Markets remain hopeful of peace in the Middle East

Good morning

Another day, another decent set of moves up in global equities as oil prices and the US dollar drop.  GBPUSD saw a high of 1.3590 yesterday, EURUSD got above 1.1800 and even USDJPY managed to lose a few points, slipping to a low around 158.60 at one stage in the afternoon.  USD is just off those lows for the time being and although European equities are a little mixed this morning there is still a strong, hopefully not misplaced belief that there will be a positive outcome in the Middle East.

Oil prices had dipped sharply overnight. WTI traded down to $87 briefly on suggestions that Trump had told a Fox reporter the war in Iran was over but the move quickly reversed as Trump’s words were revealed to be ‘very close to over’.  That interview is, I believe, due to be aired at 11am this morning UK time in which Trump insists Iran want to strike a deal.  Elsewhere China is reported to be in talks to purchase Russian oil as their Iranian supplies dry up.    

GBP made small gains against EUR as well, another move I find odd given the IMF have said that UK growth will be hit hardest by the Iran war compared to other major economies, with 2026 growth forecasts lowered 0.5% from those made in January to just 0.8%.   With UK also forecast to have the joint highest inflation numbers in the G7 through 2026 and 2027 there is less chance of UK rate cuts this year, perhaps the interest rate differential between ECB and BoE will start to impact currency levels. 

On the whole though, central bankers at the IMF meeting suggested a cautious rather than hawkish approach to Iran-led inflation.  Plenty of officials speaking again today including BoEs Bailey and ECBs Lagarde.  Aussie data overnight likely to be closely watched, inflation was higher last month while headline Aussie employment looked good but details showed weakness in full-time jobs. 

In sport, Liverpool were dumped out of the Champions League by PSG whose 2-0 win gave them a solid 4-0 win on aggregate.  Barcelona put up a better effort against Atletico Madrid, coming back from a two goal deficit in the first leg to equal things up before Atletico scored what proved to be the winning goal.  Quite why the English commentators had to use the term ‘Atleti’ when talking about Atletico is beyond me.  OK I know it’s a local term but it just didn’t sound right.  Sort of like having to try to say ‘Turkiye’ instead of ‘Turkey’.

This evening sees England’s remaining hope Arsenal take on Sporting, Arsenal have a 1-0 lead from the first leg and will be hoping to put their defeat to Bournemouth behind them and do enough to proceed to the semi-finals.  In the remaining match, Bayern Munich take on Real Madrid knowing a draw would be enough to take them through.  That could be a cracker.

Have a great day…

-  10.00 EU industrial production

-  13.30 US NY empire state manufacturing

-  13.30 Feds Barr speaks

-  16.20 ECBs Cipollone speaks

-  16.50 BoEs Bailey speaks

-  18.00 ECBs Escriva, RBNZs Breman speak

-  18.45 Feds Bowman speaks

-  19.00 BoEs Bailey speaks

-  19.00 Feds Beige book

-  19.00 ECBs Cipollone speaks

-  20.30 ECBs Lagarde speaks

-  21.00 ECBs Schnabel speaks

-  02.00 AUS consumer inflation expectations

-  02.30 AUS unemployment

-  03.00 China GDP

-  07.00 UK GDP, industrial production

Is it too early for improved risk sentiment ?

Good morning

A surprising bout of improving risk sentiment pushed US and Asian equity markets up overnight, oil prices have dropped back below $100 and the US dollar has weakened enough to take it almost back to pre-Iran war levels.  GBPUSD is around 1.3525, EURUSD 1.1770, although USDJPY has failed to keep up with USD losses, still stuck in the low 159’s.  BoJs Ueda dented chances of a rise in Yen by playing down chances of a rate rise later this month, preferring to remain cautiously on the sidelines amid the uncertainty of the Middle East crisis.  AUD has struggled following very poor Aussie consumer confidence data overnight.

The lack of Iranian military response so far to the US blockade of Iranian ports has brought some relative optimism to the markets, as have reports that US and Iran may meet later this week for a second round of peace talks.  For now the blockade is in place and as such the risk of attacks from Iranian forces remains high, indeed Iran has moved to maximum combat alert, but I suppose the longer the ceasefire holds the better.  The risk of other countries such as China using their military ships to escort vessels through the Strait around the US blockade is possible which could bring far-reaching consequences.  The UK is reported to be leading a 40-nation coalition to keep the Strait open but I’m not sure whether this is a pure diplomatic or military set-up.

Adding to a bit of USD softness, Feds Miran was on the wires yesterday, saying he sees inflation back to target within a year, while Feds Goolsbee said he’s thinks that if oil doesn’t stay above $90 for too long the shock from the Middle East crisis could be well contained.  That’s quite a big ask though and leads me to think that this means the longer oil prices stay over $90, the deeper the impact is likely to be on overall prices.  Regardless, I stand by my idea that if inflation is driven by high energy prices rather than strong underlying demand, raising rates would have little effect other than to harm the economy.  Yet to see a sensible argument against this point.

Spurs premier league survival chances were dealt a blow yesterday evening as Leeds came away with a deserved win at Old Trafford, a result that surely surprised all but the most fanatical of Leeds fans.  I could go on about how Spurs have been unlucky with injuries and refereeing decisions, indeed I didn’t agree with some of the decisions in last nights match that piled the pressure onto Spurs, but that’s the joy of football I guess.  The win could be enough to keep Leeds safe and Spurs will need to pull something incredible out of the bag to get out of the mess they are in.

This evening brings the second leg of Liverpools champions league quarter final against PSG, Liverpool hoping to overturn PSG’s two goal advantage, while Barcelona will be hoping to overcome their two goal deficit to Spanish rivals Atletico Madrid.  Arsenal play tomorrow.

Today’s calendar is full of central bank speakers, with US PPI stuck somewhere in the middle.  Needless to say, most focus remains on Iran and this US naval blockade.

Have a great day…

-  09.50 BoEs Mann speaks

-  13.15 US ADP 4 week average

-  13.30 US PPI

-  13.30 RBNZs Breman speaks

-  15.00 BoEs Greene, ECBs Lane speak

-  16.00 ECBs Cipollone speaks

-  16.30 ECBs Lane speaks

-  17.05 BoEs Greene speaks

-  17.15 Feds Goolsbee speaks

-  17.45 Feds Barr speaks

-  18.00 Feds Paulson speaks

-  22.00 ECBs Lagarde speaks

Iran talks fail to bring agreement

Good morning

Welcome back, I hope you had a wonderful weekend

US headline CPI inflation was indeed much firmer than previous readings on Friday as the impact of the Iran war although the Core reading (excluding food and energy) was a touch below expectations.  US rate expectations have shifted, with some now not seeing a rate cut until very late in 2026.  Market impact was limited as the market concentrated more on the Iran war talks that would be taking place over the weekend.  We know now that no deal was agreed at those talks and when the trading began on Sunday night we saw the US dollar push higher, with GBPUSD opening around 1.3385, some 80 pips below Friday’s close, and EURUSD some 60 pips lower to 1.1665 or so.  USJDPY pushed higher but as we have seen several times, moves were capped around the high-159’s. 

I actually thought we’d see the US dollar push a fair bit higher than we’ve seen so far, but as I type GBPUSD has recovered a little to 1.3425 and EURUSD to 1.1700.  Oil prices jumped, losses in Asian equities were not as large as I’d imagined we’d wake up to, although European markets are soft on the open, down around 1%.  Again, I’d have expected larger moves given the lack of any peace deal and the news that US will blockade Iranian ports, the proof now I suppose will be whether ships can safely pass through the Strait of Hormuz or whether Iran will attach vessels in the area, a move that would almost certainly lead to further US military action.  There remains some hope that talks will restart but I worry that the two week ceasefire will be at risk what may happen in the meantime.

In Hungary, Orban did lose the election which saw a landslide victory for Peter Magyar.  It was a bit of a surprise that there seemed to be little in the way of dirty tricks or interference in the voting.  EURHUF has traded lower from around 375 in Friday to current levels around 365 partly on hopes Hungary will receive payments from the EU that have previously been held back although I would imagine this will take quite some time. Although Magyar is more pro-EU he may not want or be able to make sweeping reforms tool quickly. 

Congratulations to Rory McIlroy for winning his second Masters in a row, managing to hold onto a lead he had almost from the start despite some late drama that looked like he could possibly throw it away at the end. 

On the subject of throwing away chances to win, Arsenal lost to Bournemouth at the weekend, putting their hopes of winning the league title at risk.  Next Sundays match between Man City and Arsenal is lined up to be a thriller and a potential title-decider.   Of course, at the other end of the table Spurs run of bad form continues and with West Ham winning at Wolves, Spurs are now in the bottom three.  Spurs were a little unlucky and I have to say some refereeing decisions didn’t go our way but those excuses won’t save Spurs from relegation. 

Next weekend is against Brighton who have won five out of their last six premier league matches and are pushing for a European spot.  Not looking forward to that.  For now we’ll just have to hope Man Utd can beat Leeds this evening as we really don’t need the teams closest to Spurs getting any points at all.  Sorry Mark!

Not much on the calendar today, in fact there isn’t much in the way of important data at all this week.  We will hear from several central bank officials at the IMF meeting that takes place this week, no doubt inflation and interest rates will be high on the agenda.  Meanwhile I’ll be watching Iran for any signs of a break to the fragile ceasefire.

Have a great day…

-  13.15 ECBs de Guindos speaks

-  14.00 BoEs Taylor speaks

-  15.00 US existing home sales

-  23.20 Feds Miran speaks

-  00.01 UK BRC retail sales

-  01.30 AUS Westpac consumer confidence