'Sell America' is the hot summer trend. A weaker dollar is the most visible sign of an aversion toward U.S. assets, but the bond market is the potential trigger for a bigger crisis.

While stock markets rallied sharply in May, the dollar is off to its worst start to a year ever. More worrisome, the greenback's correlation with bonds -- where higher yields typically attract foreign capital -- has broken down.

Markets look to be pricing in significant risk around U.S. government debt. President Donald Trump's tax bill is expected to increase budget deficits by $2.7 trillion through 2034. Although the administration insists that will be offset by revenue raked in from tariffs and improved growth from tax cuts, markets are skeptical.

BlackRock analysts say their "strongest conviction" is being underweight long-term Treasuries, citing the potential for the U.S. deficit-to-GDP ratio to hit the higher end of the 5% to 7% range. Meanwhile, the OECD on Tuesday lowered its forecast for U.S. economic growth to 1.6% this year from 2.2% previously, primarily due to tariffs.

Despite deficit and growth concerns, the 30-year Treasury yield has retreated from May's highs of 5% in recent days. But JPMorgan Chase CEO Jamie Dimon's comments last week that a "crack in the bond market" is coming should have investors worried.

The market can see dollar weakness as a cloud with a silver lining -- at least it makes U.S. exports more competitive. But endangering the U.S. Treasury's status as the world's default risk-free asset is a much bigger risk, as it raises borrowing costs worldwide.

With hurricane season kicking off this month, it could be a stormy summer for the bond market.

-- Adam Clark

***

The Dollar Has Its Worst Start Ever. It Could Get Worse.

President Donald Trump's rapid tariff rollout has slowed U.S. imports to a trickle, weighed on global growth prospects, and rekindled inflation concerns. It has also, in part, led to the worst start to the year through May for the U.S. dollar on record, and it could get worse.

   -- The U.S. dollar index, which tracks the greenback against a basket of six 
      global currencies, is down 8.4% over the first five months of the year, 
      according to Dow Jones Market Data. It is trading near the lowest levels 
      since the spring of 2022. 
 
   -- Washington could exacerbate things. Buried deep within the tax and 
      spending bill currently being marked-up by the Senate, is section 899, 
      otherwise known as the "revenge tax." It would allow the government to 
      apply new taxes on foreign investment from countries deemed to have 
      discriminatory tax schedules. 
 
   -- European investors, for example, could face extra fees when repatriating 
      capital gains, dividends, or U.S. Treasury bond coupon payments. Europe's 
      digital services taxes on U.S. tech giants has been a keen focus of the 
      Trump administration's ire and an oft-cited example of the bloc's 
      non-tariff barriers. 
 
   -- The euro, the heaviest weight against the dollar in foreign exchange 
      markets, is up 11% against the dollar this year despite a weaker economy 
      and a central bank that will likely cut interest rates again Thursday in 
      Frankfurt. Japan's yen is up 9%, and the British pound is up 8%. 

What's Next: U.S. exporters might enjoy the added advantage of a weaker dollar, and companies with overseas profits will find them cheaper to repatriate as the greenback slides. But the broader effect could be chilling. For more, read here.

-- Martin Baccardax

***

Bristol Myers Jumps Into Drug Industry's Biggest New Rivalry

Bristol Myers Squibb has jumped into the drug industry's most intense new rivalry in a bid to unseat Merck's megablockbuster cancer drug Keytruda. For Bristol Myers, that means an $11 billion deal with Germany's BioNTech to jointly develop a new cancer drug.

   -- Bristol is paying BioNTech $1.5 billion now to jointly develop the drug, 
      with another $2 billion guaranteed through 2028. BioNTech will get $7.6 
      billion more if the program hits certain targets. Bristol CEO Christopher 
      Boerner said they want to accelerate existing clinical trials and time to 
      market. 
 
   -- Both companies will evenly split all future development costs and profit. 
      This new class of drugs improves on medicines like Keytruda by attacking 
      cancer cells two ways simultaneously: boosting patients' immune response 
      and blocking tumor growth. Summit Therapeutics has one drug that 
      performed better than Keytruda in a lung-cancer trial. 
 
   -- Separately, French drugmaker Sanofi is buying immunology-disease 
      specialist Blueprint Medicines for up to $9.5 billion, its third deal 
      this year after Dren Bio and Vigil Neuroscience, as it replenishes its 
      drug pipeline. Sanofi CEO Paul Hudson said it still has a "sizable 
      capacity" for more acquisitions. 

What's Next: The Bristol deal is a reaffirmation of BioNTech's decision to refocus on cancer after a wildly successful pandemic-era detour into vaccines. BioNTech is now testing the experimental drug BNT327 in multiple clinical studies, including two Phase 3 trials and a third starting later this year.

-- Josh Nathan-Kazis and Janet H. Cho

***

Apple's WWDC is Coming. What to Expect.

Apple has promised some "groundbreaking updates" at its annual Worldwide Developers Conference next week, but what investors really want is an update about the highly anticipated artificial-intelligence rollout of its digital assistant Siri.

   -- Siri updates have been delayed indefinitely and likely will be pushed to 
      the upcoming operating system update cycle, "though the exact timing is 
      still uncertain," Citi analysts said Monday. 
 
   -- Apple management has acknowledged the delay. CEO Tim Cook has said it 
      needs "more time to complete our work on these features so they meet our 
      high quality bar," which could be contributing to low investor 
      expectations ahead of WWDC on June 9, Citi said. 
 
   -- The analysts have repeatedly described the delay as a drag on the stock 
      and argued it could hurt sales. Yet, they remain bullish on Apple's 
      competitive positioning as the maker of a so-called full stack of 
      hardware, software and services. It can also leverage its 2.35 
      billion-strong user base. 

What's Next: Speculation about the upcoming announcements are rife, but details are unsurprisingly sparse. The Citi analysts for their part expect a focus on updates to Apple Intelligence, the company's flagship AI assistant. That may include expansion into more regions and partnerships beyond one with OpenAI that was announced in 2024.

-- Mackenzie Tatananni and Elsa Ohlen

***

DraftKings and Flutter Dealt a Costly Hand With New Illinois Tax

A surprise move by the Illinois legislature is putting pressure on sports betting site operators DraftKings and Flutter Entertainment. State lawmakers approved a per-wager sports betting tax that could cost the gambling companies tens of millions of dollars a year.

   -- The new levy would tax sportsbooks at 25 cents a bet for the first 20 
      million wagers and 50 cents a bet beyond that. DraftKings and FanDuel, 
      owned by U.K.-based Flutter, together have about 75% market share in 
      Illinois, according to Citizens Bank analysts. 
 
   -- The analysts estimate that DraftKings would take a $79 million hit -- or 
      5.4% of its earnings before taxes, interest, depreciation, and 
      amortization -- in 2026 because of the Illinois tax, before mitigation 
      efforts. It could cost FanDuel $86 million, or 2% of Ebitda. 
 
   -- Companies could limit the damage by reducing promotions, passing the 
      costs through to customers, and encouraging higher bet sizes, BofA 
      Securities analysts said. The tax will take effect July 1 after Gov. J.B. 
      Pritzker signs the $55.2 billion state budget. 
 
   -- DraftKings and FanDuel could push into the nascent prediction-market 
      business, a business similar to futures contracts that isn't subject to 
      state sports-betting taxes. Trade group the Sports Betting Alliance said 
      the new law will push customers to unregulated sportsbooks that generate 
      no state taxes. 

What's Next: It's unclear whether other states will raise taxes on sports betting, but Louisiana, New Jersey, North Carolina, and Ohio are all considering internet gambling bills. Gambling generated $14.4 billion in state tax revenue in 2023, according to the National Association of Administrators for Disordered Gambling Services.

-- Nate Wolf and Janet H. Cho

***

Stablecoin Issuer Circle Internet Sees Surging IPO Interest

Surging investor interest led stablecoin issuer Circle Internet Group to raise its initial public offering price and increase the amount of shares it will sell. The upsized deal means it could raise 46% more than it originally anticipated, and is another sign a crypto-friendly Washington is boosting the sector.

   -- Circle now plans to sell 32 million shares at $27 to $28 a share. At the 
      midpoint, that would raise $880 million and value the crypto company at 
      $7.2 billion. Just last week, it announced plans to raise $600 million. 
 
   -- The fact that Circle, led by veteran tech entrepreneur Jeremy Allaire, is 
      going public is a sign of a shift in how Washington regulators view the 
      crypto industry. In 2021, Circle tried to go public through a merger with 
      a special-purpose acquisition company, or SPAC, before backing out. 
 
   -- According to documents viewed by Barron's last year, the Securities and 
      Exchange Commission had several questions for Circle about whether it 
      should be registered as an investment company and if its stablecoin USDC, 
      pegged to the U.S. dollar, was a security. But that was before the Trump 
      administration. 
 

   -- The SEC under new Chair Paul Atkins has taken a friendlier approach to 
      crypto. That has led to a new crypto boom in the past few months. Bitcoin 
      prices, which tumbled earlier this year, have since rallied back near 
      record highs of above $100,000 a coin. 

What's Next: Circle has also attracted some A-list of backers, including crypto exchange operator Coinbase, the investment managers BlackRock and Fidelity, and venture-capital firms such as Accel, General Catalyst Group, and Oak Investment Partners. The IPO is expected later this week.

-- Paul R. La Monica

***

-- Newsletter edited by Liz Moyer, Rupert Steiner

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

June 03, 2025 06:42 ET (10:42 GMT)

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