Morocco is planning to review its trade agreement with Türkiye and seek increased investment to help counter a growing trade deficit, largely fueled by imports of Turkish fabrics, according to two sources familiar with the matter.

Omar Hjira, the Moroccan Cabinet member in charge of trade, will soon visit Türkiye – Morocco’s sixth-biggest trading partner – to discuss measures aimed at mitigating the $3 billion deficit, the sources, who attended a meeting with Hjira, told Reuters on Tuesday.

They asked not to be named due to the sensitivity of the matter.

Morocco’s Trade and Industry Ministry did not immediately respond to a request for comment.

Initially signed in 2004, Morocco and Türkiye introduced amendments to their free trade deal five years ago, including a 90% tariff on Turkish textile and clothing imports to protect Moroccan manufacturers and jobs.

Moroccan companies still import large volumes of Turkish fabric, however, to meet the needs of the country’s apparel sector.

Morocco’s overall trade deficit widened 22.8% to 109 billion dirhams ($12 billion) in the first four months this year, according to official data.

The deficit expanded by 7% to 306 billion dirhams last year, and Morocco’s deficit with Türkiye was its third-largest after the U.S. and China.

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The European Bank for Reconstruction and Development (EBRD) has said that it is launching a funding program of 250 million euros ($287.7 million) for young entrepreneurs in Türkiye, after implementing similar programs in 12 other countries, according to a report by Anadolu Agency (AA) on Wednesday.

“The initiative is supported by the Turkish government and the European Union and aims to provide financial assistance, know-how and non-financial business development services to people under the age of 35,” according to a bank statement.

The EBRD’s “Youth in Business” program will provide financing, technical cooperation and risk sharing to financial institutions partnered in Türkiye, which will then use the resources provided to issue loans to micro, small and medium-sized enterprises (SMEs) managed by young entrepreneurs, it said.

The program’s Türkiye arm is also focused on allocating 70% of the total financing to be provided to businesses in the country’s southeast, the area that was hit by the massive February 2023 earthquakes, to mitigate the economic impact of the disaster.

The EBRD is among Türkiye’s key investors, with more than 22 billion euros committed through 489 projects and trade finance limits since 2009, mostly in the private sector.

Recently, the bank also announced it was investing up to $100 million equivalent in Turkish lira-denominated covered bonds to be issued by Akbank, one of the top lenders in Türkiye.

The bank has also extended notable funding through several initiatives to revive businesses in the provinces impacted by the 2023 earthquakes.

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President Recep Tayyip Erdoğan announced on Wednesday that Türkiye would raise the size of its advance loan program for medium-high and high-tech investments by 70% to TL 500 billion ($12.65 billion).

Erdoğan said the Central Bank of the Republic of Türkiye’s (CBRT) Advance Loans Against Investment Commitment (ALAIC) will be expanded from the current allocation of TL 300 billion.

He was speaking to members of his ruling Justice and Development Party (AK Party) in Parliament.

Since 2023, the central bank has been allocating ALAIC for investment projects with a total value of at least TL 1 billion, based on the strategic and technological assessment scores firms receive for their investment plans.

Loans under the scheme are channeled through intermediary banks and offer a grace period of two years and a maximum maturity of 10 years.

The CBRT has allocated TL 300 billion over three years, with an annual cap of TL 100 billion.

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Inflation in the U.K. eased slightly in May as anticipated by the Bank of England (BoE), which is expected to keep interest rates on hold this week as it assesses international energy markets being rocked by escalating conflict in the Middle East.

Consumer prices rose in annual terms by 3.4% in May, the Office for National Statistics (ONS) said on Wednesday, in line with a Reuters poll of economists.

The data is unlikely to shift interest rate expectations among economists and investors who think the BoE will leave borrowing costs on hold when it announces its June policy decision on Thursday.

Sterling rose slightly against the U.S. dollar after the ONS data release.

The British central bank, which is taking a “careful” approach to cutting interest rates, is likely to double down on that language as the conflict between Israel and Iran enters a sixth day. Oil prices have risen about 14% in just over a week.

“The focus now will turn to geopolitical events and the rise in energy prices,” Deutsche Bank chief U.K. economist Sanjay Raja said.

“This will undoubtedly complicate the (BoE’s) task. Higher energy prices will mean higher inflation expectations.” However, Britain’s weakening jobs market could cool inflation pressures, he said.

Services price inflation – a crucial metric for the BoE – cooled to 4.7% from 5.4% in April, matching the BoE’s forecast for May. The Reuters poll had pointed to a reading of 4.8%.

Raja said the BoE would be heartened by a drop in its preferred core measure of inflation, which strips out indexed and volatile components as well as rents and holidays, and fell below 4% for the first time since February 2022.

Earlier this month, the ONS said April’s headline consumer price inflation reading of 3.5% had been overstated by 0.1 percentage points due to an error in car tax data from the government.

April’s figures were not amended, but the correct data was used for May’s readings.

Air fares fell sharply after an Easter holiday spike in April’s readings.

Gas, electricity and water prices rose in April alongside higher taxes on employers, causing inflation to leap from 2.6% in March.

Food prices rose by 4.4% in the 12 months to May, the biggest increase in over a year, the ONS said, a blow for low-income households.

Overall goods prices rose by the most since November 2023, up by 2.0%.

Some BoE officials have said they disagree with the central bank’s key assumption reached at its May meeting that the recent climb in inflation will not have longer-running effects on pricing behavior.

Market pricing on Wednesday pointed to an 89% chance that the BoE will leave rates on hold this week, with two 0.25 percentage-point cuts priced in by the year’s end.

The BoE lowered rates by a quarter point to 4.25% on May 8 in a three-way split vote, with two Monetary Policy Committee (MPC) members favouring a bigger cut and two, including Pill, favoring a hold.

The central bank said in May it expects inflation to peak at about 3.7% later this year. Some economists think April might prove to be the high point, although the conflict in the Middle East poses a risk of stronger price pressures.

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Japan’s exports dropped in May for the first time in eight months as top automakers like Toyota were hit by sweeping U.S. tariffs – while Tokyo also did not manage to strike a trade deal with Washington this week – which would likely put even more pressure on a fragile economy.

Japan’s Prime Minister Shigeru Ishiba said after the G-7 summit in Canada on Tuesday that his country had not reached a comprehensive tariff agreement with Washington, as some disagreements persisted between the two nations despite several rounds of talks.

Japan and the U.S. “explored the possibility of a deal until the last minute,” he added.

Tokyo is scrambling to find ways to get Washington to exempt Japan’s automakers from 25% automobile industry-specific tariffs, which are hurting the country’s manufacturing sector. Japan also faces a 24% “reciprocal” tariff rate starting on July 9 unless it can negotiate a deal with Washington.

The data on Wednesday showed that Japanese auto exports to the U.S. fell almost a quarter in May as worries over tariffs grow.

Roughly 8% of jobs are tied to the auto industry in Japan, which is home to the world’s top-selling carmaker, Toyota, as well as Honda, Nissan and other giants.

Japan’s automobile sector accounted for about 28% of the total 21 trillion yen ($145 billion) worth of goods the Asian country exported to the U.S. last year.

Total exports down

Its total exports in May dropped 1.7% year-over-year by value to 8.1 trillion yen, government data showed, smaller than a median market forecast for a 3.8% decrease, and following a 2% rise in April.

Exports to the U.S. slumped 11.1% last month from a year earlier, the largest monthly percentage decline since February 2021, dragged down by a 24.7% plunge in automobiles and a 19% fall in auto components, while a stronger yen also helped reduce the value of shipments. Exports to China were down 8.8%.

In terms of volume, however, U.S.-bound automobile exports dipped just 3.9%, indicating that the biggest Japanese exporters were absorbing the tariff costs.

“The value of automobile exports to the U.S. fell, but their volume did not drop that much,” Daiwa Institute of Research economist Koki Akimoto said. “This indicates Japanese automakers are effectively shouldering the tariff costs and not charging customers.”

So far, major Japanese automakers have refrained from price increases in the U.S. to mitigate the tariff costs, except for Subaru and Mitsubishi Motors.

“They are buying time right now to see the course of Japan-U.S. trade negotiations,” Akimoto said. The absence of price hikes could affect their profits, but their fiscal base is generally solid, he added.

While Japanese stocks and the yen showed little reaction to the data, shares of car companies have come under pressure this year due to concerns about the tariff impact.

Automakers and other transport companies are the second-worst performers this year among the Tokyo market’s 33 sector sub-indices, down almost 12%. Only makers of precision equipment have fared worse.

Toyota, the world’s top-selling automaker, has estimated that tariffs likely sliced 180 billion yen from its profit in April and May alone. Honda has said it expects a 650 billion yen hit to its earnings this year from tariffs in the U.S. and elsewhere.

The Japan May trade data provide one of the earliest indications of how U.S. President Donald Trump’s tariffs are impacting countries and the global economy.

China’s data showed this week that the country’s factory output grew 5.8% in May year-over-year, the slowest pace in six months. And its outbound shipments to the U.S. plunged 34.5%, the sharpest drop since February 2020.

The impending tariffs had driven companies in Japan and other major Asian exporters to ramp up shipments earlier this year, inflating levels of U.S.-bound exports during that period.

The Japan data showed imports dropped 7.7% in May from a year earlier, compared with market forecasts for a 6.7% decrease.

As a result, Japan ran a trade deficit of 637.6 billion yen last month, compared with the forecast of a deficit of 892.9 billion yen.

After the G-7 summit in Canada, Ishiba told reporters that U.S. tariffs were “hitting many Japanese companies’ profits.”

The situation “could have a grave impact on both Japan and the U.S. as well as the world economy, directly and indirectly,” he warned.

Drag on GDP

The hit from U.S. tariffs could add more pressure on Japan’s lackluster economy. Subdued private consumption already caused the world’s fourth-largest economy to shrink in January-March, the first contraction in a year.

However, the smaller-than-expected drop in May shipments suggests that Japan’s export driver has not stumbled, slightly raising the chance of the economy avoiding a contraction in the April-June quarter, Yuhi Kawano, economist at Mizuho Securities, wrote in a report.

The tariff woes complicate the Bank of Japan’s (BOJ) task of raising still-low interest rates and reducing a balance sheet that has ballooned to roughly the size of Japan’s economy.

The BOJ kept interest rates steady on Tuesday and decided to decelerate the pace of its balance sheet drawdown next year, signaling its preference to move cautiously in removing remnants of its massive, decadelong stimulus.

According to an estimate by the Japan Research Institute, if all the threatened tariff measures against Japan were to take effect, U.S.-bound exports would fall by 20% to 30%.

Some economists say those duties could shave around one percentage point of the nation’s gross domestic product (GDP).

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U.S. stocks plummeted due to yet another surge in oil prices on Tuesday. It was a return to form for financial markets after Wall Street’s worries about Israel’s fighting with Iran had appeared to subside on Monday.

The S&P 500 fell 0.8% following signals that the Israel-Iran conflict may be worsening and that one of the U.S. economy’s main engines is weakening. The swing sent Wall Street’s main measure of health nearly back to where it started the week.

The Dow Jones Industrial Average dropped 299 points, or 0.7%, and the Nasdaq composite fell 0.9%.

Stocks sank under increasing pressure from crude oil prices, which climbed in their latest see-saw move. A barrel of benchmark U.S. crude jumped 4.3% to $74.84. Brent crude, the international standard, added 4.4% to $76.45 per barrel.

Their gains accelerated after President Donald Trump raised the temperature on Israel’s fight with Iran by calling for “UNCONDITIONAL SURRENDER!” on his social media platform and saying, “We are not going to” kill Iran’s leader, “at least for now.”

Before that, Trump had left a Group of Seven summit early and warned that people in Iran’s capital should evacuate immediately. It took only about eight hours for Trump to go from suggesting a nuclear deal with Iran remained “achievable” to urging Tehran’s 9.5 million residents to flee for their lives.

The fighting has the potential to drive up prices for crude oil and gasoline because Iran is a major producer of oil, and it sits on the narrow Strait of Hormuz, through which much of the world’s crude passes. Past conflicts in the area have caused spikes in oil prices, though they’ve historically proven to be only temporary after showing that they did not disrupt the flow of oil.

Often, higher oil prices can help stocks of companies in the solar industry because they increase the incentive to switch to alternative energy sources. But solar stocks tumbled Tuesday because of the possibility that Congress may phase out tax credits for solar, wind and other energy sources that produce fewer emissions that change the Earth’s climate.

Enphase Energy dropped 24%, and First Solar fell 17.9%.

Treasury yields also fell in the bond market after a report said shoppers spent less last month at U.S. retailers than the month before and than economists expected. Solid such spending has been one of the linchpins keeping the economy out of a recession, but part of May’s drop may have simply been a return to more normal trends.

In April, some shoppers had rushed to buy automobiles to get ahead of Trump’s tariffs.

“Today’s data suggests consumers are downshifting, but they haven’t yet slammed the brakes,” according to Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management

On the winning side of Wall Street was Jabil, which jumped 8.9% after reporting a stronger profit for the latest quarter than analysts expected. CEO Mike Dastoor credited strength from accelerated demand related to artificial-intelligence technology, among other things.

Verve Therapeutics soared 81.5% after Eli Lilly said it would buy the company developing genetic medicines for cardiovascular disease in a $1 billion deal that could be worth up to $1.3 billion if certain conditions are met. Lilly’s stock fell 2%.

All told, the S&P 500 lost 50.39 points to 5,982.72. The Dow Jones Industrial Average dropped 299.29 to 42,215.80, and the Nasdaq composite sank 180.12 to 19,521.09.

All the action took place as the Federal Reserve began a two-day meeting on interest rates. The nearly unanimous expectation among traders and economists is that the Fed will make no move.

The Fed has been hesitant to lower interest rates, and it’s been on hold this year after cutting at the end of last year, because it’s waiting to see how much Trump’s tariffs will hurt the economy and raise inflation. Inflation has remained relatively tame recently, and it’s near the Fed’s target of 2%.

More important for financial markets on Wednesday will likely be the latest set of forecasts that Fed officials will publish for where they see the economy and interest rates heading in upcoming years.

In the bond market, the yield on the 10-year Treasury eased to 4.38% from 4.46% late Monday.

In stock markets abroad, indexes fell across much of Europe after finishing mixed in Asia.

Tokyo’s Nikkei 225 index rose 0.6% after the Bank of Japan opted to keep its key interest rate unchanged. It’s been gradually raising its rate from near zero and cutting back on its purchases of Japanese government bonds to help counter inflation.

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