Report by Renta 4
European markets open largely unchanged (Eurostoxx futures down 0.03%, S&P futures down 0.1%, Nasdaq futures down 0.2%), following gains in the US (Nasdaq up 3% and the Dow Jones hitting new all-time highs) and Asia (Japan’s Nikkei up 0.6% and South Korea’s Kospi up 2%), and amid doubts surrounding the agreement between the US and Iran.
On the central bank front, the Bank of Japan (BoJ) meeting took place, at which, as expected, the policy rate was raised by 25 basis points to 1% (7 votes in favour and one against), reaching its highest level since 1995. Furthermore, the BoJ notes that the economy is recovering moderately and that, whilst the risk of a sharp slowdown has diminished, it warns of the risk that core inflation may drift upwards above the 2% target. Following confirmation of this fully priced-in rise, the subsequent statement left the door open to continuing with the normalisation of monetary policy (the market is pricing in one more hike by the end of the year), a decision that will be significant for the yen, which stands at 160 against the USD, levels that have historically triggered intervention. All this against a backdrop of the Takaichi government’s highly expansionary fiscal policy, and with the BoJ having confirmed that it will not continue to reduce government bond purchases from the 2027 financial year onwards, maintaining the current monthly purchase rate at around 2 billion yen. However, the reduction in bond purchases is not serving to cushion the impact of the rate hike onlong-term Japanese yields, which continue to rise.
Meanwhile, the Reserve Bank of Australia has kept its benchmark interest rate at 4.35% for the first time this year (up 75 basis points since February). This was a unanimous decision in light of the cooling economy, and the RBA has warned that it could implement further rate hikes if necessary to control inflation.
On the macro front, we have seen May activity data from China, which point to a fragile economy: retail sales down 0.6% year-on-year (compared to an expected decline of 0.5% and a previous rise of 0.2%) – the first fall since 2022 – industrial production up 4.5% year-on-year (against 4.3%e and 4.1% previously), fixed asset investment down 4.1% (against 2.3%e and 1.6% previously) and property investment down 16.2% year-on-year (compared to 14%e and 13.7% previously), with new house prices down 0.2% month-on-month (compared to 0.19% previously) and existing house prices down 0.26% (compared to 0.23% previously).
Looking ahead to the rest of the day, the macro focus will be on Europe, with the June ZEW survey (of financial analysts and institutional investors) in both Germany and the Eurozone showing an expected improvement given the prospect of an agreement in the Middle East, to which will be added Q1 2026 labour costs in the Eurozone (up 3.4% preliminary).
At market level, and following an initial positive reaction yesterday to the US-Iran agreement, we would like to highlight thatthe stock markets may have already priced in much of this, with indices currently sitting 2% (Eurostoxx), 4% (Ibex), 10% (S&P) and 22% (Nasdaq) above pre-war levels, even though Brent remains 15% above (following a 35% fall from highs of $126/bbl, but with upward pressure given that the Strait of Hormuz will take time to reopen and crude oil inventories have fallen sharply and will need to be replenished) and yields are 70 and 55 basis points higher (2- and 10-year US bonds) and 60 and 30 basis points higher (2- and 10-year German bonds).
This appears to indicate tha tthe damage caused by the energy ‘shock’ has already been done, and although an agreement could help ease the interest rate outlook, it does not resolve the situation in the short term (the market continues to price in rate rises), which highlights the particular importance of the message from central bankers this week (Fed, BoE, Norway, Sweden, Switzerland). If the “hawkish” tone is confirmed, further stock market rises should come not from an expansion of multiples, but from corporate earnings growth.
In this regard, we highlight yesterday’s comments by the ECB’s Lagarde, stating that second-round effects have begun to materialise, whereas at last Thursday’s press conference she said they were not yet being seen (keep an eye on Q1 2026 labour costs, published today, to see if higher energy prices are feeding through), a sign that the ECB is prepared to raise rates again if necessary.
Points to be clarified in the agreement
Apart from the fact that the text of the US-Iran agreement has not yet been published (expected within 24–48 hours) and the official signing remains pending (scheduled for Friday 19 June), there are several aspects yet to be clarified, with 60 days of complicated negotiations (and the associated volatility) expected:
1) Opening of the Strait of Hormuz: when (in the best-case scenario, on Friday following the signing of the agreement, although this requires prior demining, confidence from shipowners and restoration of cover by insurers; ADNOC has already stated that it would take 4 months to recover 80%
of pre-war flows and until 2027 to return to 100% normality, meaning that inventories will continue to fall) and how (the US and Iran publicly disagree over tolls in the Strait: Trump says free passage at no cost while Iran intends to charge service fees, a contradiction that the MoU leaves “open to interpretation”).
2) What happens to the frozen Iranian assets: Iran claims it will receive $24 billion in frozen assets, with $12 billion released before nuclear negotiations begin, but Trump publicly denies this, leading to a structural deadlock from day one.
3) Israel is not bound by the agreement and Netanyahu has expressed deep scepticism, which seems to suggest that he will not withdraw troops from southern Lebanon, and will continue to act against Hezbollah. As Iran considers Lebanon an essential part of the agreement, if Israel attacks Lebanon during the 60 days of negotiations, Iran may suspend the process.
