FOMC minutes in focus amid Iran tensions and higher yields

In focus today

• In the US, the minutes from FOMC's April meeting will be released tonight. Markets are looking for further forward-looking views after the divided rate decision. We will also keep an eye out for forward guidance on the Fed's balance sheet operations, namely the reserve management purchases of T-bills, which were not discussed in the press release after the meeting.
• In the euro area, we receive the final inflation print for April which is expected to confirm the flash release with headline at 3.0% y/y and core at 2.2% y/y. We expect the details to confirm that the inflationary impact of the war in Iran is currently visible only in energy components.
• In Denmark, the flash GDP for Q1 will be released. We expect Q1 GDP growth will land at a solid 1% q/q, driven primarily by strong pharma growth, as indicated by recent industrial production figures.
• In the UK, CPI inflation for April is released. The UK has been on a continuous disinflationary path until the surge in oil prices. This is now likely to trigger another rebound in inflation, adding pressure on households. The Bank of England (BoE) will look closely for second-round effects, but with the cooling labour market in mind, the recession risk is probably more imminent than the inflation risk.
• Overnight, Japanese May PMIs will be released. Q1 GDP showed stronger-than-expected 2.1% annualised growth, but April PMIs signalled softer overall momentum and weaker business confidence. May's readings will be key to see whether resilience is fading further amid higher energy costs, supply chain concerns and ongoing geopolitical uncertainty.

Economic and market news

What happened overnight

In the US-Iran war, conflicting signals are keeping a geopolitical risk premium in oil and natural gas prices. Trump has again threatened to resume strikes, giving Tehran "two to three days" to make a deal and saying the United States is "not leaving Iran yet" and is "going to do it right". Iran's army spokesman has warned that Tehran would open new fronts if attacked. Despite some diplomatic overtures, meaningful progress in peace talks has yet to materialise. Vice President Vance says negotiations have made "a lot of progress" and that neither side wants renewed fighting but also stresses that the US is prepared to act militarily if Iran rejects a nuclear deal. The US Senate has advanced a War Powers Resolution to constrain further escalation.

What happened yesterday

Global bond yields rose as inflation expectations accelerated and markets increasingly priced the next Fed move as a hike rather than a cut. The selloff in US Treasuries continued, with the 30Y yield briefly reaching its highest level since 2007, as fiscal expansion and rising term premia weighed on the long end of the curve. We see a similar move in Europe, with government bond yields rising. In Japan, record-high government bond yields confirm that investors are adjusting to a world of higher interest rates.

In the UK, labour market data softened as payrolls fell by 100k in April and unemployment edged up to 5.0% in March. Wage indicators painted a mixed picture. Underlying regular pay growth (excl. bonuses) eased to 3.4% in March, while average weekly earnings on a three‑month basis rose to 4.1%, above expectations of 3.8%, partly boosted by public sector payments. The BoE's preferred measure, private sector regular pay growth, slowed to 3.0% y/y. Employers stated that in the face of higher payroll taxes and tighter labour rules, they have cut hiring and vacancies. The figures, alongside the drag from the Iran war, prompted investors to scale back BoE rate hike expectations.

In the US, ADP's weekly employment data point to stable job growth, with private employers adding an estimated average of just over 42,250 jobs per week in the four weeks to 2 May 2026. While not usually a market mover, the release does continue the string of solid high-frequence labor market data received over the past weeks.

Equities: Equities sold off again yesterday, with the same narrative that has dominated since late last week: the combination of debt concerns, inflation worries and oil/geopolitics still overriding an otherwise constructive macro and earnings backdrop. That said, yesterday's negative catalyst was not oil. Crude was marginally lower, and the pressure came much more clearly from rates, especially the long end of the curve, led by the US late in the session. The equity rotation was therefore very consistent with a rates-driven risk-off move: defensive value, minimum volatility and energy outperformed. Some pause and reversal in the cyclical/tech trade should not be seen as particularly unusual after the extreme equity returns and very aggressive rotation into cyclicals that we saw from the 30 March lows into mid-May. Still, our base case is not that long-end yields continue to rise on debt fears, just as our base case remains that the Strait of Hormuz reopens relatively soon. It goes without saying, as long as this is the dominating narrative, then we are wrong in our view. This morning, the same dynamics are visible in Asia, with Japanese equities leading the decline, while semiconductors are less under pressure today. European and US futures are also lower this morning.

FI and FX: With the sell-off in global bonds taking another leg yesterday, risk appetite has again turned sour and the USD has strengthened. EUR/USD is now back testing the 1.16-figure while risk sensitive currencies in AUD, MXN and the CEEs have come under renewed pressure. Notably, the Scandies have kept up relatively well so far despite the negative nature behind US bond yields posting new highs, real rates moving higher and curves bear flattening.