Oil lower after Trump says Iran talks will resume

In focus today

In the US, ISM manufacturing index will be released for July. In the euro area, focus will be on the final July manufacturing PMIs, followed by the final services PMIs on Wednesday. Markets will also be eying developments between the US-Iran as negotiations are set to continue over today.

For the remainder of the week the most important releases will be the Swedish inflation prints on Thursday, and the US July Jobs Report out on Friday. We forecast NFP at +70k and unemployment rate steady at 4.2%, near consensus.

Economic and market news

What happened overnight

In the US-Iran war, Trump confirmed on Sunday that negotiations with Iran would resume on Monday after calling off what he described as the "biggest attack since World War II" at the request of Gulf allies. He declined to set a deadline or disclose the location and participants. Oil prices fell sharply on signs of de-escalation, with Brent crude trading just below USD84/bbl this morning after closing around USD90/bbl on Friday.

In China, the private RatingDog manufacturing PMI eased to a four-month low of 50.9 overnight (cons: 51.5, June: 51.7), as output and new orders grew more slowly. New export orders returned to growth for the first time in three months, while employment rose at its fastest pace since August 2023. The soft print adds to Friday's official NBS manufacturing PMI, which unexpectedly slipped into contraction at 49.2 (June: 50.3), reinforcing concerns over slowing growth and weak domestic demand.

What happened over the weekend

In commodities, OPEC+ approved an oil production quota increase of around 188,000 barrels per day from September, completing the rollback of a 1.65 million barrels per day cut from 2023. Despite successive monthly hikes over most of the year, market impact has been limited due to export disruptions caused by the Iran and Ukraine wars.

In the euro area, inflation came in slightly higher in July, consistent with consensus expectations. Headline inflation increased to 2.9% y/y (cons: 2.9%, prior: 2.8%), while core inflation rose to 2.5% y/y (cons: 2.4%, prior: 2.4%). The upside surprise in core seems to have been driven in part by accommodation prices in France, which should prove temporary. Moreover, the low s.a. m/m inflation print in May and June mechanically makes the July reading somewhat stronger. Coupled with selling price expectations having declined to below their March level, it remains hard to trace any contagion effects on broader price pressures.

In the US, the Q2 Employment Cost Index for wages and salaries grew slightly more than expected (0.9% q/q, cons: 0.8%), though the reading had little impact on markets. This was also the case for comments from the three hawkish dissenters at last week's FOMC meeting (Logan, Hammack and Kashkari), who all underscored the risk of a persistent inflation overshoot if policy is not tightened further. Over the weekend, non-voter Barkin described the decision to hike as a "close call", while Chair Warsh is reportedly planning to propose reducing the annual number of FOMC meetings from eight to four.

In Norway, the July NAV labour market report revealed net unemployment rising to 2.1% s.a., matching Norges Bank's June forecast. The release underpins continued labour market loosening, with gross unemployment rising modestly since February and new vacancies ticking lower, suggesting somewhat lower labour demand.

In Japan, policy rates were left unchanged at 1.00%, as widely expected with an 8-1 vote. The Bank of Japan (BoJ) highlighted its intention to "continue to raise the policy interest rate and adjust the degree of monetary accommodation". The new outlook report is broadly unchanged. The BoJ flagged the Middle East, the yen and global AI-related demand as key risks, while seeing overall growth risks as balanced. Compared to the recent outlook in April, the board continues to see the risk to inflation clearly on the upside in the short term. We pencil in the next rate hike from the BoJ in Q4 followed by another one in Q2 2027.'

USD/JPY extended its sharp decline on Friday after Japan and the US Treasury jointly intervened to support the yen, as confirmed by Japan's Ministry of Finance on Monday. The move marked the first co-ordinated yen-support intervention in nearly 30 years, with officials signalling readiness to act again if needed.

In China, July official NBS PMIs were broadly weaker than expected. Manufacturing fell to 49.2 (prior: 50.3), while non-manufacturing dropped to 49.0 (prior: 50.2). Concerningly, both indices were dragged lower by demand-indicators. Alongside weak Q2 GDP and cooling credit growth, the leading data supports the case for further stimulus. Last week's Politburo meeting did however not signal a new policy "bazooka", instead pointing to continued targeted support, as expected. If anything, planned fiscal stimulus could be accelerated to support growth back to target during H2.

Equities: Equity indices have been broadly unchanged over the summer, but beneath the surface the rotations have been substantial. Higher oil prices naturally supported energy stocks, but equally important has been another significant rotation within the technology sector.

Unlike earlier this year, software has materially outperformed while semiconductors have lagged. This has not reflected disappointing earnings. Instead, investor attention has again centred around the uncertainty surrounding the longer-term AI capital expenditure cycle.

Regional equity performance has mirrored these sector dynamics. Emerging Markets have underperformed while Norway has benefited from higher energy prices. Interestingly, both Europe and Sweden have delivered relative outperformance throughout the geopolitical escalation, a notable contrast to previous episodes earlier this year.

This morning sentiment is improving once again as lower oil prices support risk appetite. South Korea is the notable exception with equities down around 6%, while both US and European futures indicate another opening close to fresh all-time highs. 

FI and FX: US President Trump said talks on a deal with Iran would continue today and Brent Crude declined below USD 84/bbl. Broad USD weakness continued at the end of last week, with the DXY index hitting its lowest level since mid-June. Yield curves steepened and EUR/USD traded above 1.15 as uncertainty rises about the FOMC's policy direction. Overnight, USD/JPY declined below 157 following remarks by Japan's currency chief Mimura that further joint intervention remains firmly on the table and will continue without hesitation if required. In Scandies, the combination of a weaker USD and still a higher than 50% likelihood of a Norges Bank hike in August could extend the tactical rally in NOK FX from July. Last week brought several encouraging indicators from the economy in Sweden, supporting our view of decent activity and GDP growth above 2% in 2026. This week's data focus will be on the US July Jobs Report on Friday, we forecast NFP at +70k and unemployment rate steady at 4.2%, near consensus.