Markets
In the ‘glass half full, glass half empty’ dynamics, markets this morning titled to a more risk averse bias as mutual attacks and accusations of breaching the ceasefire between the US and Iran suggested that there was little progress on the way to a sustainable deal. Applying the standard reaction function, oil prices, yields and the dollar gained. Equities ceded some ground. Even so, moves were very modest and even evaporated throughout the session. Brent oil at $96.3 stays below the $100 barrier. A tentative USD rebound was also (more than) reversed (DXY currently 99.15, EUR/USD rebounded from sub 1.16 to currently 1.1635). The Eurostoxx 50 cedes 0.4%. (US) yields opened higher but already traded off intraday ‘highs’ at time of the US data releases. These data were mixed. Headline April durable goods orders were strong (7.9% M/M) but shipments (non-defense ex aircraft) were less impressive (0.4% M/M). Weekly jobless claims stayed low (215k). April spending/income data and price deflators also were a mixed bag. Income was unchanged M/M (negative 0.5% in real terms), but spending held up (0.5%, real 0.1% real). April price deflators rose further (headline 0.4% M/M & 3.8% Y/Y from 3.5%, core 0.2% M/M and 3.3% Y/Y from 3.2%) but at least didn’t surprise to the upside. It was enough for markets to further return the initial yield rise to trade with changes less than 1 bp.
The ECB published accounts of the April 30 Policy meeting. Inflation data available at that time mostly only showed a direct energy-related rise in inflation. Even so, policymakers then were already aware of the dilemma to manage both lower growth and upside inflation risks. Already at the end April meeting the policy makers assessed, ‘it had become increasingly likely that adopting a “looking through” approach was not appropriate’ and ‘that the primary focus (shifted) to determining the most appropriate timing for a rate increase’. All members were reported to have rallied behind the decision to keep the policy rate unchanged as there was no urgency to yet to act against second round effects and as it would allow the MPC to gather further information. Even so, a number of members noted ‘that the decision was a close call and that they would not have opposed raising rates at the current meeting had this been on the table’ as this could have sent an even stronger signal of the termination to bring inflation to target in a timely manner. ECB’s Lane in a speech indicated that, even if the initial energy shock starts to reverse the second round, including the impact on the labour market will be with us for a while. ECB president Lagarde in a speech in Cambodia, mostly addressed aspects related to central bank independence. The ‘ECB headlines’ only had limited impact as markets apparently have made up their mind in the run-up to the June 11 ECB meeting. A 25 bps hike is still 90% discounted. EMU swap yields today also change less than 2 bps across the curve.
News & Views
Belgian inflation accelerated to 4.08% y/y (0.08% m/m) in May from 4.01% last month, Statbel data showed today. It’s the second fastest (after January 2025’s 4.09%) in nearly three years. Core CPI (ex. energy products and unprocessed food) quickened to 3.59% from 3.55% while services inflation picked up to 5.88% from 5.28%. Some of the most significant price increases in May were registered for package holidays, private rents, domestic heating oil and veterinary services. In the Iranian war-related category, energy prices stood at 11.2% y/y, further up from May’s 10.58%. Motor fuels cost 27.3% more than in May 2025 but decreased by 0.6% m/m. Natural gas came in at 10.1% y/y and -7.3% m/m, making it one of the top negative contributors this month, along with electricity & the purchase of cars. Belgian inflation measures according to the European rules (HICP) amounts to 4.1%.
The Norwegian mainland economy (excluding petroleum & shipping activity) grew by 0.2% q/q in Q1, missing the 0.3% consensus view as well as the central bank’s 0.4% point estimate. It also followed a downwardly revised 2025Q4 to 0.2% from 0.4%. Including the energy-related activities, the economy expanded by 0.4% q/q with these offshore activities having logged a 1% expansion. General government consumption advanced 0.4% while household consumption expenditure declined 1.1%. Investments fell notably by 7.2%. Both exports and imports dropped, by 1.4% and 1.1% respectively. The Norwegian krone shrugged after the release with EUR/NOK hovering around 10.8. Neither have the lower-than-expected numbers a meaningful impact on markets’ view on central bank policy. The Norges Bank surprised some with a rate hike earlier this month and kept the prospect for another move later this year. Money markets assume such follow-through action to take place in September.
