Report by Renta 4
And finally came the announcement of the US-Iran agreement (not yet signed), leading to an upward opening on European markets (Eurostoxx futures up 1.7%, S&P futures up 1.3%, Nasdaq futures up 1.9%) and gains in Asia (Japan’s Nikkei and South Korea’s Kospi up 5%), with Asian emerging markets (the Philippines, Indonesia) leading the gains as they had suffered the most due to their dependence on energy imports.
Brent crude fell 4% to $83/barrel, its lowest level since the early days of the war, whilst European gas prices fell 7%. US bond yields fell by 5 basis points to 4.43% for the T-bond and 4.02% for the 2-year bond. The probability of a 25 bp rate hike by the Fed in December falls from 80% to 65%. The dollar falls 0.4% to 1.16 against the euro, and gold rises 2%, recouping some of its recent losses.
Yesterday, Sunday evening, on Trump’s 80th birthday, Pakistani Prime Minister Sharif announced the agreement, followed by Trump and the Iranian state media. The MoU will be formally signed in Switzerland on 19 June, with the Strait opening on the same day following the removal of mines. The agreement includes: 1) a 60-day extension of the ceasefire including Lebanon, 2) the reopening of the Strait without tolls, 3) the lifting of the US naval blockade within 30 days, 4) sanctions relief conditional on Iranian compliance, and 5) 60 days of negotiations on the nuclear programme (if no agreement is reached on uranium enrichment within that timeframe, Trump has said he may resume attacks). Conversely, the agreement does not include: 1) Iranian ballistic missiles (which leaves Iran’s conventional offensive capability intact), 2) proxies such as Hezbollah and Hamas, whilst Israel is not a party to the agreement and Netanyahu has expressed deep scepticism.
From here on, beyond the formal signing, it remains to be seen how the agreement is complied with and interpreted. In this regard, the interpretation of an open Strait of Hormuz already differs between the parties: Iran says the Strait will be regulated by Iran and Oman (suggesting that Tehran seeks to retain control), whilst the United States says there will be free and unrestricted passage.
SpaceX made its market debut on Friday, with a rise of 19% to $160.95 (although it reached 30% during intraday trading), achieving a market capitalisation of $2.2 trillion, making it, on its first day, the sixth most valuable company in the world. Over 522 million shares were traded, almost the total sold in the IPO.
The debut opens the door for Anthropic and OpenAI, demonstrating that the market can absorb trillion-dollar valuations. JPMorgan estimates that IPOs, secondary offerings and other issues will add $1.5 trillion in net share supply to the US market over the next two years, the largest period of ‘equitisation’ since the late 1990s.
Looking ahead to this week, the most significant events in terms of meetings and macro data will be the central bank meetings, with rates expected to remain unchanged for the Fed (Wednesday) and the Bank of England (Thursday), whilst the Bank of Japan (Tuesday) is expected to raise rates by 25 basis points.
Thus, the BoJ will continue its upward monetary normalisation, +25 bp to 1%, with broad market consensus (fully priced in). The subsequent statement and the indication of how many further hikes might be made in the future (the market is pricing in one more by the end of the year) will be relevant for the yen, which stands at 160 against the USD, levels that have historically triggered intervention. All this against a backdrop of highly expansionary fiscal policy from the Takaichi government, and with a BoJ that is considering not further reducing government bond purchases from the 2027 financial year onwards, which would help cushion the impact of the rate rise on long-term Japanese yields.
In the case of both the Fed and the BoE, although they are expected to keep their monetary policy unchanged at 3.5%–3.75% and 3.75% respectively, the market is pricing in that both will rise in the future, albeit to a limited extent: the Fed by 25 bp in early 2027 and the BoE by 25 bp in late 2026 and a further 25 bp in Q1 2027.
We note that the Fed meeting will be the first with Kevin Warsh at the helm, replacing Jerome Powell, which could bring significant changes in communication, such as the possible removal of “forward guidance” and the “dot plot”. Also worth noting is the update to the macroeconomic outlook, where we could see some upward revision to inflation, the unemployment rate remaining largely unchanged, and a “dot plot” with no changes expected for 2026 (compared to a 25 bp cut forecast in March).
As for macroeconomic data, the highlights in Europe will be the ZEW investor survey for June in Germany and the Eurozone (Tuesday), which could show improvements, particularly in the expectations component given the prospect of an agreement in the Middle East, and the final CPI data for May in the Eurozone (Wednesday), which should confirm the preliminary figures. In the US, we will see activity data such as May retail sales (Wednesday), which should remain stable, the leading indicators index (Thursday) for the same month, and June manufacturing surveys (New York on Monday and Philadelphia on Thursday), with an improvement expected.
In China, we will be watching May activity indicators (Tuesday): retail sales (expected to fall), industrial production (with a slight improvement forecast) and property investment (which will remain depressed with falls of around 14%). We will also see May CPI data for Japan (which should remain at levels similar to those in April) and the UK (with a slight rise expected across all categories).
