Records on the board

It was another day of green for major US equity benchmarks on Wednesday, with the S&P 500 refreshing all-time highs of 7,620 and now up an eye-popping 20% since the March lows of 6,316. Market breadth was pretty much an even split, with 258 names ending positive and 244 companies wrapping up in the red. At the sector level, utilities (XLU) led the way, not far behind technology (XLK), while communication services (XLC) took the brunt of the losses.

As we begin the European cash session, equities are set to open modestly lower, with S&P futures also pointing south. I would not read too much into the moderate pullback, though. Beneath the surface, some genuine stories are competing for attention this morning, and the broader AI narrative remains intact.

Hormuz closure keeps oil prices bid

Despite President Trump touting progress and saying Iran is ‘desperate for a deal’, tensions remain high, with several reports indicating that both sides are still militarily engaged.

The key focus for oil prices, of course, is the Strait of Hormuz, which remains closed. Brent and WTI are on track to record a third consecutive day in the green, up 1.9% and 2.4% this morning, respectively.

USD firms as Yen intervention risk builds

In FX, volatility remains notably low across the G10 space. The 1-month implied volatility for USD/JPY has steadily compressed from just under 8.0% to around 6.2%, seemingly under-pricing intervention risk as the pair is now on the doorstep of ¥160. There is a definite fear of intervention risk, and if this should come to fruition, a move lower could be quite something as volatility expands!

The USD index also saw a modest bid again yesterday, with the unit on the verge of completing a daily double-bottom pattern from 97.64.

Eurozone CPI: Hot print pushes markets to fully price in ECB June hike

The May eurozone CPI inflation report landed yesterday and showed the YY headline rising to 3.2% from 3% (largely in line with ECB forecasts), while the so-called super-core print – excluding food, energy, alcohol, and tobacco – also accelerated to 2.5% from 2.2%. As you can see from Eurostat’s graph below, the headline number was heavily influenced by energy costs, which rose by nearly 11%, along with a jump in services inflation to 3.5%.

The combination of a higher jump in the core measure and a rise in service prices has markets fully pricing in a June ECB hike (25 bps), up from 22 bps a week ago. Year-end pricing also implies 65 bps of tightening – that is, nearly three rate hikes.

US JOLTS: Low hire, low fire

The April US JOLTS job openings report also hit the wires yesterday and came in well above expectations, at 7.6 million vacancies – versus the consensus of 6.9 million. The biggest driver was professional and business services (668,000), though finance and insurance fell (135,000). Alongside this, we saw hires fall to 5.1 million, albeit broadly spread across sectors.

Beyond the headline, the report also showed that employers were not cutting either – layoffs were little changed – and employees are sitting tight, with the quit rate broadly unchanged. It is a classic 'low hire, low fire' environment: openings are being posted, but nobody is pulling the trigger, and workers are not risking a job change in an uncertain world.

Australian GDP growth cools and firms up RBA hike bets

Overnight, we had Q1 26 Australian GDP data showing the economy limped into the year, growing a meagre 0.3%, down from 0.8% in Q4 25. On a YY basis, Q1 growth cooled modestly to 2.5% from 2.6%.

This is not pleasant reading for the RBA, which raised rates for the third consecutive meeting in May to 4.35%. Inflation remains elevated, the jobs market is actively loosening, and GDP is cooling, but not enough to signal that inflation is heading back to target. Markets have therefore fully priced in another rate hike by year-end, up from 14 bps of tightening just a day ago.

Today’s calendar: US ADP and ISM services

Looking ahead, the US May ADP non-farm employment report is due at 12:15 pm GMT, closely followed by the May US ISM services PMI report at 2 pm. Both feed directly into Friday's US payrolls and expectations for the Fed's rate path.

A strong ADP print above 135,000 firms Fed rate expectations, and likely bolsters the USD but weighs on equities, while a miss below 100,000 does the opposite.

On the ISM, watch the prices paid and employment sub-components over the headline. A rise in the prices paid index could add to any USD upside – this would be emphasised by a strong employment reading.