Markets
The shaky ceasefire between the US and Iran stumbled again late last night. Iran fired on three US Navy destroyers sailing in the Strait of Hormuz. The US responded by targeting the launching facilities in what it said is self-defense and not an attempt to escalate. US president Trump afterwards said the truce remains in place but warned for the consequences if Iran doesn’t agree to a deal. “Just like we knocked them out again today, we’ll knock them out a lot harder, and a lot more violently, in the future, if they don’t get their Deal signed, FAST!”, Trump wrote in a social media post. The events and language used are a reminder of the unpredictable nature of the conflict. Markets just a day earlier rallied on the hope that both sides were closing in on a deal. That optimism faded somewhat yesterday with European stocks returning around 1% of the +/- 3% gains. US equities finished between 0.1-0.6% lower. Brent oil lost some further ground. It dropped to as low as $96 but clawed back above $100 into the close. Last night’s hostilities caused a higher open to around $103 before paring gains, suggesting markets don’t consider them as triggering a new all-out (bombing) campaign. For investors, the direction (towards a peace deal) is clear but the road bumpy. The intraday reversal in Brent yesterday forced core bonds to forfeit earlier gains. That resulted in some marginal bear flattening in Europe with the front-end adding less than 2 bps. Treasuries underperformed by adding 2.5 (30-yr) to 4.6 bps (2-yr) in yields. The US dollar strengthened modestly against G10 peers. DXY held above 98, EUR/USD eased from 1.1748 to 1.1726 – both in technically insignificant trading. USD/JPY bounced back on the first day of Japanese investors returning from holidays. The couple rose from 156.39 towards 157.
Though not a formal deadline according to president Trump, the US does expect an Iranian response within 48 hours after the 14-point MoU was handed over. That should be today. While awaiting the answer, US April payrolls enter the mix. The expected 65k following a strong 178k print in March is a feasible bar, based on other labour market data (ADP in particular). The unemployment rate is seen at matching March’s 4.3%. A solid report should not per se trigger immediate rate hike bets but could keep the bottom below front-end US yields supported around current levels (3.9-4%). We’ll admit that daily oil price swings will be at least if not more important though. First results of the local UK elections meanwhile point at a heavy, if not record defeat for Starmer’s Labour party with Reform UK and the Greens being the main benefiter in the English Council elections. Parliamentary elections in Scotland and Wales have yet to produce the first preliminary results. Even though Starmer’s position looks increasingly unsustainable, sterling holds on. EUR/GBP eases slightly to 0.865.
News & Views
• The April consumer expectations survey of the New York Fed showed some mixed signals. One-year ahead inflation expectations rose further by 0.2 ppt to 3.6%. Inflation expectations at the 3- & 5-y ahead horizon were unchanged at respectively 3.1% and 3%. Expectations for the year ahead gas price growth eased from a March peak at 5.1% to 4.3%. One-year-ahead earnings growth expectations increased by 0.3 ppt to 2.7 percent but unemployment expectations (probability it will be higher one year from now) increased by 0.4 ppt to 43.9 percent, the highest reading of the series since April 2025. Participants see a higher change of losing its own job. The quit rate eased marginally. Perceptions about credit access compared to a year ago and expectations for future credit availability both deteriorated but the perceived probability of missing a minimum debt payment over the next three months decreased by 0.9 ppt to 11.4%, the lowest in more than two years.
The Czech National bank (CNB) yesterday left its policy rate unchanged at 3.5% in an unanimous decision. CNB assesses that inflation has been close to target since January 2024 as new forecasts indicated that it will be in the upper half of the tolerance band (2% +/- 1%pt) for the rest of this year due to higher fuel prices. It expects core inflation to remain elevated holding near 3%. In this new forecast, CNB now sees GDP 2026 growth at 2.5% (from 2.9%) and 2027 growth at 2.7% (from 2.9%). Headline CPI inflation was upwardly revised from 1.6% to 2.2% and from 2.1% to 2.4% for the same periods. Aside from the impact of higher energy prices, the CNB mentions a series of upward inflation risks, including an acceleration in money supply, growth public sector spending, a tight labour market and rapid wage growth and inertia in elevated services inflation. This requires relatively tight monetary policy. However, a good starting position provides room for thorough analysis and an appropriate response should it be necessary. KBC expects an unchanged policy rate for the remainder of the year.
