Markets
Trading is extremely headline-driven today. This week’s build-up led markets to really pursue positive headlines for the first time since the cease-fire deadline was extended mid-April. US President Trump’s downplaying of Iranian missile and drone attacks against the UAE and his rapid pause to “Project Freedom” (helping navigate vessels through Hormuz) led markets into believing that something was cooking. An Axios report suggesting that the US and Iran were closing in on a one-page memo to end the war ignited a risk rally which pushed European equity indices initially more than 3% higher. The EuroStoxx50 approached the mid-April high in the process. Brent crude prices sank from $109/b to $97/b with core bond yield curves bull steepening. The difference between the intraday top and bottom for the EU 2y swap rate amounted to 13 bps. The US dollar faced a setback with EUR/USD moving from 1.1725 to an intraday top just shy of 1.18. It soon turned out that markets were again running ahead of themselves. It started with Iran downplaying the “US media campaign” with the US plan containing ambitious, unrealistic proposals. A threat by US President Trump to start bombing the country again, and at a much higher level than before, unless they agree to (US) terms came next. An Iranian spokesmen for the National Security and Foreign Policy Commission responded almost immediately by suggesting that violence will be met by violence. US President Trump later told the NY Post that it was too soon to prepare for an Iranian peace signing. Finally, some Pakistani sources sounded again more optimistic suggesting that a draft agreement is in place. It would set a timetable for upcoming negotiation rounds and setting a timetable for ending all hostile activities, including reopening Hormuz to international navigation. Unlike a few hours earlier, markets decided not to chase these latest headlines. At the time of writing, Brent crude trades back at $103/b and EUR/USD at 1.1750. The EMU swap rate curve still bear flattens but with daily changes varying between -9 bps (2-yr) and -3 bps (30-yr).
In other news, there was a strong though slightly below consensus US ADP employment report for the month of April. US firms added 109k jobs which was the first 100k+ outcome since January 2025. The report also showed that workers who changed jobs saw a 6.6% Y/Y pay increase with wage growth for those who kept their jobs was 4.4%. Today’s report validates last week’s hawkish hold by the Fed, putting the focus back (solely) on inflation for now. US Treasuries still rallied on the Axios reports, but underperform Bunds and Gilts. Daily changes on the US curve range between -7 bps (5-yr) and -5 bps (30-yr).
News & Views
Swedish inflation surprised to the downside in April. A monthly -0.6% drop fully offsets March’s same-sized increase. Details are not available yet but it’s assumed that a VAT decline (6% from 12%) for food has outweighed rising energy prices in the headline print. The annual reading halved to 0.8% from 1.6% to hit a five year low. Excluding energy, core inflation fell 0.6% m/m to stagnate on a yearly basis for the first time in three decades and missing the 0.4% bar. The central bank in its March meeting had outlined a scenario in which higher energy prices and the pass-through to other segments could warrant rate hikes, even if that comes at the cost of the economy. Today’s inflation numbers allow the Riksbank to bide some time given the rapidly changing geopolitical environment. Market optimism towards a US-Iran deal is overshadowing the data release. While money market pricing for Riksbank hikes dropped dramatically to just 60% in 2026H2 (vs 1.5 hike priced in just yesterday), the constructive risk sentiment tempers any losses for the Swedish krone. EUR/SEK stabilizes around 10.83.
Czech April CPI surprised to the upside (0.5% m/m, 2.5% y/y), driven mainly by energy and fuels (+2.3% m/m) amid faster-than-expected pass-through from utility pricing. Core dynamics were more mixed: services inflation remains elevated (+/-5%), and firmer non-energy goods prices may signal emerging second-round effects from higher oil, offset in part by ongoing food deflation. KBC Economics expects inflation to hover around 2.5% in coming months before edging toward 3% by year-end and higher in early 2027. Risks are skewed to the upside however, with the monetary policy outlook hinging on whether price pressures broaden further beyond energy. The central bank meets tomorrow and is bound to keep the policy rate steady for now, particularly in the light of the recent Gulf developments. EUR/CZK drops to 24.34 amid a benign risk backdrop.
