■ TL;DR
- Markets closed higher as a US–Iran rapprochement lifted equities and pressured oil; the dollar steadied near 99.4 support.
- US consumer inflation jumped to 4.2% YoY (highest since April 2023); the Fed is expected to hold at 3.75% Wednesday, with hawks eyeing a hike.
- The ECB raised rates for the first time since September 2023; the Bank of England (seen holding 3.75%) and Bank of Japan (seen hiking to 1%) also meet this week.
- China’s exports (+19.4% YoY) and PPI (+3.9%) point to recovery, with industrial production data due Tuesday.
- Oil is trending lower as Hormuz flows rise ~50% to 2M b/d; SpaceX debuted +28% (making Musk the first trillionaire) and the Paramount–Warner deal cleared.
■ Table of Contents
Markets ended greener as the week drew to a close, with Tehran and Washington growing closer, pushing up equities and smothering oil.
US
With no dramatic expectations from the week’s Fed meeting on Wednesday, the USD is currently bouncing on a 99.4 support level after the US Court of Appeals approved Pres. Trump’s 10% global tariff plan and following his $70bn immigration enforcement aid package. Based on Bank of America data, US household spending increased by a healthy 5.1% YoY – a 4-year record.
However, if there was any doubt for Fed drama this coming Wednesday evening, consumer inflation last week came in at a whopping 4.2% YoY – its highest since April 2023, with another 4-year record in producer price inflation at 6.5% YoY. Prop traders should expect the Fed to hold the rate at 3.75%, with hawkish voices preparing a hike in the near future. Meanwhile, as the dollar continues to weaken on geopolitics, we should also expect a 3K drop in initial jobless claims to 226,000 on Thursday at 1:30pm GMT.
■ What to Watch
The Fed decision lands Wednesday — a hold at 3.75% is expected, but with CPI at 4.2% YoY and PPI at 6.5%, watch for a hawkish tilt. Thursday 1:30pm GMT brings initial jobless claims (~226K). The dollar is leaning on 99.4 support.
EU
The ECB unsurprisingly raised its key interest rates Thursday, the first increase since September 2023. Upon the announcement, the bank revised GDP growth for the year to 0.8% and published expectations for 2027 inflation to increase by 2.3%.
German industrial production increased by 0.4% MoM in April, with a 4.7% drop in automotives, and inflation in the Netherlands last month hit 3.5% YoY, followed by 2.4% in France.
Meanwhile, the first country to echo the US–Iran deal seems to be Poland, where PM Donald Tusk has announced an end to fuel subsidies, while in Italy the far-right Futuro Nazionale has officially become a political party, drawing lawmakers away from PM Giorgia Meloni’s beleaguered coalition.
Across the UK, with last week’s violence in Northern Ireland calming down somewhat, police are still expecting anti-immigration upsets in the weeks ahead both there and in Scotland. And perhaps gifting King Charles on his birthday with some more boiling oil upon the flames, Reform UK leader Nigel Farage has promised a ban on social housing for foreign nationals were he to be elected.
An entire universe away, the Bank of England will meet on Thursday morning (11am GMT), with expectations of holding its rate at 3.75% — this following inflation expectations to come in at 3.1% YoY on Wednesday morning at 6am GMT. Last week, the nation’s GDP was seen to decline by 0.1% MoM, its trade deficit edging down to £8.4bn thanks to increased exports.
■ What to Watch
The ECB has hiked for the first time since September 2023. The Bank of England meets Thursday 11am GMT (hold at 3.75% expected), with UK inflation Wednesday 6am GMT (3.1% YoY). Political risk is rising — Polish fuel subsidies ending, Italian coalition strain, and UK immigration tensions.
Asia
The Japanese economy readings last week showed 1.8% growth for Q1 – down from the estimated 2.1% – with oil reserves steady. Tuesday will see the Bank of Japan meet to announce its interest rate decision; prop traders can expect a 25 basis point increase to 1%. On Thursday, at half an hour before midnight GMT, expect the nation’s inflation to come in at 1.5%.
Tuesday will also see China’s industrial production results, with an expected 4.7% increase. Exports in May increased 19.4% YoY, exceeding expectations, as imports rose 27.4% YoY. Last week’s 3.9% PPI increase is the highest since July 2022, pointing to a certain level of recovery, while consumer inflation rose 1.2% YoY.
■ What to Watch
The Bank of Japan meets Tuesday (25bp hike to 1% expected), with Japanese inflation Thursday (~1.5%). China reports industrial production Tuesday (+4.7% expected); strong exports (+19.4%) and PPI (+3.9%) signal a tentative recovery.
Commodities
As a US–Iran deal looms closer, oil on the daily chart is now definitely on the fall, with lower highs and lows and COTs showing a convergence of hedgers and large traders. Bloomberg estimates that oil flows through the Hormuz Straits have stepped up, thanks to US protection, and have reached 2m barrels per day – a 50% increase over the month. Iranian officials are now claiming that the deal would include the opening of the Straits and US easing of oil sanctions.
On Tuesday, the weekly API inventories report lands at 8:30pm GMT, followed by the EIA’s report on Wednesday at 2:30pm.
■ What to Watch
Oil is trending down (lower highs and lows; hedgers and large traders converging) as Hormuz flows hit 2m b/d. Watch Tuesday’s API inventories (8:30pm GMT) and Wednesday’s EIA report (2:30pm). A US–Iran deal could open the Straits and ease sanctions.
Equities
Investors were awed on Friday as SpaceX shares launched 28% skyward on their debut, making Elon Musk the first trillionaire in history and pushing Wall Street modestly up. Prop traders are eagerly awaiting the launch of share derivatives after investors pushed the company’s value well beyond its $75bn target.
Meanwhile, the US Justice Department has approved the Warner Brothers acquisition by Paramount, following an 8-month evaluation and feedback from around the world. Warner shares jumped on the news as trading ended, and prop traders should be well prepared to trade the continued surge in the short term on Monday — but preferably the correction.
■ What to Watch
SpaceX debuted +28% (making Musk the first trillionaire) — watch for the launch of share derivatives. The Paramount–Warner deal has cleared; be ready to trade the short-term surge on Monday, but stay alert for the correction.
A US–Iran thaw is lifting stocks and smothering oil — but four-year-high inflation leaves the Fed little room to enjoy the calm.
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About the Author
Barry Sadovsky is a leading Analyst covering the Financial Markets for the last 20 years. Find more about Barry on his LinkedIn Page →
