Sunset Market Commentary

Markets

The US-Iranian ceasefire is not only under pressure, it is over. At least as far as president Trump is concerned. He told reporters during his trip to Ankara for a NATO summit that he wasted time dealing with the Iranians. Trump said his negotiators may keep talking if they want, keeping the door ajar still, but he “doesn’t see it”. The comments come after the US revoked a waiver of sanctions on Iranian oil sales and attacked several Iranian sites in response to the Middle East country targeting three commercial ships yesterday that didn’t travel across the Iranian designated route. Markets reacted sharply. Oil prices had been bottoming out slowly early July and have shot up the last two days to $78.4 currently (Brent). It is reviving the inflationary spirits just after the recent oil drop had perhaps caused some complacency. It also serves as a stark reminder to central banks that vigilance remains warranted in an environment where things change in split seconds. For ECB’s Nagel, the news means “we’re back where we began.” (Core) bonds sold off, particularly in Europe and at the front end of the curve. Money markets have pushed forward the timing for a second rate hike from December to October with September given a 85% implied probability currently. German yields rise 4.8 bps (30-yr) 8 bps (2-yr). The French 10-yr yield surpassed the previous peak to rally to a 2009 intraday high. While paring some gains afterwards it is still on track for the highest close since that year.
Political risks (RN’s Le Pen eligible for presidential elections) are perhaps mixing with fiscal and inflation ones. OAT/swap spreads rose to their highest level in months. UK gilt yields rally 7-10 bps. Treasuries outperform with yields adding 1-2 bps.

US dollar gains are far from convincing, especially considering the sour risk mood. European stocks tumbled up to 1.8% at some point. Yet EUR/USD lost only a few ticks to be testing the 1.14 big fig again. DXY’s mirror image is doing the same around 101. USD/JPY shows some of the biggest gains, perhaps to Japan’s/JPY’s outsized reliance on Middle East oil supplies. The pair at 162.6 is within striking distance of the 40-year high set July 1st at 162.84. Sterling is going nowhere for a second day straight, suggesting the recent rally has run out of steam at least temporarily. EUR/GBP stabilizes around the 0.8544 support zone.

News & Views

Inflation in Sweden in June remained well below the 2% Riksbank target. CPIF headline inflation (fixed interest rate) eased to 0.3% m/m and 1.3% Y/Y (was 1.5% in May). CPIF ex. energy decelerated to 0.6% m/m and 0.4% y/y. Low inflation is largely due to fiscal policy measures. The statistics agency indicated that inflation mainly slowed down due to lower food price and transport costs. While the core measures were expected to ease even slightly further, they still allow the Riksbank to continue its wait-and-see approach. The RB in June assessed that it was well-balanced to leave the policy rate unchanged at 1.75%, but that the probability of higher rates later this year has increased compared to March. Markets currently expect RB to keep its policy rate still unchanged at the August meeting. About 50% probability of a rate hike is priced in from September. The low policy rate and the reluctance to tighten policy anytime soon (e.g. compared to the ECB) kept the Swedish krone in the defensive during most of 2026 so far. EUR/SEK currently trades near 11.05 to be compared with levels near 10.50 early February.

The National Bank of Hungary (MNB) today published the Minutes of the June 23 meeting. At that meeting the MNB cut the main policy rate by 25 bps to 6%. It was noted that the inflation outlook had improved significantly. For the rest of this year and next year, inflation was expected to remain below the central bank’s target. The inflation rate in May (1.8%) was below the 3% (+/- 1%) tolerance band of the MNB. The strengthening of the forint and lower food prices were seen as having contributed to the downward shift in the inflation path compared to March. Even a withdrawal of the price margin caps was not seen as endangering price stability. In the Council’s June assessment, there would be an opportunity to implement three 25 bps rate cuts during the summer, after which the September Inflation Report would provide guidance regarding the interest rate path. They remarked that such a pace was in line with the Council’s careful, data-driven approach applied so far. However one policy member saw more room and voted to cut the policy rate by 50 bps. The HUF 2-y swap rate today rises by 11 bps (5.17%) and the forint eases to EUR/HUF 357.5. This is more due to the overall risk-off, rather than country specific issues.