Market holiday reducing activity – Iran-US talks in Switzerland postponed

EU mid-market update: Market holiday reducing activity; Iran-US talks in Switzerland postponed; Andy Burnham wins seat as MP ahead of expected leadership challenge against Starmer.

Notes/observations

- Trading conditions are notably light. US markets are closed for Juneteenth, and Finland and Sweden are out for Midsummer Day, while China, Hong Kong and Taiwan were also shut overnight - leaving Asia with well-below-normal liquidity.

- UK standout story is Labour's decisive victory in the Makerfield by-election, with Manchester Mayor Andy Burnham taking the seat and immediately positioning himself as front-runner to challenge Keir Starmer for the premiership. PM Starmer has said he'll fight any challenge, but pressure from his own ministers and supporters could push him toward announcing a departure to speed the transition. Markets are focused less on the leadership mechanics and more on Burnham's policy agenda given he's the strong favorite to become PM - though Health Secretary Streeting has signaled he'd also contest. The key watch-point for sterling and gilts is the Chancellor role currently held by Reeves; any sign of change there is a concern for a gilt market already strained by the UK's weak fiscal position. Gilt yields rose on the combination of the political result and climbing public sector borrowing, and the risk premium is expected to persist.

- US-Iran framework continues to underpin sentiment. VP Vance scrapped his Switzerland trip for a formal signing since Presidents Trump and Pezeshkian have already signed the MOU, with suspicions the delay is linked to continued Israel-Hezbollah fighting (an Israeli strike on southern Lebanon Thursday). Both sides issued cautionary warnings about breaching terms, but for now appear to be respecting them + though differing interpretations of the released 14-point plan are likely to surface eventually. On the ground, six oil tankers passed through the Strait of Hormuz in the past 24 hours, a sign the chokepoint is reopening, though Japanese shipper Kawasaki Kisen cautioned that full normalization will take time on crew and safety grounds.

- A couple of items worth flagging: on trade, the USTR opened a Section 301 investigation into Germany over alleged underpayment for innovative pharmaceuticals, and the US raised concerns to ASML that its EUV machines may have reached China. In single names, Entain is reportedly weighing options for Entain CEE including a sale, Mutares acquired Synthomer's Czech-based acrylate monomers business, and Prosus and Hornbach reported on a light earnings calendar.

- UK macro was supportive at the margin with May retail sales beating forecasts - while German PPI came in cooler than expected.

- Elon Musk replied to questions about when Chinese models might reach Anthropic’s Fable-class performance, noting that Zhipu AI’s newly released GLM-5.2 had already narrowed the gap, but estimating “probably Q1 2027” — while stressing that true usefulness (beyond benchmarks) would still make even that timeline impressive, as Anthropic has prioritized revenue-driving practical intelligence. Z.ai co-founder and chief scientist Tang Jie responded directly: “won’t take that long,” signaling stronger confidence in China’s accelerating open-source trajectory right. This exchange highlights the shift Musk and the broader market are watching as of recent: not a single god-model race, but abundant, cheap, capable Chinese open models (GLM, DeepSeek, Qwen et al.) becoming default inventory in routing/orchestration systems — potentially compressing timelines and economics faster than benchmark-focused predictions suggest.

- Goldman Sachs has pointed to recent hyperscaler underperformance, noting that many still see sustained heavy capex as essential for competitiveness amid token cost compression and the rise of neoclouds, which could pressure core pricing power. GS highlighted an OpenRouter example where a fused panel of Gemini 3 Flash, Kimi K2.6, and DeepSeek V4 Pro reportedly outperformed solo GPT-5.5 and Opus 4.8 while coming close to Fable 5 performance at roughly half the cost.

- This raises questions around the durability of current model economics: it could prove bullish for broader token usage and compute demand over time, but also risks faster token deflation; ironically, hyperscalers’ growing reliance on debt issuance to fund record AI capex (with recent waves of tens to hundreds of billions across names like Meta, Alphabet, Oracle, and others) may become more expensive if Fed Chair Warsh’s policy environment keeps rates elevated amid short-term inflationary pressures from the buildout itself - potentially leading to a reflexivity where the first to signal spending restraint sees share-price relief.

- Asia closed. EU indices +0.1-0.9%. US futures -0.2%. Gold -1.0%, DXY 0.0%; Commodity: Brent -0.8%, WTI +1.2%; Crypto: BTC -2.6%, ETH -2.9%.

Asia

- China, Hong Kong, Taiwan markets closed today for national holidays.

- South Korea May PPI Y/Y: 8.5% v 7.2% prior.

- New Zealand May Trade Balance (NZD): 0.8B v 1.9B prior.

- Japan May National CPI Y/Y: 1.5% v 1.5%e; CPI (ex-fresh food) Y/Y: 1.4% v 1.4%e.

- Japan Fin Min Katayama stressed that was prepared to act against excessive currency speculation.

- BOJ Apr Minutes (2 decisions ago): To keep raising rate in response to economy, prices. Many members stated of need more time to confirm impact of Middle East developments on Japan's economy, prices.

Global conflict/tensions

- US markets closed for holiday.

- US VP Vance would not depart Thursday night for face-to-face negotiations with Iran in Switzerland.

- Swiss Foreign Ministry: US/Iran talks at Burgenstock would not take place as planned on Friday (Jun 19th).

- Israel Defense Force (IDF) struck Hezbollah targets across Southern Lebanon overnight and was continuing attacks.

Europe

- Labour's Andy Burnham wins UK's Makerfield By-Election with 24,927 votes [~54.8%]; clearing the path for a leadership bid.

- EU said to have proposed easing banking rules by allowing greater cross border fund transfers.

- UK Jun GfK Consumer Confidence: -23 v -23e.

Americas

- US Apr Total Net TIC Flows: $26.1B v $149.4B prior; Long-term TIC Flows: $103.1B v $79.9B prior.

Trade

- China says Australia beef imports hit 100% of its 205K quota in mid-JunTo impose an additional 55% tariff, effective June 20th.

- USTR announced initiation of section 301 investigation on Germany for underpayments on pharmaceutical products.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.08% at 637.64, FTSE +0.01% at 10,400.67, DAX +0.31% at 25,106.82, CAC-40 +0.24% at 8,487.97, IBEX-35 +0.03% at 19,409.41, FTSE MIB +0.79% at 53,102.50, SMI +0.16% at 13,787.70, S&P 500 Futures -0.14%].

Market focal points/key themes: European indices opened mixed but quickly took on a upward bias; Denmark, Finland, Sweden closed for holiday; risk appetite cautious as US-Iran talks stall; outperforming sectors include energy and consumer discretionary; among sectors leading the way lower are technology and materials; tech sector weighed down by ASML over concerns of a chip tool in China; oil & gas subsector supported after Brent rises back above $80; PPHE opposes Fattal’s potential offer; Entain considering sale of its CEE unit; US closed for holidays, no major earnings expected.

Equities

- Consumer discretionary: Hornbach [HBH.DE] +2.0% (earnings), PPHE Hotel Group [PPH.UK] -19.5% (says Fattal's possible £22.00/share cash offer not capable of being delivered in current form).

- Financials: Record [REC.UK] -10.5% (earnings).

- Healthcare: Novo Nordisk [NOVOB.DK] +5.0% (analyst action).

- Technology: ASML [ASML.NL] -2.5% (US Commerce Sec Lutnick concerns China may have ASML's top-chip tool), SÜSS MicroTec [SMHN.DE] +10.5% (hearing analyst target raise).

Speakers

- ECB's Wunsch (Belgium): ECB may cut rates if dynamics turn; if data not going in right decision, would ask for second hike in July. No need to rush if data is ambiguous.

- ECB’s Lane (Ireland, Chief Economist): Inflation to be >3% for rest of the year. Hard to make the case that its should have not hike in Jun.

- Czech PM Babis stated that the rate hike by central bank hurt the economy (**Reminder: On Jun 18th, Czech Central Bank (CNB) raised its 2-week repurchase rate by 25bps to 3.75% (as expected) with its 1st rate hike since Jun 2022).

- BOJ Gov Ueda discharged from hospital; to resume work on Tues (Jun 23rd).

Currencies/fixed income

- EUR/USD moved off recent 3-month lows aided by steady oil prices. Pair at 1.1465 by mid-session and poinsed to close below the pivotal 1.15 support level on a weekly basis.

- GBP/USD tested 1.3160 in Asia after Labour's Andy Burnham won the Makerfield By-Election with 55% of the vote. This set up a path for a leadership challenge against Starmer. Better UK retail sales data helped the pair move back above the 1.3220 level by mid-day.

- USD/JPY staying above the 161 level despite renewed verbal intervention from Japanese officials.

- 10-year German Bund yield last at 2.95%, France 10-year Oat at 3.70% and 10-year Gilt yield at 4.81% 10-year Treasury yield: 4.45% (closed); 10-year JGB: 2.61%.

Economic data

- (DE) Germany May PPI M/M:0.3% v 0.7%e; Y/Y:2.2 % v 2.5%e.

- (UK) May Public Finances (PSNCR): £24.1B v £9.5B prior; Public Sector Net Borrowing: £23.3B v £18.9Be; PSNB (ex-banking groups): £23.3B v £23.0B prior; Central Government NCR: 25.3£B v £15.5B prior.

- (UK) May Retail Sales (ex-auto/fuel) M/M: 1.2% v 0.3%e; Y/Y: 4.6% v 3.1%e.

- (UK) May Retail Sales M/M: 1.2% v 0.5%e; Y/Y: 3.2% v 1.8%e.

- (FR) France Q1 Final Wages Q/Q: 0.7% v 0.7% prelim.

- (ES) Spain Apr Home Sales Y/Y: -1.8% v -2.2% prior.

- (TR) Turkey Jun Real Sector (Manufacturing) Confidence: 102.0 v 101.0 prior; Real Sector Confidence NSA (unadj): 103.5 v 103.3 prior; Capacity Utilization: 74.5% v 74.2% prior.

- (PL) Poland May Sold Industrial Output M/M: -0.8% v -2.2%e; Y/Y: 4.1% v 2.8%e.

- (TH) Thailand May Foreign Reserves w/e Jun 12th: $283.9B v $283.5B prior.

- (RU) Russia Narrow Money Supply w/e Jun 12th (RUB): 21.28T v 21.11T prior.

Fixed income issuance

- (IN) India sold total INR320B vs. INR320B in 2029, 2033, 2055 and 2056 bonds.

Looking ahead

- 05:25 (EU) Daily ECB Liquidity Stats.

- 05:30 (ZA) South Africa to sell combined ZAR1.0B in I/L 2033, 2050 and 2058 Bonds.

- 06:00 (UK) DMO to sell £5.0B in 1-month, 3-month and 6-month bills (£0.5B, £2.0B and £2.5B respectively).

- 06:30 (RU) Russia Central Bank (CBR) Interest Rate Decision: Expected to cut One-Week Auction Rate by 50bps to 14.00%.

- 07:30 (IN) India Forex Reserve w/e Jun 12: No est v $681.6B prior.

- 08:00 (UK) Daily Baltic Dry Bulk Index.

- 08:00 (RU) Russia Central Bank (CBR) Gov post rate decision press conference.

- 08:30 (CA) Canada Apr Retail Sales M/M: 0.6%e v 0.9% prior; Retail Sales (ex-auto) M/M: 0.8%e v 1.4% prior.

- 09:00 (RU) Russia Gold and Forex Reserve w/e Jun 12th: No est v $749.7B prior.

- 09:00 (IN) India announces upcoming bill issuance (held on Wed).