Oil and dollar slips following Middle East ceasefire deal
News of the conditional ceasefire between Israel and Lebanon improved market sentiment for a time, sending stocks higher, oil lower, while the dollar weakened yesterday. However, Hezbollah rejected the deal, so the truce could be short‑lived, and a broader deal between the US and Iran is still not yet agreed. A barrel of Brent crude fell 3% back to around $95 while the dollar slipped to over $1.1640 to the euro at times yesterday but is back trading at around $1.1620 to the single currency this morning and $1.3430 against sterling. The euro managed to edge up against sterling, back to 86.5p.
Government bonds rallied again, taking back a little of the ground lost on Wednesday. Yields ticked down, with 10‑year US yields down 3bps to 4.47%, UK 10‑year yields also down 3bps to 4.9% and 10‑year bunds down just 1bps to 3.02%. Equities rallied on the foot of more positive sentiment, with the moves being broad‑based rather than concentrated in AI‑related businesses. Investment moved away a little from tech and into other industries as Broadcom’s disappointing AI chip revenue guidance tested confidence in AI stocks. The Dow was up 1.7% and the S&P 0.4%, while the tech‑heavy NASDAQ closed marginally lower.
Today’s main data release will be non‑farm payrolls, with modest growth of 88,000 expected for May and the unemployment rate expected to remain unchanged at 4.3%. April’s payrolls rose 115,000, beating expectations, with health, education and transport driving jobs growth. The ADP private payrolls measure in May was 120,000, the strongest in 15 months, while initial jobless claims rose to 225,000 last week, the highest since February, but Memorial Day may be distorting the data and underlying new unemployment likely remains low. This data points to the potential for May’s non‑farm payrolls to beat expectations, which might cause markets to price in an earlier Fed rate hike if the underlying economy and labour market show resilience.
Irish Q1 GDP fell by a record 12.1% quarter‑on‑quarter in Q1, but that hides the domestic economy continuing to perform well. The surge in exports of pharmaceuticals that pushed GDP growth up to 12.3% in 2025 is now unwinding, pushing down on growth. With GDP down 17% year‑on‑year, the data suggests headline GDP growth will be negative in 2026. However, the domestic economy is in much better shape and grew at a robust pace in early 2026. Consumer spending rose by a healthy 0.6% in Q1 2026, up 2.6% year‑on‑year. Similarly, government spending rose by 0.5% quarter‑on‑quarter, up 3.7% in the year. Modified investment was also up 9.4% on the year, helped by homebuilding (34%), repair & maintenance (4.8%), and machinery & equipment (16%). Overall, modified domestic demand rose by a healthy 0.6% in Q1 2026, quarter‑on‑quarter, and was up 4.3% year‑on‑year.
On the agenda today, we have another estimate of Q1 Euro Area GDP, while the main data will be US non‑farm payrolls for May and, on the speaker front, we get Dhingra and Bailey from the BoE.