Another round of US strikes
News of a fresh round of US strikes on Iran overnight – which a US official described as “measured, purely defensive, and intended to maintain the ceasefire” – is weighing a little on markets. Brent crude oil prices are up around $3 to almost $97 per barrel, while US bond yields were higher and Asian stocks lower in overnight trading. The dollar is also a touch firmer, trading at around $1.1615 and $1.34 versus the euro and sterling respectively this morning. The pound is little changed against the euro from yesterday’s close of £0.8660, though it has been gradually weakening over the course of this week amid an easing of Bank of England rate hike expectations. Inflation data due in the US later today should command some attention, with a further increase in headline inflation expected on the back of higher energy prices.
US bond yields edged higher overnight, increasing by around 3bps across the curve, having closed marginally lower yesterday, while German and UK yields are following suit this morning. As for stocks, most Asian markets were in the red, with Japan’s Nikkei index off around half a percent or so. European indices are down about 0.3% at the start of play this morning, while US stocks are set to open lower later today according to the futures market.
Fed Governor Cook says she believes that “the right course of (monetary policy) action is to hold (interest) rates steady.” She expects “disinflation (to) resume in upcoming months” as the impact of tariffs and higher energy prices run their course, but says she is “prepared to raise rates if the expected disinflation does not appear in a timely manner.” For its part, the market is currently pricing in a full 25bps hike in rates by March next year.
In its latest Financial Stability Review, the ECB says “the current energy supply shock poses upside risks to inflation and downside risks to economic growth” and warns that “prolonged geopolitical stress…could test financial market sentiment,” leading to “increased market volatility and (rising) financing costs in an environment of weaker economic growth.”
Today’s PCE inflation data in the US are expected to show headline inflation rose further to 3.8% in April (from 3.5% in March) according to the consensus forecast, while core inflation is expected to have ticked up to 3.3% (from 3.2%), both well away from the Fed’s 2% target. Other US data include the regular weekly jobless claims, personal incomes & spending (April), durable goods orders (April), and a second estimate of GDP growth in Q1 2026. Elsewhere, the European Commission publishes its latest Economic Sentiment Indicator for the EU/Euro area. The ECB releases the minutes of its April monetary policy meeting.