Markets beat a small retreat

Stocks and bonds gave up some of Wednesday’s sizeable gains as oil prices crept higher (to around $100 p/b in the case of Brent crude), with Iran still to give its response to the US plan to end the war and amid renewed fighting between the two sides near the Strait of Hormuz. In FX markets, the euro and sterling again attempted to push higher against the dollar, getting up to around $1.1780 and $1.3630 respectively at one stage, but once again failed to hold onto their gains. They are trading at about $1.1750 and $1.3580 this morning, while EURGBP is marginally firmer at just under £0.8650. In the UK elections, early results show losses for Labour and gains for Reform – no surprise there at all –  with more to be revealed as counting progresses during the course of today. Also today, the April jobs (non-farm payrolls) report is due in the US.

Government bond yields edged higher across the main markets, following sharp declines on Wednesday, with US yields increasing by around 4bps and German and UK yields up a couple of basis points on the day. Similarly, equity markets gave up some of their gains from the previous day, with European stocks off around 1% and the S&P 500 shedding around half a percent.

ECB member Schnabel says “if the energy price shock broadens, monetary policy will need to tighten to contain the risk of second-round effects threatening medium-term price stability,” noting that “this risk has increased in recent weeks” as “surveys suggest a rapidly growing share of European manufacturing firms are planning to increase prices to protect their profit margins from rising input costs.” The market currently sees about an 85% chance of a 25bps rate hike next month.

Looking to the day ahead, as noted, the key economic data release is the April employment report in the US. The consensus expects the economy to have added 65k jobs last month, after adding 178k in March, and sees the unemployment rate remaining at 4.3%. Other data due includes the University of Michigan survey of consumer confidence/inflation expectations for May. A number of ECB and Fed officials are scheduled to speak over the course of the day.