Trump Pauses Hormuz Mission, Signalling Progress in Negotiations

In focus today

In Sweden, flash CPI figures are set for release, with a decline expected due to the VAT reduction on food from 12% to 6%. CPIF excluding energy is forecast to fall to 0.3% y/y, down from 1.1% in March, reflecting the tax impact. CPI and CPIF are affected in the same way, but high fuel prices keep CPIF at 1.2%. More indicators suggest rising prices, while tax effects may mask higher underlying inflation over the coming year.

In the US, ADP will release its monthly estimate of private-sector employment growth for May. Weekly ‘pulse’ estimates from ADP suggest a strong rebound in job growth during the reference period, despite ongoing uncertainties around energy supply.

In the euro area, the final services and composite PMI are revealed today. The preliminary composite PMI stood at 48.6, with the services sector acting as the main drag as its PMI fell further to 47.4. The manufacturing PMI, released on Monday, held steady at 52.7, matching the preliminary figure.

In Poland, the National Bank of Poland (NBP) is set to announce its policy rate decision, with consensus anticipating that the NBP base rate will remain unchanged at 3.75%.

Today at 10.00-10.30 CEST, we will host a webinar on the Strait of Hormuz closure and its implications for markets. Topics include the severity of the energy supply shock, prospects for recovery, and the broader economic impact.

Economic and market news

What happened overnight

In the US-Iran conflict, Iranian Foreign Minister Abbas Araghchi met with China’s Foreign Minister Wang Yi in Beijing to discuss bilateral relations and regional developments, amid Iran’s diplomatic efforts to rally international support. Meanwhile, Trump announced a temporary pause to “Project Freedom,” a naval operation in the Strait of Hormuz, indicating a potential de-escalation. Oil prices declined following the announcement and continued to fall overnight, driven by expectations of progress toward a peace deal with Iran, as hinted by Trump. Trump’s upcoming visit to China adds further complexity, given Beijing’s close ties with Tehran and its economic reliance on oil transit through the strait.

What happened yesterday

In the US, March JOLTs and April ISM Services came in close to expectations, with limited market impact expected. JOLTs figures were mixed, as hiring increased to 5.6M while layoffs rose to 1.9M, and the job openings-to-unemployed ratio remained steady at 0.95, indicating little change in labour market balance over the past six months. ISM Services also delivered mixed signals, with unchanged prices, weaker new orders, and improved business activity and employment indices. Overall, the releases offer no clear directional signals.

In Switzerland, April CPI aligned with expectations, as headline inflation climbed to 0.6% y/y from 0.3% in March, driven by increased prices for petrol, diesel, and heating oil. Core inflation softened to 0.3% y/y, below the consensus forecast of 0.5%. With domestic inflation pressures remaining muted, this outcome is unlikely to influence the SNB’s policy stance, and we anticipate the central bank will keep the policy rate unchanged at 0%.

Equities: Equities rebounded on Tuesday. S&P 500 0.8% and small cap Russell 2000 1.8%. Tech continued to lead the market, but preference shifted from software to semis. Intel, Qualcomm and Micron all surged, up 11-13%. Semi heavy Korea is surging 6% this morning (70% ytd, 180% LTM) and Shenzhen 2.5%, following the holiday yesterday. While Stoxx 600 gained 2% the last month, S&P 500 rallied 10%. Sector composition explains this underperformance, not energy prices alone.

So, tech continued in jaw dropping speed, with Asia and US the prime beneficiaries. However, general cyclicals also rebounded yesterday, along with small caps, following reassuring comments about the ceasefire from the US admin. Regional banks, materials and industrials were up between 1-2%. Stoxx 600 gained 0.7%

FI and FX: There was a modest rebound in the global bond market as the oil price declined yesterday. The truce between US and Iran seems to be holding up and the risk of an escalation seems to be diminished, and we have seen a combination of rising equity prices and decline in bond yields. Hence, the 30Y Treasury yield is trading around the 5% level. However, in UK government yields continue to increase given the higher energy costs as well as the political uncertainty with the upcoming local elections. Here the level for the 30Y government bond yield is at 5.78%, which is the highest level since 1998. The dollar has been range-trading around the 117-level versus the Euro and moved above the 157-level versus the JPY.