Oil eases as US and Iran agree 60-day roadmap in Switzerland

In focus today

In the euro area, the flash consumer confidence for June is released. The survey period is likely 1-21 June so the US-Iran deal and subsequent drop in the oil price might not fully be reflected in the data.

In Denmark, focus will be on the June consumer confidence indicator. Like with euro area consumer confidence, the survey period likely only briefly included the US-Iran deal and drop in oil prices. Thus, the impact of the deal on the June data will be limited.

The rest of the week, focus will be on the June flash PMIs released for many of the big economies, with euro area, US and UK PMIs released on Tuesday. We also look out for US PCE inflation on Thursday and ECB's consumer expectations survey on Friday.

Economic and market news

What happened over the weekend

In geopolitics, US Vice President JD Vance and senior Iranian officials concluded a first round of talks in Switzerland early on Monday, agreeing via Qatari and Pakistani mediators on a 60-day roadmap towards a final deal based on last week's memorandum of understanding. The parties settled on a mechanism to end the fighting in Lebanon and opened a communications line to safeguard commercial shipping through the Strait of Hormuz, according to Reuters. Following the joint statement, Brent crude futures declined, trading around 79.4 USD/bbl at the time of writing.

In the UK, Greater Manchester mayor Andy Burnham comfortably won the Makerfield by-election on Friday, securing a seat in parliament and paving the way for a potential leadership challenge to Prime Minister Starmer. Burnham would need the backing of 81 Labour MPs (a fifth of the parliamentary party) to launch a formal contest, and recent polling of party members suggests he would be a strong contender. While Burnham has pledged to adhere to existing fiscal rules, the prospect of renewed leadership turbulence is likely to keep concerns in Gilt markets very much alive.

In China, the People's Bank of China left its key Loan Prime Rates unchanged, keeping the one-year LPR at 3.0% and the five-year LPR at 3.5% for a 13th consecutive month, in line with expectations. The decision reflects caution amid the fallout from the Middle East conflict and associated upward pressure on energy prices, even as domestic growth momentum has softened on weak consumer data and continued falling home prices.

Equities: Equity markets moved lower on Friday, although with the US closed and a few European markets also shut, the price action was primarily driven by Europe. The setback was dominated by renewed concerns around Iran, not least as Vice President Vance did not travel to Switzerland to continue talks with Iran aimed at securing a final peace agreement and an end to the conflict around Iran and the Strait of Hormuz. Oil moved higher, and we saw a broader defensive rotation.

This should be seen in the context of last week's massive rotation in the opposite direction, out of energy and into cyclicals, not least IT stocks. That raises the key question for investors: should one position for the micro-timing of every positive or negative headline around geopolitics, or should the focus remain on the underlying strong economy and the extreme earnings growth in the IT sector?

We lean towards the latter. Looking ahead, will there be more bumps on the road in relation to Iran? Yes, very likely. That is part of Trump's built-in strategy in what he calls The Art of the Deal. The relevant question for investors is therefore whether the focus should be on the end goal, or on trying to micro-time whether markets move up or down on any given day.

This morning, Asian markets are mixed, but Japan, South Korea and Taiwan are all higher. In other words, the three large, tech-heavy Asian equity markets are trading higher this morning. European and US futures are lower.

FI and FX: It was a rather uneventful day in terms of data releases Friday with US and large parts of Scandinavia out. European yields rose across the curve in a bearish steepening of the curve as developments in the Middle East and subsequent expected talks between US-Iran over the weekend were digested alongside the prospect of incoming tightening from the Fed. EUR/USD extended its latest decline during Friday's session breaking firmly below the 1.15 mark. EUR/CHF has continued its climb higher following the dovish tunes on the SNB meeting Thursday while EUR/GBP has tracked higher on political developments in the UK. Friday, we published our latest FX Forecast Update, where we stay positive on USD and negative on SEK, NOK, GBP vis-à-vis EUR.