Oil prices and bond yields continue to move lower

EU mid-market update: Oil prices and bond yields continue to move lower; Iran again confirms its officials coming to Switzerland on Friday.

Notes/observations

- Iran saying they will show up to sign US deal on Friday, Oil prices lower; risk appetite finding some tailwinds; the full MOU text expected soon; Bank of Japan delivered a widely expected 25bps rate hike to 1.00%, citing fast oil-driven cost pass-through and upside inflation risks. SpaceX shares continue their post-IPO surge in extended trading, climbing another ~11% to push the rocket company near a $3T market cap,

- JD Vance again outlined a firm U.S. position on the emerging Iran nuclear agreement, stating that Tehran would receive zero U.S. taxpayer dollars while confirming explicit guarantees for toll-free passage through the Strait of Hormuz, joint destruction of enriched uranium stockpiles with Iranian counterparts, and active negotiations to deploy American inspectors on the ground. President Trump, when asked about the release of the MOU text, said it would come “pretty soon” and “sometime after Friday,” describing it as “a very powerful document” that stands in sharp contrast to the “terrible” Obama-era deal. On the Iranian side, Foreign Minister Araqchi announced a new round of U.S.-Iran talks starting June 19 in Switzerland, with Parliament Speaker Ghalibaf expected to sign an interim agreement, while Deputy Foreign Minister Takht-Ravanchi noted that core issues like enrichment levels, stockpiles, and Iran’s civilian nuclear needs would be handled in the next phase.

- BOJ hiked 25bps to 1.00% (7-1 vote, Asada dissented and voted to hold rated steady) and reiterated gradual further rate increases to respond to strengthening economy, faster business-to-business oil price pass-through, and upside risks to underlying inflation exceeding the 2% target, while stressing financial conditions remain accommodative and will continue supporting activity. The BOJ kept its JGB tapering plan intact — cutting monthly purchases by ¥200B per quarter through March 2027 before stabilizing at ~¥2T/month — and projected holdings declining to ¥350-370T by March 2030, with flexibility to adjust pace at any MPM if needed. Deputy Gov Uchida noted reduced downside economic risks thanks to the US-Iran agreement, energy relief measures, and alternative sourcing, highlighted the wage-price cycle taking hold (base salaries near mid-3%), and said future hike timing and pace will depend on data, Middle East developments, and the need to anchor inflation around 2%.

- RBA kept its cash rate target unchanged at 4.35% in a unanimous decision — the first pause after three hikes this year — to assess the transmission of tighter financial conditions while signaling it stands ready to tighten further if required to bring inflation back to target. Governor Bullock noted that inflation remains too high with ongoing cost pass-through from elevated oil prices into goods, services, and new dwellings, creating persistent upside risks and potential second-round effects that could become embedded in wage- and price-setting; although recent data is tracking expectations and consumer spending is slowing, the labor market remains tight at 4.5% unemployment and growth still needs to moderate more materially. Markets pricing only modest further RBA hikes by year-end.

- China’s explosive open-model AI ecosystem is quietly rewriting the rules of the game - not by chasing a single god-like frontier model, but by flooding the market with abundant, high-quality, low-cost models that make the “best” model optional for the vast middle of real-world work. DeepSeek, Qwen, Kimi, MiniMax, and GLM are already shifting developer adoption and OpenRouter traffic, proving that the true leaderboard is no longer academic benchmarks but actual economics: routing, orchestration, cost-per-task, and false-premise kill rates. A panel of these models can rival or surpass solo frontier giants at half the price, turning the old “send everything to the smartest model” architecture into an expensive relic and elevating the router itself as the new control plane of AI value.

- A Ukrainian drone struck a facility at the Moscow oil refinery owned by Gazpromneft, according to the city’s mayor. The plant is a strategically important domestic fuel asset with annual capacity of roughly 12–13 million tonnes, primarily supplying the Moscow region — which until now had been spared the supply disruptions seen in a dozen other Russian areas. Elsewhere, UK has become the first country to sanction Russian shadow fleet vessels specifically transporting LNG, targeting 27 ships including four LNG tanker.

- A U.S. Air Force B-52 bomber crashed shortly after takeoff Monday at Edwards Air Force Base in California’s Mojave Desert, killing all eight people on board - including uniformed military personnel, government contractors, and two Boeing employees. The aircraft was conducting a routine test mission in support of a radar modernization program when it burst into flames, according to the 412th Test Wing. The cause remains under investigation. Edwards matters because it is the Air Force’s premier flight-test hub, and the B-52 radar upgrade had recently moved into Edwards ground/flight testing after Boeing ferried a modified aircraft there in December 2025.

Asia

- Bank of Japan (BOJ) raised Target Rate by 25bps to 1.00% (as expected) to resume its tightening cycle. Vote to hike was not unanimous (7-1); Asada dissented against the rate hike. Vote for the revised bond plan was 7-1, with Tamura dissenting for steady rates. Statement noted to keep raising rates in response to economy, prices. To pause bond taper from April 2027; To keep monthly pace of JBG buying at around ¥2T.

- RBA left the Cash Rate Target unchanged at 4.35% (as expected) for its 1st pause under the current tightening cycle. Decision to keep policy steady was unanimous. Monetary policy was well placed to respond to developments. Financial conditions were now tighter than they were due to the prior 3 rate hikes. Board was focused on its mandate to deliver price stability and full employment.

- China May New Home Prices M/M: -0.2%t v -0.2% prior; Used Home Prices M/M: -0.3% v -0.2% prior.

- China May Retail Sales Y/Y: -0.6% v -0.2%e; decline driven by a sharp 16.1% collapse in automobile sales and a 15.6% plunge in home appliances.

- China May Industrial Production Y/Y: 4.5% v 4.3%e.

- China May YTD Fixed Urban Assets Y/Y:: -4.1% v -2.3%e.

- China May Surveyed Jobless Rate: 5.1% v 5.2%e.

- China May YTD Property Investment Y/Y: —16.2% v 14.0%e.

- South Korea May Export Price Index M/M: 0.3%t v 7.5% prior; Y/Y: 46.9% v 41.3% prior.

- South Korea May Import Price Index M/M: -0.3% v -2.1% prior; Y/Y: 24.8 v 20.5% prior.

- New Zealand May Food Prices M/M:1.0% v 0.0% prior.

Global conflict/tensions

- MoU text on US-Iran remained under wraps until Friday’s signing.

- VP Vance: The MOU with Iran was a very 'general document and about one and a half pages long.

- Trump administration said to be prepared to allow the establishment of a $300B investment fund for Iran. Vance noted that Iran could have access so long as they honored their end of the obligation.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 +0.54% at 637.78, FTSE +0.61% at 10,494.16, DAX +0.75% at 25,090.00, CAC-40 +0.84% at 8,454.10, IBEX-35 +0.35% at 19,098.03, FTSE MIB +1.22% at 52,466.50, SMI +0.48% at 13,783.40, S&P 500 Futures +0.02%].

Market focal points/key themes: European indices open generally higher and remained upbeat through the early part of the session; risk appetite supported by expected easing of energy costs; among sectors leading the way higher are industrials and communication services; lagging sectors include materials and consumer discretionary; Norwegian Air Shuttle to Acquire Nordic Leisure Travel; German government rejects Unicredit’s offer for Commerzbank share exchange; UK CMA clears ABF’s bid for Hovis; reportedly Jochen Schweizer considering buying back his namesake business from Proseiben; no major earnings expected in the upcoming US session.

Equities

- Consumer discretionary: IG Design Group [IGR.UK] +1.5% (earnings), Warpaint London [W7L.UK] +1.0% (AGM update), Wizz Air [WIZZ.UK] +0.5% (analyst upgrade).

- Financials: Rathbones Group [RAT.UK] -17.0% (undertakes Skilled Person Review after FCA engagement; Sees £60M costs over two years).

- Healthcare: Vivesto [VIVE.SE] +6.5% (trial results).

- Technology: STMicroelectronics [STM.FR] -2.5% (convertible bond offering), Austria Technologie & Systemtechnik [ATS.AT] -6.5% (convertible bond offering).

Speakers

- UK Chancellor Reeves stated that she hoped we could get to next budget without the need to raise taxes.

- RBA Gov Bullock post rate decision press conference stated that did not consider a hike at the Jun meeting Stressed that inflation remained too high. Saw upside risks to inflation and downside risks to growth.
Reiterates overall assessment that economy is recovering moderately.

- BOJ Deputy Gov Shinichi Uchida post rate decision press conference reiterated its overall assessment that the domestic economy had been developing generally in line with BOJ's baseline scenario. Downside risks for economy had lowered but saw risk for price trend to rise above 2%. Real interest rates had been negative mainly in short-, medium-term zone. Financial conditions had been and to remain accommodative. FX could affect underlying inflation and had larger impact on prices than in past; Would conduct monetary policy appropriately to avoid falling behind the curve.

- Iran Foreign Ministry stated that a new round of US-Iran talks to start on Friday, June 19th in Switzerland. Iran Parliament Speaker Ghalibaf to sign interim deal with US. Nuclear issues to be discussed in next phase of talks including enrichment, stockpile and Iran's nuclear needs.

Currencies/fixed income

- USD was steady in quiet trade. Risk appetite finding tailwinds as Iran noting they would show up to sign US deal on Friday. Oil prices lower by over 2% with bond yield softer.

- EUR/USD retesting the 1.16 level as some USD safe-haven flows unwind.

- USD/JPY stayed above the 160 level despite the BOJ rate hike. Dealers noted dovish dissent and absence of any hawkish surprise likely weighed on the yen. The post rate decision press conference did not provide any pushback on FX outlook.

- 10-year German Bund yield last at 2.93%, France 10-year Oat at 3.67% and 10-year Gilt yield at 4.79% 10-year Treasury yield: 4.45%; 10-year JGB: 2.62%.

Economic data

- (ES) Spain Q1 Labour Costs Y/Y: 4.9% v 3.8% prior.

- (CZ) Czech May PPI Industrial M/M: -0.1% v +0.7%e; Y/Y: 1.5% v 2.3%e.

- (IT) Italy May Final CPI M/M: 0.4% v 0.4% prelim; Y/Y: 3.2% v 3.2% prelim.

- (IT) Italy May Final CPI EU Harmonized M/M: 0.3% v 0.4% prelim; Y/Y: 3.2% v 3.3% prelim; CPI Index (ex-tobacco): 102.8 v 102.5 prior.

- (HK) Hong Kong May Unemployment Rate: 3.7% v 3.7%e.

- (DE) Germany Jun ZEW Current Situation Survey: -81.0 v -78.0e; Expectations Survey: +10.5 v -5.5e.

- (EU) Euro Zone Jun ZEW Expectations Survey: +9.5 v -9.1 prior.

- (EU) Euro Zone Q1 Final Labour Costs Y/Y: 3.2% v 3.4% prelim.

- (CA) Canada May Existing Home Sales M/M: 5.5% v 0.7% prior.

Fixed income issuance

(UK) DMO sold £4.25B in 4.875% July 2036 Gilts; Avg Yield: 4.858% v 5.026% prior; bid-to-cover: 3.46x v 3.45x prior; Tail: 0.1bps v 0.3bps prior.

(CH) Switzerland sold CHF444.8M in 3-month Bills; Avg Yield: -0.075% v -0.071% prior; bid-to-cover: 6.82x v 8.48x prior.

Looking ahead

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

- 05:30 (HU) Hungary Debt Agency (AKK) to sell 3-Month Bills.

- 05:30 (DE) Germany to sell €5.0B in 2.50% Apr 2031 BOBL.

- 05:30 (ZA) South Africa to sell combined ZAR2.55B in 2038, 2040 and 2044 bonds.

- 05:30 (EU) ECB allotment in 7-Day Main Refinancing Tender (MRO).

- 05:40 (UK) BOE allotment in 6-month GBP-enhanced liquidity repo operation (ILTR).

- 06:00 (IL) Israel Q1 Preliminary GDP Annualized (2nd reading): No est v -3.3% advance.

- 07:00 (BR) Brazil Jun FGV Inflation IGP-10 M/M: 0.3%e v 0.9% prior; Y/Y: 2.8%e v 1.5% prior.

- 07:00 (RU) Russia announcement on upcoming OFZ bond issuance (held on Wed).

- 07:00 (TR) Turkey to sell Bonds.

- 08:00 (PL) Poland May CPI Core M/M: -0.1%e v +0.9% prior; Y/Y: 3.0%e v 3.0% prior.

- 08:00 (BR) Brazil Apr Retail Sales M/M: -0.6%e v +0.5% prior; Y/Y: 2.0%e v 4.0% prior.

- 08:00 (BR) Brazil Apr Broad Retail Sales M/M: 0.2%e v 0.3% prior; Y/Y: 3.2%e v 6.5% prior.

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

- 08:15 (US) ADP Preliminary Employment Change for 4-weeks ending May 30th: No est v +35.8K prior.

- 08:30 (US) May Import Price Index M/M: 1.0%e v 1.9% prior; Y/Y: 5.7%e v 4.2% prior; Import Price Index (ex-petroleum) M/M: 0.5%e v 0.7% prior.

- 08:30 (US) May Export Price Index M/M: 0.6%e v 3.3% prior; Y/Y: No est v 8.8% prior.

- 08:30 (US) Jun New York Fed Services Business Activity: No est v -5.8 prior.

- 08:30 (US) May Housing Starts: 1.430Me v 1.465M prior; Building Permits: 1.419Me v 1.423M prior; Housing Starts M/M: -1.9%e v -2.8% prior; Building Permits M/M: -0.6%e v +5.8% prior.

- 08:30 (CA) Canada Apr Int'l Securities Transactions (CAD): No est v 4.62B prior.

- 08:55 (US) Weekly Redbook LFL Sales data.

- 09:10 (IE) ECB’s Lane (Ireland, chief economist).

- 11:00 (CO) Colombia Apr Retail Sales Y/Y: 11.0%e v 13.4% prior.

- 11:00 (CO) Colombia Apr Manufacturing Production Y/Y: 3.3%e v 3.9% prior; Industrial Production Y/Y: 2.6%e v 2.4% prior.

- 11:30 (US) Treasury to sell 6-Week Bills.

- 13:00 (US) Treasury to sell 20-Year Bond Reopening.

- 15:05 (NL) ECB's Sleijpen (Netherlands).

- 16:30 (US) Weekly API Crude Oil Inventories.

- 18:00 (CL) Chile Central Bank (BCCh) Interest Rate Decision: Expected to leave Overnight Rate Target unchanged at 4.50%.

- 18:45 (NZ) New Zealand Q1 Current Account Balance (NZD): -1.0Be v -6.0B prior; Current Account GDP Ratio YTD: -3.7%e v -3.7% prior.

- 19:50 (JP) Japan May Trade Balance: -¥547.6Be v +¥299.3B prior (revised from +¥301.9B); Adj Trade Balance: -¥207.0Be v +¥236.4B prior; Exports Y/Y: 16.5%e v 14.8% prior; Imports Y/Y: 12.8%e v 9.8% prior (revised from 9.7%).

- 19:50 (JP) Japan Apr Core Machine Orders M/M: 0.5%e v -9.4% prior; Y/Y: 8.7%e v 5.9% prior.

- 20:30 (AU) Australia May Westpac Leading Index M/M: No est v 0.04% prior.

- 20:30 (SG) Singapore May Non-oil Domestic Exports Y/Y: 30.3%e v 24.5% prior; Electronic Exports Y/Y: No est v 66.7% prior.

- 21:30 (AU) RBA Assist Gov Jones.

- 22:35 (CN) China to sell 5-Year Additional Bonds.

- 22:35 (CN) China to sell 3-month and 6-month bills.

- 23:00 (NZ) New Zealand May Non Resident Bond Holdings: No est v 58.9% prior.

- 23:00 (TH) Thailand to sell THB15B in 2046 Bonds.

- (US) Primary Elections: DC, Oklahoma, Virginia.