Oil prices lower

Oil prices are lower after Donald Trump says “great progress” is being made towards an agreement with Iran, announcing that Project Freedom (the operation to assist vessels through the Strait of Hormuz) will be paused for a time to see if a deal can be reached. Brent crude is currently at around $108 per barrel, down from highs earlier in the week of over $115 p/b. Bond yields are also edging lower, equity markets look set to add to gains chalked up yesterday, while the dollar is a touch softer. EURUSD and GBPUSD are trading at around $1.1730 and $1.3590 respectively this morning (versus lows yesterday of about $1.1680 and $1.3515), while EURGBP is little changed at £0.8630.

US and German government bond yields retreated yesterday, reversing some of Monday’s sharp increase. UK yields ended noticeably higher though, increasing by circa 10bps across the curve, albeit a good part of this reflected ‘catch-up’ as UK markets reopened following the long weekend. Equity markets had a positive session. European stocks outperformed, adding almost 2% on the day, while the S&P 500 closed at a new all-time high on the back of gains of almost 1%.

Yesterday’s US economic data were broadly in line with expectations. The ISM services index fell back for a second month running in April but is still consistent with ongoing growth in activity in this sector of the economy, though input price pressures remain elevated. Meanwhile, labour market data for March pointed to a continuation of the “low hiring, low firing” environment that has prevailed for quite a while now.

Outgoing ECB member Villeroy  say “if we see second-round effects (on prices) , we’ll act and raise interest rates to prevent inflation becoming broad and sustainable,” though he noted that, “for the moment, we don’t have sufficient signs of such propagation.”

For the day ahead, producer prices for March are scheduled in the Euro area and the ADP private employment report for April is due in the US, while final readings for the April Services PMIs are due in the UK and Euro area. The ECB publishes its latest Wage Tracker also.