ECB lined up to start tightening for first time in three years

EU mid-market update: ECB lined up to start tightening for first time in 3 years; US exchanges bombs with Iran for second straight night; SpaceX IPO imminent; Iran war intensifies.

Notes/observations

- ECB in focus: STR futures pricing in 100% chance of 25bps hike by ECB today (first since Sept 2023), with 37% chance of a second hike at next meeting in July, marking a preemptive response to the energy-driven uptick in eurozone inflation. The real focus is on press conf framing: whether President Lagarde signals this as "one and done" or the start of a tightening cycle. Updated staff forecasts are expected to keep the door open to further hikes - likely showing upward revisions to 2026/2027 inflation and downward revisions to growth - but back-to-back moves look unlikely, with September (when fresh projections are available) seen as the next live window. Some analysts argue today's hike could be the only one this cycle: in an optimistic scenario the war ends and oil falls back toward $80, removing the need for more; in a pessimistic one ($100 oil, prolonged conflict), Europe would be at or near recession, making further tightening untenable. Central concern for the Governing Council is the risk of a short-term energy shock morphing into a persistent inflation problem via wage demands and second-round effects, reviving "higher for longer" risk in Europe.

- Overnight saw a fresh wave of US strikes on Iranian targets in southern Iran, with Tehran responding by declaring the Strait of Hormuz closed to all vessels and claiming missile/drone attacks on US ships near the strait, plus IRGC ballistic missile strikes on the Al-Azraq air base. Risk assets sold off sharply in early Asia before recovering roughly half their losses after Trump claimed in a Fox interview that Iranian officials had asked him to halt the bombing and that strikes would "stop shortly" - a claim Iranian state media subsequently denied. Importantly, CENTCOM says commercial shipping continues to transit Hormuz despite Iran's closure declaration. Qatar's negotiators have reportedly left Iran, and Tehran's Foreign Ministry says continued US attacks render any ceasefire meaningless

- Oracle’s results disclosed $67B in new AI contracts signed (lifting BYOH/prepaid totals to $75B at maintained margins), 93% YoY Cloud IaaS/PaaS growth, and RPO surging to $638B. FY27 reported CapEx guided at $93B (~$70B net cash outlay after prepayments), with plans to raise ~$40B in debt and equity (including the $20B ATM), even as FCF is modeled to remain negative through FY29 to fund the aggressive buildout. Tier-1 analysts note that execution remains strong, with over 1.2GW delivered in FY26 and nearly 1GW expected in Q1 FY27 amid ramping major sites (including Abilene advancing from 42% to 77% capacity in the next 90 days), while the $75B prepayment/BYOH contracts meaningfully reduce capital needs even as initial RPO conversion creates temporary gross margin pressure that eases with scale.

- Wednesday's CPI showed headline annual inflation rising to 4.2% as expected - the fastest in three years - but markets latched onto the softer-than-forecast 0.2% m/m core print, which gives the Fed some breathing room ahead of the 17 June decision. Attention now turns to today's PPI release (12:30 GMT), where consensus of 4.9% y/y would mark the highest reading since January 2023.

- Fable, Anthropic’s release this week, demonstrated greater capability, autonomy, and persistence than Opus, yet on some benchmarks it significantly underperforms Opus by more readily turning plausible but invalid premises—such as nonexistent legal doctrines, forged observability methods, or pseudo-financial metrics—into complete workstreams, memos, code, and processes through semantic rescue and its strong helpfulness prior; the same pattern holds for high-reasoning versions of Gemini and GPT, which also perform worse than their less advanced counterparts. This tendency toward “amber cooperation” is especially costly in today’s token-maximizing paradigm, where models are incentivized and rewarded for continuing trajectories and generating output volume rather than killing false premises early. As a result, highly capable completion machines like Fable risk elaborating invalid states into expensive downstream debt, underscoring TTN’s warning on the enterprise need for cancellation instincts amid massive capex scaling.

- Meanwhile, OpenAI is reportedly weighing drastic price cuts on tokens, anticipating a similar move from Anthropic as both companies brace for an aggressive “war” over enterprise and developer users balking at high AI costs. The potential reductions, per WSJ sources, reflect intensifying competitive pressure just as OpenAI eyes a potential IPO, raising concerns about compressed margins and profitability in the near term. This pricing escalation highlights a broader industry shift: after years of premium pricing amid capability races, token economics are becoming a primary battleground, forcing frontier labs to sacrifice short-term rents to defend market share and utilization.

- Russia is rapidly expanding military infrastructure along NATO’s northern and Baltic flanks, constructing barracks, ammunition depots, and support facilities capable of sustaining up to 115,000 troops—including a potential 80,000 near Finland—while replacing smaller brigades with larger, artillery-heavy divisions optimized for prolonged high-intensity combat. According to a joint Nordic investigation, these preparations have sharpened Western assessments to the point that “NATO has never felt that war is this close,” even during the Cold War, creating a perceived 1–3 year window of opportunity for Russia before European rearmament can fully close the gap.

- Asia closed mixed with Hang Seng underperforming -0.7%. EU indices +0.0-1.1%. US futures +0.7-1.2%. Gold +0.4%, DXY +0.1%; Commodity: Brent -1.0%, WTI -1.0%; Crypto: BTC +2.6%, ETH +2.2%.

Asia

- Japan Q2 BSI large all industry Q/Q: -0.5% V +4.4 prior.

- Japan Chief Cab Sec Kihara: Strongly hope latest attacks between US and Iran will not escalate further.

- Chinese press said to note risks in speculation over ‘hot’ market themes in the A-share market, mentions areas including ‘Physical AI’, humanoid robots and data centers.

– China Securities Daily front-page commentary.

- China regulators question online retailers JD.com, Douyin, Tmall and PDD over "fraudulent sales advertising" - CCTV.

- Indonesia Central Bank (BI) and China PBOC said to be exploring increasing size of currency swap agreement.

- Bank of Korea (BOK): To pay interest on excess foreign currency deposits by financial firms for six more months [follows prior reports of declining foreign currency deposits in South Korea].

- Korea Exchange activates sidecar to halt Kosdaq program buying.

- South Korea Vice Fin Min asked domestic exporters to help improve FX market supply and demand conditions, help ease volatility.

Europe

- German Farm Cooperatives increase 2026 wheat crop forecast to 22.6M Mt -2.2% y/y, citing good weather since last update.

- Italy PM Meloni: Investing 2.8% of GDP in defense; Reiterates Italy won’t take part in Iran war; Willing to help secure Hormuz after war.

- German Chancellor Merz: Germany is in denial about military threats, tech upheaval and ageing society; The coalition must move forward with decisions on reforms.

- Czech Foreign Minister Macinka: Czechs to block EU sanctions on [Israel's] National Security Minister Ben-Gvir.

- China cancels high-level meetings with the EU - FT.

- Russia said to be rapidly expanding military infrastructure along NATO's northern and Baltic borders; One source familiar with sensitive assessments told investigators that "NATO has never felt that war is this close," even during the Cold War - press.

Americas

- Canada introduces bill to restrict social media use under 16.

- Brazil Senate approves Rural debt renegotiation bill - Globo.

- Pres. Trump: No other President has ever been more committed to both REBUILDING our Great Military... - post on Truth Social.

- Fujimori leads in the "final stretch" of the Peru Presidential runoff election.

Iran war thread (sequenced newest on top)

- Iran said to have told ships with permits to cross strait to await guidance - press.

- Iran Foreign Ministry: US attacks render ceasefire meaningless.

- Qatar negotiators said to have left Iran after talks - press.

- IRGC: Targeted U.S. aircraft at Al-Azraq air base with 12 ballistic missiles [time frame uncertain] - Tasnim.

- Follow up: U.S. forces complete latest strikes in Iran, cites CENTCOM.

- Explosions reported heard in Iran's region of Karaj - IRNA.

- CENTCOM: Commercial ships are continuing to transit in and out of Strait of Hormuz tonight; - post on X.

- Follow up: Iran's State Media: Senior Official denies that Iranian Officials contacted Trump to 'stop bombing'.

- President Trump: Spoke directly with Iran officials; Iranians asked me to stop bombing; Bombing will stop shortly - Interview on Fox News.

- Iran's Top Joint Military Command: Strait of Hormuz closes for passage of any vessels; Any vessel that attempts passage will be targeted - Statement.

- Iran state media: Reports indicate US ships near the Strait of Hormuz have been targeted by Iranian missiles and drones launched by Iran's army.

- US CENTCOM: Confirmed it started launching additional 'self-defense' strikes against Iran; all of the targets are again located in Southern Iran, according to Axios.

- US Sec of Defense Hegseth: We'll be bombing key facilities in Iran tonight.

- Reportedly Trump considers options on Iran including ordering a large scale but short-term operation in Iran - Axios.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.45% at 620.96, FTSE +0.60% at 10,316.10, DAX -0.06% at 24,204.12, CAC-40 +0.40% at 8,197.33, IBEX-35 +0.89% at 18,303.76, FTSE MIB +1.02% at 50,541.50, SMI +0.44% at 13,522.60, S&P 500 Futures +0.79%].

Market focal points/key themes: European indices open generally higher and remained in the green through the early part of the session; tech helping support market sentiment amid caution over latest Middle East incident; among sectors leading the way higher are energy and technology; lagging sectors include communication services and industrials; focus on ECB rate decision later in the day; Frasers launches offer for for Hugo Boss overnight; corporate invests expected in upcoming US session include Adobe earnings and Honeywell investor day.

Equities

- Consumer discretionary: Hugo Boss [BOSS.DE] +7.0% (Frasers offer), Wizz Air [WIZZ.UK] +4.5% (earnings), RWS Holdings [RWS.UK] -11.5% (earnings).

- Financials: Puuilo [PUUILO.FI] +9.5% (earnings; conf call comments).

- Industrials: BASF [BAS.DE] +1.5% (analyst upgrade).

Speakers

- (TH) Thailand Central Bank Gov Vitai: Near-term macro policies must safeguard stability against shocks.

Economic data

- (ZA) South Africa Q1 Current Account Balance (ZAR): 191B v 82Be; Current Account to GDP Ratio: 2.4% v 1.1%e.

- (NO) Norway Q2 Regional Network Survey: Output Current Quarter Q/Q: 0.2% v 0.3% prior; Output Survey (next quarter) Q/Q: 0.3% v 0.4% prior.

- (SE) Sweden May Final CPI M/M: 1.0% v 1.0%e; Y/Y: 0.8% v 0.8%e; CPIF M/M: 0.9% v 0.9%e; Y/Y: 0.9% v 1.5%e; CPI Level: 125.1 v 123.9 prior.

- (FI) Finland Apr Current Account Balance: -€2.3B v €0.3B prior.

- (TH) Thailand May Consumer Confidence: 49.5 v 50.6 prior.

- (SE) Sweden May PES Unemployment Rate: 3.4% v 3.5% prior.

- (UK) May RICS House Price Balance: -35% v -32%e ("joint-lowest" figure since November, 2023).

Fixed income issuance

- Sweden sells total SEK750M vs. SEK750M in 2036 and 2039 I/L Bonds.

- UK DMO sells £5.0B IN 4.0% MAY 2029 GILTS; AVG yield: 4.419% V 4.238% prior; bid-to-cover: 3.60X V 3.35X prior; TAIL: 0.2BPS V 0.2BPS prior (APR 21ST 2026).

- Italy debt agency (TESORO) sells €4.0B VS. €3.5-4.0B indicated in 3.00% SEPT 2029 bonds; AVG yield: 3.03%; bid-to-cover: 1.62X.

Looking ahead

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-year, 5-year and 10-year bonds.

- 05:30 (ZA) South Africa Apr Total Mining Production M/M: No est v -5.1% prior; Y/Y: No est v 2.5% prior; Gold Production Y/Y: No est v 17.1% prior; Platinum Production Y/Y: No est v 10.5% prior.

- 05:40 (UK) BOE 7-day short-term repo operation (STR).

- 07:00 (ZA) South Africa Apr Manufacturing Production M/M: No est v 0.8% prior; Y/Y: No est v 0.9% prior.

- 07:00 (TR) Turkey Central Bank (CBRT) Interest Rate Decision.

- 07:00 (UR) Ukraine Q1 Final GDP Q/Q: No est v -0.7% prelim; Y/Y: No est v -0.5% prelim.

- 08:00 (BR) Brazil Apr IBGE Services Volume M/M: No est v -1.2% prior; Y/Y: No est v 3.0% prior.

- 08:00 (MX) Mexico Apr Industrial Production M/M: No est v -0.6% prior; Y/Y: No est v -1.3% prior; Manufacturing Production Y/Y: No est v -1.0% prior.

- 08:15 (EU) ECB Interest Rate Decision: Expected to raise Key Rates by 25bps.

- 08:30 (CL) Chile Central Bank Traders Survey.

- 08:30 (US) Initial Jobless Claims: No est v 225K prior; Continuing Claims: No est v 1.777M prior.

- 08:30 (CA) Canada Apr Building Permits M/M: No est v 10.3% prior.

- 08:30 (US) May PPI Final Demand M/M: No est v 1.4% prior; Y/Y: No est v 6.0% prior.

- 08:30 (US) May PPI (ex-food/energy) M/M: No est v 1.0% prior; Y/Y: No est v 5.2% prior.

- 08:30 (US) May PPI (ex-food/energy/trade) M/M: No est v 0.6% prior; Y/Y: No est v 4.4% prior.

- 09:00 (RU) Russia Apr Trade Balance: No est v $14.0B prior; Exports: No est v $41.1B prior; Imports: No est v $27.1B prior.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 5th: No est v $748.7B prior.

- 11:30 (US) Treasury to sell 4-Week and 8-Week Bills.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 12:00 (US) Q1 Household Change in Net Worth: No est v $2.173T prior.

- 13:00 (US) Treasury to sell 30-Year Bond Reopening.

- 15:00 (AR) Argentina May National CPI M/M: No est v 2.6% prior; Y/Y: No est v 32.4% prior.

- 18:30 (NZ) New Zealand May Manufacturing PMI: No est v 50.5 prior.

- 18:45 (NZ) New Zealand Apr Net Migration: No est v 3.4K prior.

- 19:00 (PE) Peru Central Bank Interest Rate Decision.

- 22:35 (CN) China to sell 7-Year New Bonds.

- 23:30 (JP) Japan to sell 3-Month Bills.