Markets
President Trump rebuffed Iran’s counterproposal to the US’ 14-point MoU of last week. Calling it “Totally unacceptable” suggests the water between both warring parties remains deep. Trump has threatened to resume a bombing campaign if Iran does not accept a deal but so far he has stopped short of actually doing so, despite the ongoing impasse. Iran meanwhile has deployed submarines in the Strait to act as “invisible guardians”. The Gulf crisis leaves marks on oil prices today, pushing up a barrel of Brent to $104 compared to a Friday close of $101.3. In a sign of the non-linear effects of the Hormuz closure, Saudi Arabia’s state-owned oil company Aramco said that if it continues into June, it will prolong the recovery to 2027. It is warning that the lack of supply will become more apparent from this month on. Bunds and Treasuries lose ground with the former underperforming. German rates add between 2.7-4.9 bps, led by the front end of the curve. Money markets are again erring to the side of three instead of two ECB hikes with a June move priced in for about 85%. US yields recover 3-4.2 bps from the minor declines printed end last week, keeping the 30-yr tenor within striking distance of the psychologically important 5% barrier. Gilts strongly underperform with rates rising 7.7-8.7 bps. Politics are entering the toxic cocktail which already consists of inflation and budgetary risk premia. PM Starmer during a speech today aimed at reviving Labour’s fortunes repeated that he won’t walk away from office. There were no calls for an immediate resignation, at least not from those Labour members who are seen as a viable successor. Starmer lives to fight another day but his political survival is hanging by a thread. The 30-yr UK yield (5.67%), most sensitive to rising risk premia, is closing in on the 1998 high set just last week (5.78%). Sterling shrugs around EUR/GBP 0.865. The dollar has a slight upper hand against most G10 peers but trading is technically insignificant. EUR/USD trades around 1.178, DXY around 98. USD/JPY rises to 157.1, awaiting the arrival of USTS Bessent when taking a detour en route to China together with president Trump later this week. European stock markets lose some ground to the tune of 0.3%. Wall Street opens the new trading week virtually unchanged.
News & Views
Inflation in Norway stayed elevated in April. Headline CPI rose 0.4% M/M and 3.4% Y/Y (from 3.6%). Underlying CPI-ATE inflation (ex-energy and adjusted for tax changes) rose 0.7% M/M and 3.2% Y/Y (from 3%). Food and drinks (+2.9%, potential calendar effect), clothing and footwear (+1.4%) and culture and leisure showed the biggest monthly changes rise. Prices for household equipment (-0.8%), transportation (-0.4%) and communications (-1.0%) eased on a monthly basis. The April 3%+ inflation figures come after the Norges Bank last week raised its policy rate by 25 bps to 4.25%. The NB explained the decision as inflation already being high when the increase in oil and gas prisses due to the conflict in the Middle East can push it even higher. Wage growth also was higher than the NB previously assumed. The NB last week also indicated that recent data/developments didn’t change the assessment from the outlook set out in March that the policy rate might be raised to between 4.25% and 4.5% by the end of the year. Also today’s inflation data probably don’t change this assessment. Markets currently see about a 50% chance of a next 25 bps step in June and a more than fully discounted one in September. At EUR/NOK 10.84, the krone is holding within reach of the strongest levels against the euro since early 2023.
Referring to its April Business survey, IFO reported that 8.1% of companies in Germany see their own survival at risk. In a comment, IFO Survey’s head Klaus Wohlrabe analysis that given the geopolitical uncertainty and insolvency figures are likely to remain a high level in the coming months. Especially the situation in retail is seen as being critical with 17.4% (new high) of the companies considering their survival under threat. 11.6% of all trading companies (wholesale and retail) are said to fear being forced out of business. In a broader perspective, across sectors, IFO sees a lack of orders and weak demand, rising operating and energy costs and burdensome bureaucracy as weighing on activity, with the crisis spreading along supply chains. Among service providers, 7.6% see their survival threatened. In manufacturing, the threat to survival fell slightly to 7.5%.
