5 Things You Need to Know to Start Your Day

Trump is charged with federal crimes, JPMorgan says stocks could drop 20%, and China’s inflation print fuels calls for rate cuts. — Liza Tet [View in browser]( [Bloomberg]( Trump is charged with federal crimes, JPMorgan says stocks could drop 20%, and China’s inflation print fuels calls for rate cuts. — [Liza Tetley]( Trump charged [Former President Donald Trump has been indicted over his refusal to return classified documents found at his Florida home](, in what are the first ever charges brought against an ex-president for federal crimes. The move is likely to upend his presidential campaign, given Trump may face prison time or disqualification from holding public office. The indictment document could be made public on Friday. Trump maintains his innocence, with his campaign calling the filing an “act of open legal ‘warfare’.” Stock disconnect [JPMorgan strategists say the disconnect between stocks and bonds suggests the potential for a 20% drop in equities](if bond traders are proved right in pricing inflation volatility. “Bond markets are still pricing in a sustained period of elevated macroeconomic uncertainty,” they wrote in a note. Meanwhile, [Bank of America strategists say tech stocks may be set for a pause](bbg://news/stories/RVZ3G7T0G1KW) after an AI-fueled frenzy that drove massive inflows into the sector. Tech funds sustained $1.2 billion of outflows in the week through June 7, their first in eight weeks, according to the bank. China inflation [China’s inflation rate remained close to zero in May, fueling calls for rate cuts amid fresh evidence that the world’s second-largest economy is cooling.]( “The risk of deflation is still weighing on the economy,” said Zhiwei Zhang, chief economist of Pinpoint Asset Management. “Recent economic indicators send consistent signals that the economy is cooling.” A rate cut would further widen the gap between interest rates in China and the US, which has already fueled capital outflows and weighed on the yuan. The currency is down 3.1% against the dollar so far this year. Depressed markets S&P 500 futures are heading lower, down 0.1% as at 5:50 a.m. in New York, while the tech heavy Nasdaq is little changed. Treasury yields are ticking higher across the curve, most markedly at the short end. A measure of the dollar is strengthening, while oil prices are edging higher after yesterday’s drop. Gold prices are little changed, while iron ore continues its weekly ascent. Coming up… A light day for data today. We’ve got the US Department of Agriculture June WASDE report at midday, followed by the Baker Hughes US Rig Count at 1:00 p.m. In corporate news, Blue Owl Capital is holding its AGM. What we’ve been reading Here’s what caught our eye over the past 24 hours: - [Banks are looking at cutting ties with Crispin Odey](after assault allegations - [Russian billionaires are having to spend their money]( elsewhere - Chipmaker behemoth [TSMC’s sales fall for a third month](bbg://news/stories/RVX6RFT0AFB4)as demand weakens - [UK Prime Minister Rishi Sunak leaves the US](without a big trade prize - [Generative AI risks giving a more biased version of reality than humans]( - [UK banks are rushing to pull mortgage deals](, adding to housing market troubles - [Dry springs are creating prime conditions for Canadian wildfires](bbg://news/stories/RVZAXHTP3SHS) And finally, here’s what Garfield’s interested in this morning... Bond investors got hit with nasty surprises from both ends of the Earth this week as Australia and Canada hiked interest rates when the consensus was they would hold fire. Policymakers simply don’t share the market’s confidence that inflation will cool down — as JPMorgan Asset Management’s Karen Ward put it, investors got carried away by hopes for rapid rate cuts. That enhanced the slump that hit bonds this week as investors once more found they’d underestimated central banks’ hawkish mindset. That sets up more potential for turmoil given that traders are again looking extremely sure that the Federal Reserve will hold on June 14, while its European peer will hike by a quarter point. Be that as it may, bond bulls are showing a strong willingness to fight the Fed by piling back into the market whenever yields spike. Pimco says it sees the best bond return potential in more than a decade because of the high yields available on short-term publicly traded bonds. Plenty of investors are betting the Fed’s actions will bring back a low-rate world, helping to make current yields extremely alluring. The problem with those expectations is that inflation is still elevated across most of the developed world and central bankers are turning more hawkish in response. Reserve Bank of Australia Governor Philip Lowe says persistent cost pressures are testing his board’s patience, while his Swiss counterpart believes rate hikes are still needed. European Central Bank officials also called for interest rates to be lifted further — even as inflation retreated there. There are those who reckon we have already entered a world where yields are going to remain high. Ray Dalio warned the US is at the “beginning of a late, big-cycle debt crisis” — with stubbornly high inflation and elevated real interest rates. Jim Grant, the founder of Grant’s Interest Rate Observer, sees a “long cycle of rising rates” that will test the mettle of investors accustomed to years of loose monetary policy. The battle between bonds and central banks looks set to extend as each burst of fresh rates aggression persuades investors that recessions are more and more likely. Australia’s yield curve — one of the few among major markets to remain above zero — came crashing down to the lowest closing level since 2010 as weaker-than-expected growth was reported a day after the RBA’s latest hike. Read The Weekly Fix: [Hawks Fly in Northern Summer to Hunt Down Bonds]( Follow Us Like getting this newsletter? [Subscribe to Bloomberg.com]( for unlimited access to trusted, data-driven journalism and subscriber-only insights. Before it’s here, it’s on the Bloomberg Terminal. Find out more about how the Terminal delivers information and analysis that financial professionals can’t find anywhere else. [Learn more](. Want to sponsor this newsletter? [Get in touch here](. You received this message because you are subscribed to Bloomberg's Five Things to Start Your Day: Americas Edition newsletter. If a friend forwarded you this message, [sign up here]( to get it in your inbox. [Unsubscribe]( [Bloomberg.com]( [Contact Us]( Bloomberg L.P. 731 Lexington Avenue, New York, NY 10022 [Ads Powered By Liveintent]( [Ad Choices](