to cut red tape and encourage the use of previously undeclared US dollars, allowing Argentines to send $43,700 without questions. Starting on Friday, 2025-05-23, Argentina’s tax agency, ARCA, will cease collecting extensive data from citizens and businesses and intends to increase the threshold for banks to report consumer transactions.
Germany suggests delaying new bank capital requirements.
On 2025-05-22, Germany’s Bundesbank suggested that Europe should postpone new global capital requirements for banks’ trading businesses and potentially consider permanent changes. Bundesbank executive board member Michael Theurer said it's sensible to wait until the US clarifies its stance.
Economic Trends
EU delays tougher capital requirements for banks.
On 2025-05-23, the European Union announced a one-year delay in applying tougher capital requirements for banks’ trading businesses, pushing the start to 2027. This decision was made due to concerns about the industry’s competitiveness regarding the Fundamental Review of the Trading Book standards, marking the second such delay.
Germany sees 'signs of recovery' despite stagnation forecast.
On 2025-05-22, Monika Schnitzer, chair of Germany's independent council of economic experts, indicated 'signs of recovery' in the German economy despite forecasting stagnation this year. She hopes the fiscal package implemented by the German government will lead to 1% growth next year but was surprised by PMI data showing an unexpected contraction in Germany’s private sector in May.
Zambia's corn harvest to more than double.
On 2025-05-22, the Zambian government announced that the country’s corn harvest is expected to more than double from a 16-year-low last year, reaching an estimated 3.66 million tons. This increase could help reduce consumer price growth and increase the likelihood of rate cuts.
Turkey signals revival of state-backed loan program.
On 2025-05-22, Turkish President Recep Tayyip Erdogan hinted at the potential revival of a state-backed loan guarantee program that previously boosted corporate lending. He issued the “necessary warnings” to officials to activate the program, raising the prospect of looser financial conditions for businesses.
French taxis protest new agreement, secure meeting.
On 2025-05-22, after a fourth day of mobilization, taxis in France secured a meeting at the Ministry of Transport with François Bayrou. They are protesting against a new agreement governing patient transport and competition from VTCs, with 1,700 taxis mobilizing across France, including 960 in Paris.
Auto Industry
Stellantis warns of potential factory closures.
On 2025-05-22, John Elkann, the PDG of Stellantis, stated that if the current trajectory does not change, they will have to make painful decisions for the production apparatus in the next three years. This implies potential factory closures.
Study: Car prices driven by commercial choices, not regulations.
On 2025-05-22, a study by the Institut mobilités en transition with the C-Ways firm challenges the argument of automobile manufacturers that regulations are driving up car prices, stating their commercial choices are the cause. The study notes that between 2020 and 2024, the average car price increased by 20% to 34,872 euros.
Fiscal Policy
Trump seeks tax deal for bill passage.
On 2025-05-22, reports indicated President Donald Trump is negotiating a tax deal with blue-state Republicans to pass his bill in the House. He also needs to address concerns about the growing US debt to get his legislative package through the Senate.
US denies currency pact, affirms strong dollar policy.
On 2025-05-22, White House chief economist Stephen Miran stated that the United States is not secretly working on any currency pact to weaken the dollar. He reaffirmed the country's commitment to a strong dollar policy.
Trump's mortgage announcement boosts shares, raises costs.
On 2025-05-22, President Donald Trump's announcement about potentially offering US mortgage giants Fannie Mae and Freddie Mac publicly caused their shares to surge, benefiting hedge funds and investors. However, this move could increase costs for US homebuyers by over $40,000 over the loan's lifetime.
Market Insights
Japanese stocks rise as yen weakens.
On 2025-05-23, Japanese stocks increased following the yen's depreciation, which was triggered by an improved US Purchasing Managers’ Index. This led to buying activity in export-related sectors.
Japan may ask entities to support bond market.
On 2025-05-22, Barclays Plc's global chair of research reported that Japan might consider asking government-owned entities, such as Japan Post Holdings Co. and the Government Pension Investment Fund, to support the nation’s bond market. This consideration arises if the selloff in longer-dated debt does not subside.
Grasim secures cheapest rupee bond deal in five years.
On 2025-05-22, Grasim Industries Ltd. obtained the most affordable rupee bond deal in five years. The deal offered a 6.56% coupon on a 10-billion rupee issue arranged by Axis Bank.
UBS and Goldman recommend buying consumer stocks.
On 2025-05-22, UBS Group AG and Goldman Sachs Group Inc. advised purchasing consumer stocks and betting against interest-rate sensitive sectors like housing. This recommendation was influenced by rising Treasury yields.
Rising bond yields threaten hedge fund Treasury bet.
On May 22, 2025, a surge in long-term bond yields is threatening a popular hedge-fund bet that Treasuries will perform better than interest-rate swaps. Soaring borrowing costs for major economies diminish returns in US government debt against swaps, posing a problem for hedge funds and Wall Street strategists who recommended the bet.
Gold heads for weekly gain amid US fiscal deficit concerns.
On May 22, 2025, gold was heading for its biggest weekly gain in over a month, driven by investor concerns about the US fiscal deficit, boosting its appeal. Bullion rose toward $3,330 an ounce, on course for a weekly climb of almost 4%, following Moody’s Ratings’ decision to strip the US of its top credit rating and investor concerns that President Donald Trump’s tax bill will boost the already swelling deficit.
Trading companies' stocks rise after Abel's Japan visit.
On 2025-05-23, trading companies' stock prices increased after Berkshire Hathaway’s next chief executive, Greg Abel, met with Japan’s biggest trading houses in Tokyo this week. This signaled the company's commitment to holding the shares.
LVMH loses spot among Europe's top five.
On 2025-05-22, LVMH lost its position among Europe’s top five listed companies. The French company’s shares fell about 3% on Thursday, bringing their year-to-date decline to 25%, and its market value slipped below that of Nestle SA to approximately €239 billion ($270 billion).
Bond market selloff, Treasury auctions, and Fed policy.
On 2025-05-22, Al-Hussainy discussed the 30-year bond selloff, noting that savings aren't keeping pace with government issuance, raising yields. He mentioned potential circuit breakers and suggested the intermediate part of the Treasury curve is the "sweet spot". Waller re-emphasized the Fed's view that the next move will be a rate cut, influenced by the belief that the impact of tariffs on inflation will be temporary, while the market focuses on Treasury auctions, indicating nervousness about outstanding demand.