Markets on the back foot
Markets are on the back foot somewhat at the start of the week after Donald Trump described as “totally unacceptable” Iran’s response to the US proposal to end the conflict in the Middle East. Oil prices have popped higher, with Brent crude up around $4 to $105 p/b, Asian stocks are generally lower and US bond yields higher in overnight trading, while the dollar is marginally firmer. The euro and sterling are trading at around $1.1770 and $1.36 against the US currency respectively, down a touch from Friday’s closing levels, while EURGBP is slightly firmer this morning at about £0.8650. The pound could come under pressure from political developments in the UK, where Prime Minister Keir Starmer’s leadership of the Labour Party is under increased scrutiny following last week’s elections results.
Government bond yields were flat to marginally lower on the week overall, but they did fall sharply from their highs of Monday/Tuesday as oil prices dropped and central bank rate hike expectations were pared back. It was something of a mixed week for equity markets. The S&P 500 in the US gained more than 2%, closing at another all-time high on Friday, while European stocks were broadly flat on the week.
The US economy added 115k jobs in April according to the latest payrolls report, well ahead of the consensus forecast for an increase of 65k. Jobs growth averaged about 50k a month over the three months to April, extending the recovery from a “soft patch” in employment in the middle part of last year. The unemployment rate was unchanged at 4.3% in April, as expected, while average hourly earnings growth continued to trend lower, averaging 3.6% year-on-year over the February-April period.
ECB President Christine Lagarde says “we are constantly torn between the risk of reacting too quickly or the risk of reacting too late (as regards raising interest rates) and we have to find the right path to navigate” our way towards the 2% inflation target, noting that the central bank faces “massive uncertainty” and needs “a lot more data” to understand the effects of the conflict in the Middle East.
Looking to the week ahead, economic data of note due include CPI inflation (Tuesday), retail sales (Thursday) and industrial production (Friday) in the US, and UK GDP for the first quarter of 2026 on Thursday. There are also a good number of ECB and Fed members scheduled to speak over the course of the week.