Markets
US bonds and stocks came out weakened from their long weekend. Treasury yields added 4.8-5.6 bps across the curve, catching up with Friday’s spring in European yields. The new Fed under chair Warsh probably still lingered in the minds as well. Fed’s Goolsbee played straight into Warsh’ message. He said it’s critical to determine whether temporary shocks such as energy and/or tariffs are the only elements pushing up inflation. Goolsbee is worried about the rise in services prices, which isn’t related to these shocks and can often be more persistent. Wall Street rotated from tech into value and small caps. The Nasdaq shed 1.3% while the Dow Jones Index added 0.3%. Russell 2000 topped the 3k mark for the first time ever. European rates lost 3-4.5 bps. ECB chair Lagarde’s appearance before European parliament helped the bull steepening which lower oil prices initiated at the start of European dealings. She sees no need for a more forceful response to the Iran war. It turned into media headlines but is in essence the exact messaging from the latest policy meeting. The “forceful response” Lagarde refers to is the monetary policy action required when “inflation to deviate significantly and persistently from target”. It’s the third, most extreme case Lagarde outlined during her ECB and its Watchers Conference in March and which broadly aligns with the severe scenario. The euro area economy right now sits somewhere between the milder and baseline scenario. In the milder one, headline CPI would fall short of the 2% target in 2027 and 2028 but core inflation would remain above 2% across the horizon. It is conditioned on no additional hikes. The baseline assumes three hikes in total and sees inflation at 3%-2.3%-2% and 2.5%-2.5%-2% for headline and core inflation respectively in 2026-2028. Brent oil prices fell below the 200dMA for a first <$78 per barrel close for the first time since the conflict. Sterling outperformed. EUR/GBP declined from 0.8694 to 0.8626, closing in on (strong) support just north of 0.86. We view the move as a kneejerk relief rally following PM Starmer’s resignation. It seems likely that this won’t trigger a protracted leadership challenge with support for Burnham strong to take over the baton. The proof of the pudding will be in the eating however. The November budget is going to be the litmus test. The US dollar held the upper hand in most other currency pairs. EUR/USD inched lower to 1.1429 with a test of key support at 1.1392 growing ever more likely. USD/JPY rose to an intraday high of 161.93, just shy of the 161.95 multidecade peak of July 2024. The pair is currently changing hands around 161.6, prompting ongoing speculation if or when Japanese officials will intervene.
June PMI’s feature the economic calendar today. Japan kicked off with the Euro area, UK and US following. The May European edition began to show the economic impact of the war as frontloaded purchases/stock buying petered out while strong price pressures weighed on the services sector. The survey owner flagged 4% CPI in coming months. This compares to the >3% ECB chief economist Lane, who appears for the European parliament today, expects for the rest of the year. The June series should capture some but probably limited impact of the deal between the US and Iran. A $69bn 2-year US auction serves as a market appetite gauge for short-term bonds in a new Fed era.
News & Views
New EU car registrations increased by 4% YtD in May 2026 (+3.2% Y/Y), indicating a strong start to the year amid a backdrop of persistent geopolitical headwinds weighing on the outlook. In the first five months of 2026, 950k new battery-electric cars (BEV’s) were registered, capturing 20% of the EU market (vs 15.3% YtD in May 2025). New EU hybrid-electric car (HEV’s) registrations rose to 1795k, accounting for 37.8% of the total EU market (vs 35.1%). The combined share of new petrol and diesel cars declined from 38% YtD in May 2025 to 30% this year. New Belgian EU car registrations amounted to 185k YtD (down 4.1% vs same period of last year). Only new BEV registrations (+2.8% to 66k) were up. They account for 35.6% of the total market, with petrol still the dominant choice (43.3% Ytd vs 42.2% last year).
Hungarian parliament is expected to pass anti-corruption measures today. They are part of Hungarian PM Magyar’s reforms targeted at re-aligning with Europe and unlocking frozen funds. Last month, the EU said that €16bn was coming Budapest’s way if new legislation stays on track. A possible first disbursement could be made before year-end. Today’s vote is on topics like expanding legal powers of the anti-graft watchdog (Integrity Authority) and reforming state-run media. Also today, the Hungarian central bank meets with markets widely anticipating a 25 bps rate cut from 6.25%.
