In focus today
- Sweden released several key data points today. The PPI report offers insights into emerging inflationary pressures and is regarded as a leading indicator by the Riksbank. Additionally, the NIER survey, which includes detailed price plans, will be examined to evaluate how current supply disruptions translate into inflation. The ETI, a comprehensive measure of Swedish GDP growth, has recently indicated growth in the 2‑2.5% range.
- Norway is set to publish its June retail sales figures. Elevated inflation and expectations of higher mortgage rates have constrained retail activity, and a modest 0.3% increase is anticipated for May.
- The European Central Bank’s Consumer Expectations Survey for May was released today. After a sharp rise in March, expectations steadied in April, with one‑year forecasts at 4.0% and three‑year forecasts at 2.9%. This development is especially noteworthy in light of recent hawkish remarks by ECB member Schnabel, who emphasized the need to bring inflation back to target.
Economic and market news
What happened overnight
US-Iran agreement An Iranian attack on a cargo vessel near Oman has prompted the United Nations to suspend its Strait of Hormuz escort mission, casting uncertainty over a tentative agreement to resolve the US‑Iran conflict. Iran’s Persian Gulf Strait Authority cautioned that vessels operating outside its designated routes do so at their own peril. Shipping data indicate that crude oil shipments through Hormuz have reached their highest level since the conflict began. Although Brent crude initially spiked, it has since declined to below $74 per barrel and is poised for substantial weekly declines, as market participants focus on the broader supply outlook rather than renewed tensions in the Strait of Hormuz.
What happened yesterday
In the US, Personal Consumption Expenditure (PCE) inflation rose further in May, sustaining expectations that the Federal Reserve may still consider a rate hike later this year. Headline PCE inflation accelerated to 4.1% year‑over‑year in May, the first increase above 4.0% since April 2023, driven partly by higher energy prices amid disruptions in the Strait of Hormuz. Core PCE rose 3.4% year‑over‑year and 0.3% month‑over‑month, reflecting persistent underlying price pressures, particularly in services. Nonetheless, market expectations for U.S. rates have moderated somewhat following the release of lower‑than‑anticipated PCE figures.
In commodities, Reuters reports that Iraq is contemplating an exit from OPEC unless it secures a higher production quota, a move that follows the United Arab Emirates’ departure on May 1 and bolsters Iraq’s negotiating leverage. Should Strait of Hormuz traffic normalize, heightened output from the UAE — and potentially Iraq — could generate a supply shock and precipitate a price war that might effectively dismantle OPEC, although Bloomberg data indicate that Hormuz traffic remains considerably below pre‑war levels despite a recent uptick.
Equities:
Equity markets posted gains yesterday, yet the primary narrative was not the overall index level but rather a pronounced rotation across sectors and regions.
European and Asian equity markets rose, whereas U.S. equities declined, with intraday volatility once again driven by technology stocks and the Iran‑oil storyline.
As oil prices rebounded during the U.S. session, the market reversed Wednesday’s rotation, shifting capital away from consumer‑oriented sectors.
Micron’s robust earnings released on Wednesday evening failed to sustain technology‑sector support, as investors increasingly question the durability of earnings growth and note the unusually high profit margins observed in certain segments of the semiconductor and memory industries.
It is crucial to distinguish these rotation drivers from the broader macro environment. Current volatility stems from geopolitical developments and lingering concerns within the technology sector, while the underlying macro backdrop remains robust.
Consequently, overall market volatility is expected to remain subdued, supporting an upward trajectory for equities over the longer term.
Asian markets opened sharply lower this morning, led by technology‑heavy indices, while U.S. and European futures also slipped, with technology once again accounting for the bulk of the weakness.
FI and FX: Movements in the fixed‑income and foreign‑exchange markets were relatively muted yesterday. EUR swap rates fell, with the two‑year swap yield slipping from 2.75% to just under 2.73% and the ten‑year yield declining slightly to below 2.92%. In the United States, yields also fell, especially in the front end, mirroring European moves. EUR/USD paused its recent decline and closed above 1.1350. EUR/NOK continued its upward trend, breaking through 11.20 as oil prices remain under pressure.
