In focus today
In the US, the Conference Board’s consumer confidence survey for June will be published. Sentiment has improved across most surveys following the preliminary US-China trade deal in May.
In Germany, focus turns to the Ifo indicator for June. Yesterday’s PMI data showed that the German economy improved in June, with the composite indicator rising more than expected to 50.4 from 48.5 in May. Hence, we expect the Ifo indicator to also improve in June.
In Sweden, Riksbank governor Thedéen and deputy governor Bunge will participate in Q&A sessions during Almedalen week (13.30 CET and 14.30 CET) on interest rates and the Swedish economy. We will look for any clues on the outlook. The Riksbank suggested a possible 12bp rate cut in the June MPR, despite core inflation forecasts around 3%. We believe rate cuts have been finished, but downside risks persist due to the Riksbank’s communication and focus on economic recovery.
In Hungary, the central bank will announce its rate decision. We forecast an unchanged decision at 6.50%, aligning with consensus.
In the NATO summit (24-25 June), country leaders are expected to adopt a new 5% target for defence expenditure as a share of GDP, with 3.5% allocated to actual defence spending and 1.5% directed towards additional investments in resilience. Germany supports the target, while France and Italy call for flexibility, and Spain opposes it.
Today we have a series of speeches from both the ECB, including President Lagarde, and the BoE, alongside several Federal Reserve speakers. We will look out for more clues on monetary policy.
Economic and market news
What happened overnight
In the Middle East conflict, President Trump announced on Truth Social that Israel and Iran had agreed to a staged ceasefire to end the 12-day war, set to begin this morning. However, Iran denied the existence of such an agreement, stating they would stop hostilities if Israel ceased its aggression by 4am Tehran time. This morning, a wave of missiles was shot from Iran towards Israel. Israel has not yet issued an official response regarding the ceasefire.
What happened yesterday
In the Middle East, tensions appeared to escalate yesterday as Iran launched missile strikes on US air bases in Qatar and Iraq. However, the pre-warned attack was welcomed by Trump describing it as a “very weak response”, with no causalities reported. As the immediate threat to the Strait of Hormuz diminished, Brent Crude oil saw one of its largest one-day declines in five years, as oil prices has dropped more than USD 7/bbl since yesterday.
In the euro area, June PMI came in slightly below expectations, reflecting economic stagnation. The composite indicator was unchanged at 50.2 (cons: 50.5, prior: 50.2), services rose to 50.0 (cons: 50.0, prior: 49.7) and manufacturing was unchanged at 49.4 (cons: 49.8, prior: 49.4). Manufacturing details were weak, with declines in output and employment offset by longer delivery times, keeping the index unchanged. Price pressures remain muted. We expect euro area GDP growth at 0.0% q/q in Q2 after the strong 0.6% q/q rise in Q1, that was driven by front-loading of exports to the US.
In the US, PMIs declined slightly to 52.8 from 53.0 in May, aligning with expectations. Inflation indicators present a mixed picture, with services prices falling and manufacturing prices rising. Subindices show minimal change, and new orders have decreased slightly, still indicating modest growth.
Fed governor Bowman made dovish remarks, expressing readiness for a July rate cut, citing job market risks and minimal inflation impact from tariffs, with inflation nearing the 2%-target.
Equities: For many investors, global markets probably displayed surprising composure yesterday given the severe escalation in the Middle East over the weekend. With Iran’s retaliatory strike materialising as a relatively contained attack on a US military base in Qatar, risk sentiment notably improved late in the US session, after the close of European cash equity markets. The US equity market responded accordingly: 24 out of 25 sectors closed higher, with the only exception being Energy, which declined by 2.5% as crude prices dropped sharply. Oil is now down nearly 10% over the past two sessions, and the downward momentum continues in early Tuesday trading. The equity market reaction close to textbook example: energy stocks under pressure, while the broader market benefits from lower geopolitical risk premia. For whatever it is worth, we must once again admit that the geopolitical narrative is setting the tone in financial markets, while traditional macro models are playing a secondary role in day-to-day market movements. In the US yesterday, Dow +0.9%, S&P 500 +1.0%, Nasdaq +0.9% and Russell 2000 +1.1%. Asian markets have taken the cue from Wall Street’s late-session relief, with South Korea leading regional gains this morning – up more than 3%. Futures across Europe and the US are markedly higher.
FI and FX: EUR/USD was in for a v-shaped price action during yesterday’s session, initially hit by poor risk sentiment but later rallied towards the 1.16 mark as the USD weakened broadly. Markets interpreted Iran’s retaliatory strike on a US base in Qatar as largely symbolic and Trump later announced a ceasefire between Israel and Iran. This pushed oil prices back below 70 USD/bbl and equities rallied. In rates space, 10Y Treasuries yields rose after having initially declined some 10bp earlier on Monday. The curve steepened modestly driven by the decline in the front-end US Treasury yields.
