Consumer confidence rounds out the week

In focus today

• The conflict between Israel and Iran has now been raging for seven days. While the US has currently assisted Israel only by shooting down Iranian missiles, US President Trump said yesterday that a potential US involvement would be decided within the next two weeks, amid Germany, Fance and Britian holding first face-to-face talks with Iran in Geneva. Iran could potentially choose to disrupt oil and natural gas markets by blocking shipping through the Strait of Hormuz, which could force the US' hand in the matter.
• The main data print of today is the consumer confidence for Denmark and the euro area (preliminary). Consumer confidence has been on a downward trend since October last year, likely dampening consumption. For the euro area, we expect the small rebound in May to have persisted into June. Euro area credit growth data will also be interesting, as we have seen a great increase in credit growth in the previous months, which supports activity. 

Economic and market news

What happened overnight

In China, loan prime rates remained unchanged as expected with 1-year at 3.00% and 5-year at 3.50%.

In Japan, inflation data for May overshot expectations with core CPI rising to 3.7% y/y from 3.5% y/y in April (cons. 2.6% y/y), which supports the case for BoJ hiking. While price growth eased for clothing, household items and healthcare, it accelerated for recreation and communications. The price level of electricity and gas remained elevated, while food inflation cooled slightly despite rice prices increasing 101.7%.

What happened yesterday

In Norway, Norges Bank (NB) unanimously cut policy rates by 25bp bringing the deposit rate to 4.25%. The move was highly unanticipated by markets and came as a surprise. NB guided for two additional cuts this year, with one in September and one in December. Verbal guidance stated, "The economic outlook is uncertain, but if the economy evolves broadly as currently projected, the policy rate will be reduced further in the course of 2025".

In Switzerland, the Swiss National Bank (SNB) cut the policy rate by 25bp down to 0%, which was in line with the market and our expectations. The SNB maintained their guidance "The SNB will continue to monitor the situation closely and adjust its monetary policy, if necessary, to ensure that inflation remains within the range consistent with price stability over the medium term.". At the press conference, the SNB pushed back on negative policy rates, stating "We would not take the decision to go negative lightly. We are well aware of all challenges related to negative interest. As a central bank we can never exclude it."

In the UK, the Bank of England (BoE) kept the bank rate unchanged in a 6-3 vote split, with 3 favouring a cut. The BoE also maintained their guidance of "a gradual and careful approach to the further withdrawal of monetary policy restraint remains appropriate". In the afternoon, Governor Bailey said that rates "remain on a gradual downward path". For our full review see Bank of England Review - Setting the stage for an August cut, 20 June.

In Sweden, 1-year and 5-year Q2 CPIF inflation expectations both declined to the 2.0% y/y level from 2.3% y/y and 2.2% y/y, respectively. Previous figures have shown inflation to remain elevated, and the fall was somewhat anticipated.

Equities: Global equity markets moved lower yesterday, notably without US cash equity trading due to the US holiday. Typically, we see less activity on days when the US is out. In Europe, sector and industry performance showed a clear trend: defensive sectors led, while cyclicals underperformed. Energy was the strongest performer, supported by renewed geopolitical tensions in the Middle East and a steady intraday climb in oil prices. In the Stoxx 600, most defensive industries closed in positive territory, while the cyclicals were down over 1% on the day. While this performance broadly aligns with our current strategy, we are surprised by how calmly markets continue to digest the ongoing combination of geopolitical stress and softening, particularly US macro data. Looking at markets this morning, we are seeing a partial reversal of yesterday; Asian equity markets are broadly higher, led by China, whereas Japanese equities are lagging (inflation in Japan once again marginally to the high side this morning). European equity futures are trading markedly higher, while US futures are lower, catching up to yesterday's move during the US holiday.

FI&FX: Risk sentiment soured through yesterday's session as rumours of an upcoming US attack on Iran added to escalation risks. A rise in inflation prices added upward pressure on EUR rates, where the long end of the curve was most impacted. Peripheral and French spreads widened against Germany with the 10Y Italian spread rising above 100bp. EUR/USD traded near 1.147 for most of the session but converged closer to 1.15 by the end of the session. EUR/CHF gained some light tailwind on the back of the SNB decision yesterday, ending the day around 0.9350. EUR/NOK rose 0.5% to 11.55 following Norges Bank's surprise cut, which also led to a significant drop in NOK rates. EUR/GBP was mostly unaffected by the dovish vote split at yesterday's BoE hold. Overnight, oil prices have shed some of yesterday's gains, while US and European equity futures are trading slightly higher.