Oil Prices Jump on Iran Counterproposal

In focus today

In Norway, April inflation data is due for release. There are usually large fluctuations in the various price components during the Easter months of March and April. This year, Easter was a week earlier than last year, and many of the offers for typical Easter products were more extensive in March than last year. We expect this to result in a solid lift in the annual growth in food prices in April, but that parts of the service sector such as cultural activities and hotels and restaurants will show the opposite development. We expect core inflation to rise from 3.0% y/y to 3.2% y/y in April. This would be in line with both consensus and Norges Bank’s estimate from the MPR in March.

In Denmark, April inflation data is also set for release. We expect headline inflation at 1.4% y/y, up from 1.2% y/y in March, driven by higher fuel prices.

In Japan, Q1 GDP data will be released overnight. Both the Tankan business survey and PMIs suggest the economy was on a decent footing in Q1. Since then, the service sector has slowed down but remains in expansionary territory.

The rest of the week brings a light data calendar, with the most important releases being US April CPI on Tuesday and the Riksbank minutes on Wednesday. Developments in the US-Iran war remain a key focus. In addition, Trump will visit Beijing for meetings with President Xi Jinping on Thursday and Friday.

Economic and market news

What happened overnight

In China, April inflation came in higher than expected on the back of higher global energy prices. PPI rose to 2.8% y/y (cons:1.6%, prior: 0.5%), the highest reading since mid‑2022. CPI also beat expectations at 1.2% y/y (cons: 0.9%, prior: 1.0%), with gains concentrated in gasoline and gold jewellery. The move further distances China from the deflation seen over the past years, but the impulse is largely cost‑push rather than demand‑driven. Against a backdrop of weak domestic demand, today’s figures are unlikely to prompt a significant policy shift, though they may slightly reduce the urgency for further monetary easing.
What happened over the weekend

In the Middle East conflict, Iran sent its response to a US proposal for peace talks via mediator Pakistan, reportedly focused on ending the war on all fronts. The Iranian counterproposal includes demands for compensation for war damages, recognition of Iranian sovereignty over the Strait of Hormuz, an end to the US naval blockade, guarantees against further attacks and a lifting of sanctions. President Trump deemed the proposal “totally unacceptable” on Truth Social. Brent crude is up around 6% from Friday’s close, trading around USD106/bbl this morning. Despite the month‑old ceasefire, security in the Gulf remains fragile, with reports of hostile drones over the weekend, although a Qatari LNG tanker was allowed to transit the strait to Pakistan.

In the US, the April jobs report came in as a mixed bag. Nonfarm payrolls surprised to the topside at 115k (cons: 62k, Danske: 80k), while the unemployment rate held at 4.3%. Cumulative revisions to NFP were -16k. Wage growth was weaker than expected, with average hourly earnings up by only 0.2% m/m SA (cons: 0.3%). The household survey painted a weaker picture, showing a 226k drop in employment and a 92k decline in the labour force, helping explain why the unemployment rate did not tick down despite the strong NFP. We do not expect the print to have a significant lasting impact on the Fed policy outlook.

Also in the US, consumer sentiment weakened further in May, with the preliminary University of Michigan index declining to 48.2 (cons: 49.5, prior: 49.8). At the very least, inflation expectations ticked slightly lower on both the 1‑year and 5‑year horizons, to 4.5% and 3.4%, respectively.

In Sweden, household consumption rose by 1.4% m/m in March, in line with the forecast, driven mainly by ‘Recreation and culture, goods and services’ as well as ‘Retail trade, mostly food and beverages’. Private sector production (PVI) increased by 2.2% m/m in services and 6.6% m/m in construction, while industry declined by 2% m/m. New industrial orders declined by 1.4% m/m, although most subsectors still recorded monthly increases.

In the UK, local election results confirmed a major set-back for Labour, with the party suffering the worst municipal losses for a governing party since 1995. Pressure on PM Starmer has increased, with more than 20 Labour lawmakers calling for a timetable for his departure. However, Starmer confirmed that he would not stand down. Former minister West said she would challenge him for the Labour leadership on Monday if no other candidate came forward.

Equities: Global equities closed last week on a strong footing, with risk appetite supported by a mixed but ultimately benign April US jobs report. On Friday, S&P500 rose 0.8%, driven yet again by higher tech. Nasdaq rose 1.7%, Russell2000 rose 0.8%. Global equities posted a 1.8% return seen over last week. The weekend news of US dismissal of the Iranian proposal as “totally unacceptable”, has pushed oil prices around 4% higher this morning. That said, Asian markets are having a quiet start to the week with limited reactions to this with the exception of tech impacted indices such as Kospi benefiting from Friday’s IT rally. US futures are virtually unchanged.

FI and FX: US President Trump’s dismissal of the Iranian response to the US peace proposal as ‘totally unacceptable’ has sparked renewed concerns that a lasting resolution to the war is still some way out. The UAE, Kuwait and Qatar have all reported incidents involving hostile drones over the weekend, leaving the ceasefire in a fragile state. Brent Crude pushed above USD105/bbl. and EUR/USD declined below 1.1760, reversing some of the gains following last week’s April NFP print of +115k. Over the last week apparent willingness from both the US and Iran caused the market to slowly reprice the ECB rate path. Bond yields declined with the 10Y German government bond dropping to 3% after testing 3.10%. 30Y Treasuries tested the 5%-level but have now edged down to 4.97%. If deescalation picks back up, we see this move extending. Going into this week, we eye the war in the Middle East and the Trump-Xi Jinping meeting in Beijing on Thursday and Friday, although we do not anticipate any deals to be made. On the data front, our focus will be on the US April CPI tomorrow and the Norwegian CPI figures this morning. The monthly CPI figures out of Norway have become increasingly important following Norges Bank’s more neutral post-hike guidance last week.