Markets
Focus went to the US last Friday with several European markets closed for May Day holiday. The US manufacturing ISM for the month of April was the defining intraday moment. While the headline ISM stabilized at 52.7, markets there was a striking further rise in the prices paid component (84.6 from 78.3) which hit its highest level since March 2022. There were 46 commodities reported up in price (vs 24 in March). ISM manufacturing chair Spence warned that prices in the US were already rising precipitously by the time the war started, suggesting that the pressure is more widespread. New orders inched up to 54.1 while the employment number stayed below the 50 equilibrium mark for the 31st straight month. US interest rate markets trade volatile around the release with an initial spike lower soon reversed. The spike lower coincided with Brent crude moving from around $111/b to $108/b. At the end of the day, there was a minor flattening with the front end up 1 bp and the long end down 1 bp. The slightly lower oil price correlated with a slightly weaker dollar intraday with EUR/USD setting a top near 1.1780. USD/JPY holds in the 156-157 area reached after Thursday’s FX interventions by the MoF.
Today’s trading volumes are skinned by public holidays in Japan, China and the UK. Risk sentiment on other bourses if positive this morning with SK Hynix and Samsung lifting spirits. They catch up with end of last week’s tech rally given local equity market closure. US President Trump’s “Operation Freedom” draws most attention this morning as he suggested that the US will begin guiding some neutral ships through Hormuz. The US Navy won’t be involved but the Central Command said that it would provide military support including guided-missile destroyers, aircraft and drones. Markets aren’t running ahead of themselves as Iran responded that such US infringement would be considered as violation of the cease-fire. Today’s eco calendar won’t inspire but an avalanche of ECB speakers and the central bank’s professional forecaster survey might do. First comments since last week’s policy meeting hinted at action in June. ECB Muller talked about an increasing likelihood of higher policy rates because of first signs of pass-through of higher energy prices and the fact that the latter will probably remain high for some time to come. German Bundesbank Nagel called a June hike appropriate if the outlook doesn’t markedly improve. He echoed ECB president Lagarde in that we are move away from the March baseline scenario which by the way already entailed a more restrictive monetary policy. ECB Makhlouf voiced concern about increasing inflation risks while the likes of Kocher, Sleijpen, Dolenc and Rehn referred to coming data to assess potential second round effects. EMU money markets attach a 90% probability to a June rate hike and almost discounting a cumulative 75 bps of tightening by year-end.
News & Views
Seven Members of the OPEC+ cartel (Saudi Arabia, Russia, Iraq, Kuwait, Kazakhstan, Algeria, and Oman) on Sunday had a virtual meeting and decided to a further rise in the production quota by 188k b/d by scaling back previous production caps. The decision comes as the United Arab Emirates (UAE) left the Cartel on April 28. The move is largely seen as symbolic as several members of the Cartel are not in a position to easily export higher production through the Strait of Hormuz and as production facilities have to be restored due to the impact of the war. UAE’s main oil company Adnoc in the meantime on Sunday also announced plans to accelerate production growth plans by committing $55bn investments to expand production capacity over the period 2026-2028.
Rating agency Fitch in a note at the end of last week indicated that structurally large fiscal deficits will keep the US’s debt burden far above that of other ‘AA’ category sovereigns. Fitch analyses that that US fiscal position will deteriorate further this year due to the tax cuts of the One Big Beautifull Bill even as half of this will be offset by tariff revenues. Fitch still expects a US general government deficit of 7.9% of GDP this year and next. This is expected to push an already high debt level above 120% by next year. Ageing-related spending pressures are increasing with social security and Medicare trust funds projected to be depleted within a decade. Fitch also mentions durability and revenue yield of tariffs and President Donald Trump’s call for higher defense spending as additional sources of fiscal uncertainty. The agency also mentions the Mid-term elections as important for fiscal governance and policy execution.
 on Sunday had a virtual meeting and decided to a further rise in the production quota by 188k b/d by scaling back previous production caps.){kind=link}