Markets
Oil isn’t impressed by the Axios report of this morning. The news outlet wrote that Iran offered a new proposal to the US which states that it is ready to reopen the Hormuz Strait, provided that the US ends its blockade too. Nuclear talks would come later. The US administration has yet to respond to the fresh proposal but markets don’t seem to expect anything positive to come out from it. Brent rose to as high as $108/barrel before easing somewhat again to $107.3 currently. It’s enough for core bond yields to add 1 to 3 bps, be it in technically irrelevant trading. The avalanche of central bank meetings due this week creates significant event risk and we would expect it keeps yields more or less grounded (barring sharp energy price rises) until the marathon begins. The Bank of Japan kicks of tomorrow, is followed by the Fed on Wednesday with the ECB and Bank of England taking center stage on Thursday. None of them will budge but we’ll be looking for some to lay the groundwork for future moves as the ongoing war and elevated energy prices increasingly find their way into the real economy, pushing up inflation and inflation expectations. Short-to-medium term gauges for the latter such as the 1-year, 1-year forward inflation swap as of Friday rose beyond the previous highs seen at 2.2% to hit the highest in almost two years. The BoJ was already preparing for further rate hikes even prior to the conflict and we’ll be monitoring the ECB and Bank of England for similar signs. Longer-term yields today do tick higher (inflation risks), but trading is technically irrelevant with changes being less than 2 bps in both the US and Europe.
European equities added up to 0.7% (EuroStoxx50) at some point, rebounding after correcting lower last week. But momentum dwindled with the entering of US investors. Gains are now close to flat. US bourses are catching a breather today after having rallied to new record highs (S&P500, Nasdaq) on Friday. Expected volatility, measured by the VIX index, is higher than at the start of the year but around the levels seen just before the first US-Israeli attacks on Iran in the weekend bridging February with March.
The dollar on currency markets is trading on the backfoot, posting back-to-back losses against its European peer. EUR/USD rises to the 1.175 area. DXY (trade-weighted dollar index) followed the intraday trajectory of oil, opening higher around 98.6 but then nudging south again to trade around 98.25. The yen creates some (very) limited room away from USD/JPY 160. Commodity-based currencies such as the Aussie and kiwi dollar as well as the Norwegian krone are among the best performers today.
News & Views
The ECB published its quarterly SAFE survey on the access of finance of enterprises. It showed a further tightening of lending conditions. Firms reported a significant net increase in bank loan interest rates (net 26%, up from 12% in Q4 2025). Other financing costs also rose sharply (net 37%) with collateral requirements remaining elevated (net 14%). Financing needs were broadly stable while loan availability deteriorated marginally. The war in the Middle East significantly boosted cost and price expectations, but not wage expectations. The latter even moderated from 3.1% to 2.8%. Input costs (including energy) are expected to rise by 5.8% over het next 12 months (up from 3.6% in Q4 2025) while selling prices are seen increasing by 3.5% (from 2.9%). Median one-year ahead inflation expectations from 2.6% to 3% with remained stable at 3% for the medium and long term. Upside inflation risks at the 5-year horizon increased, with 65% of firms reporting them (from 56%).
A survey from the Confederation of British Industry showed the broadest Y/Y-decline in retail sales in more than 40 years. The monthly retail sales volume measure dropped to -68 in April from -52 in March. 77% of firms reported sales were down compared with last year with only 9% reporting higher sale. Other details like orders placed (-46 from -26) or sales for the time of the year (-32 from -23) deteriorated as well, both for realized and expected sales. Expectations for next month fell from -49 to -60, the lowest level since March 2021.
