ORLANDO, Florida, May 30 (Reuters) -

- TRADING DAY

Making sense of the forces driving global markets

By Jamie McGeever, Markets Columnist

Bonds bounce back

Global trade uncertainty cranked up several notches this

week amid a flurry of court rulings around U.S. tariffs and

President Donald Trump accusing China of violating a deal with

Washington, ensuring world markets ended the month on a cautious

footing.

A clutch of economic indicators on Friday that suggested

U.S. growth may be slowing more than expected also added to the

gloom, making for a turbulent session on Wall Street.

Month-end rebalancing flows were expected to be bullish for

bonds, and that's how it appears to have turned out. After four

consecutive weeks of declines, Treasuries' prices rebounded this

week, particularly at the longer end, thereby bull-flattening

the yield curve.

The benchmark 10-year Treasury yield on Friday ended at a

three-week closing low around 4.40%, partly capped by figures

that showed U.S. PCE inflation last month cooled to 2.1% - to

all intents and purposes back at the Fed's target.

It's worth noting, however, that despite the renewed tariff

chaos the S&P 500 and Nasdaq this week climbed to within a few

percentage points of February's record highs. It won't take that

much of a push to test them, although an impetus will be needed.

What might provide that spark? The latest twists and turns

on the Trump administration's tariffs, whether that's from the

courts or the president's social media posts, appear to be the

most likely trigger of major market moves.

The U.S. Senate will start debating Trump's tax-and-spending

bill - a "big, beautiful bill" as he has dubbed it - that, in

its current form, is set to add nearly $4 trillion to the

federal debt over the next decade.

One element of the bill has unnerved investors in the last

24 hours, a tax targeting foreign investors that could

potentially weigh on demand for U.S. Treasuries and the dollar.

Deutsche Bank's George Saravelos warned that it could "turn the

trade war into a capital war."

The U.S. bond market is nervy, despite this week's rebound.

The broad thrust from Fed officials' comments this week is

policymakers remain in a 'wait and see' mode regarding the

economic impact of the tariff uncertainty. Traders don't expect

the Fed to cut rates again until September.

Meanwhile, another expected interest rate cut from the

European Central Bank on Thursday and May's U.S. employment

report on Friday are among the highlights on next week's global

calendar.

I'd love to hear from you, so please reach out to me with

comments at . You can also follow me at @ReutersJamie and

@reutersjamie.bsky.social.

This Week's Key Market Moves

* U.S. Treasuries snap a four-week losing streak, with the

long

end outperforming. But May is a bad month for bonds - the ICE

BofA Treasury index has its biggest fall this year.

* Long-dated Japanese bond yields pull back from last week's

record highs - the 40-year yield tumbles nearly 45 bps, its

biggest ever weekly fall.

* Many key equity indices have their best month since

November

2023, including the MSCI World (up 5.5%) and Nasdaq (up 9.5%).

* Japan's Nikkei rises more than 5% in May for its best

month

since February last year.

* The MSCI Asia ex-Japan index snaps a six-week winning

streak,

closing the week down 0.9%.

* Nvidia shares soar 24% in May, their biggest monthly rise

in a

year. May has been a good month for Nvidia shares of late,

boosted by Q1 earnings - up 26% last year, and 36% in 2023.

* The euro rises 0.4% in May, a negligible move in itself

but

enough to seal a fifth straight monthly gain, its longest

monthly winning streak since 2017.

* Bitcoin falls 3% this week, retreating from the record

high of

$112,000 to clock its first weekly decline in seven.

Chart of the Week

I'm feeling generous, so two charts for you this week.

The first is from Simon French at Panmure Liberum. It shows

that the gap between the UK 10-year bond yield and the aggregate

yield of its G7 peers that exploded around the 'Trussonomics'

debacle in late 2022 has not narrowed. More than two and a half

years later, it is wider than ever.

Investors are clearly demanding a massive premium for

lending to the UK government over other G7 nations, but why?

Possible explanations include: UK inflation is seen 'higher for

longer', greater risk of fiscal slippage, policy credibility

worries.

The second chart might be gaining some attention - and

raising hackles - in the White House. It shows the broadest

measure of China's yuan exchange rate which, after a lengthy

period of stability, has slumped to its weakest level since

2012.

But unlike previous bouts of yuan weakness like the

mid-2000s, this is not being driven by FX market intervention

from Beijing, says OMFIF's Mark Sobel. In other words, less

currency 'manipulation' and more capital outflows due to the

huge challenges China's economy is facing.

Either way, it will play into the narrative from Washington

that global trade and currency imbalances must be fixed. But

trade talks between the U.S. and China appear to have stalled,

putting investors back on the defensive.

Here are some of the best things I read this week:

1. Market Discipline Will Prevail in the U.S. -

Nouriel

Roubini

2. Making Sense of the New Global Economy - Dambisa

Moyo

3. Failure to communicate is an economic policy risk

4. Today's global imbalances aren't what they used

to be -

Mark Sobel

5. Lagarde's euro 'battle cry' emphasizes EU cash

need:

Mike Dolan

What could move markets on Monday?

* Japan, UK, Germany, U.S. manufacturing PMIs (May)

* U.S. manufacturing ISM (May)

* Several Fed policymakers scheduled to speak at various

events:

Chair Jerome Powell, Governor Christopher Waller, Dallas Fed

President Lorie Logan, and Chicago Fed President Austan Goolsbee

Opinions expressed are those of the author. They do not

reflect the views of Reuters News, which, under the Trust

Principles, is committed to integrity, independence, and freedom

from bias.

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(Writing by Jamie McGeever; Editing by Nia Williams)