Trump hinted at the possibility of striking Iran again at NATO summit

EU mid-market update: Trump hinted at the possibility of striking Iran again at NATO summit; Fed set to cut SLR; FedEx shares trade down after weaker guidance.

Notes/observations

- Ceasefire between Iran and Israel is still ongoing. Both Iran and Israel claiming victory in the 12 day war.

- NATO Summit underway with leaders expected to endorse 5% of GDP on defense spending.

- Pres Trump hinted at the possibility of striking Iran again if it rebuilds its nuclear program, noting inconclusive intelligence on the effectiveness of a previous U.S. strike. CNN. CBS and NYT all reported that Iran's ability to resume enrichment depends on repairing damaged infrastructure, according to a Pentagon assessment based on satellite imagery and intercepted communications.

- FedEx reported accelerating U.S. domestic parcel volumes and doubled customs entries in May, but weak B2B volumes pressured demand, prompting it to guide Q1 below estimates.

- Fed futures currently pricing slightly higher chance for a rate cut by Sept following Powell comments; Fed also set to hold the board meeting today to discuss changes to the so-called "supplementary leverage ratio".

Asia

- Australia May CPI Y/Y: 2.1% v 2.3%e; opens door for July rate cut (approx. 90%).

- Japan May PPI Services Y/Y: 3.3% v 3.1%e.

- South Korea May Retail Sales Y/Y: 7.0% v 7.0% prior.

- New Zealand May Trade Balance (NZD): 1.2B v 1.4B prior.

- BOJ Summary of Opinions noted that some members called for keeping rates steady due to US trade uncertainty, others saw domestic inflation moving higher than expected.

- Japan BOJ Board member Tamura reiterated view that the neutral rate would be ‘at least’ around 1.00%. Did not think upside price risk was so high that we need an imminent rate hike. Did not need to raise policy rate to 1.00% at all cost; desirable level to be data-dependent.

- China Premier Li vowed China would transition from a major manufacturing power to a 'mega' consumer market.

- Chinese President Xi will not attend next week’s BRICS summit in Rio De Janeiro, instead sending Premier Li Qiang.

Global conflict/tensions

- US Envoy Witkoff: US/Israel achieved goals in Iran. Time to sit with Iran and make a comprehensive deal. Most, if not all, of Iran’s centrifuges were destroyed.

- Pentagon intelligence report on Iran nuclear facilities said to have concluded that were not destroyed. The damage probably delayed the nuclear program by a few months.

- Iran Foreign Min stated that its nuclear program continued.

- Iran Pres Pezeshkian noted that govt had arrested ~700 people accused of working with Israel during the 12-day conflict.

Europe

- NATO summit expected to endorse 5% of GDP on defense spending.

Americas

- Fed's Schmid (voter; hawk) noted that the economy's resilience gave us time to observe prices; Fed had time to 'wait and see' what happens before rate cuts.

- Fed's Barr (voter) stated that expected inflation to rise due to tariffs; Second round effects could make tariff inflation persistent. Monetary Policy was well positioned to wait and see amid tariff driven inflation.

Trade

- Mexico Econ Min Ebrard noted that Mexico, US were near deal on Aluminum and Steel tariffs.

Energy

- Weekly API Crude Oil Inventories: -4.3M v -10.1M prior.

Speakers/fixed income/FX/commodities/erratum

Equities

Indices [Stoxx600 -0.04% at 540.74, FTSE +0.13% at 8,770.15, DAX -0.13% at 23,612.90, CAC-40 +0.12% at 7,625.10, IBEX-35 -0.94% at 13,907.23, FTSE MIB +0.20% at 39,555.00, SMI -0.08% at 11,979.06, S&P 500 Futures +0.04%].

Market Focal Points/Key Themes: European indices opened generally higher but faltered in the early part of the session to trade mixed; trade war worries affecting the market as EU warns retaliatory package of tariffs; outperforming sectors include industrials and technology; among underperforming sectors are communication services and consumer discretionary; Tritax Bigbox acquires Warehouse REIT; reportedly Pernod Ricard could sell its Imperial Blue unit to Suntory focus on Fed Chair Powell’s second day of testimony before Congress; earnings expected in the upcoming US session include General Mills, Micron Technology.

Equities

- Consumer discretionary: Deutsche Post DHL [DPW.DE] -1.5% (FedEx outlook), Hornbach Holding [HBH.DE] -0.5% (analyst downgrade), Vertu Motors [VTU.UK] +1.5% (trading update).

- Energy: Orsted [ORSTED.DK[ +1.0% (Republican Senator said US lawmakers were discussing changes to a provision in Trump’s broad spending bill that would abruptly end tax credits for clean energy companies).

- Industrials: Babcock International [BAB.UK] +11.5% (earnings), Rheinmetall [RHM.DE] +2.0% (NATO summit starts to discuss increase in defense spending), Stellantis [STLA.NL] +4.0% (analyst upgrade; BYD said to have cut production at some factories by at least third of capacity), Continental [CON.DE] -1.0% (analyst downgrade).

Speakers

- Sweden Central Bank (Riksbank) Jun Minutes noted of some probability that it may be warranted to cut the rate further. Inflationary forces were weighing in different directions. Weaker growth pointed to a somewhat easier monetary policy. Outlook for Swedish inflation and growth remains difficult to assess and there is a risk that developments will be significantly different from our forecasts.

- Nato Sec Gen Rutte stressed that new spending plan was the most important issue at the upcoming meeting. Countries had to find money for defense; given Russian threat there was no alternative to spending. Wanted to be sure that could bring Ukraine to a durable and pasting peace.

- US Sec of State Rubio noted that Spain's NATO exemption was a big problem. No further US sanctions on Russia yet (*8Reminder: Spain opposed NATO's 5% of GDP spending target and reiterated 2% was right).

- Pres Trump commented at the NATO Summit that the US was with them all the way. Noted that the ceasefire between Iran and Israel was going well. The last thing Iran wants to do was enrich anything. Believethe US would have somewhat of a relationship with Iran. Stressed that Iran would not have a [nuclear] bomb.

- Thailand Central Bank Policy Statement noted that the vote to keep policy steady was not unanimous (6-1). Rate held steady to preserve policy space. Policy should remain accommodative and ready to adjust policy to be in line with economy as needed.

- China Vice Premier He Lifeng vowed to stabilize the property market and expectations. Urged meeting of economic targets despite external impacts.

- Iran Parliament said to approve bill to suspend cooperation with IAEA nuclear watchdog.

Currencies/fixed income

- USD price action was relatively quiet as the Iran/Israel ceasefire held and no major macro releases. EU bond yields moved lower,

- EUR/USD staying above the 1.16 level. Dealers noted that recent USD aversion twas highlighted by the currency's limited gains during the Middle East turmoil despite its safe-haven role and higher oil prices.

- USD/JPY moved higher to test above 145.30 as BOJ hawk Tamura toned down some of his rhetoric.

- Softer Australian CPI data provided more speculation that the next RBA move to cut rates could come as early as July.

- 10-year German Bund yield at 2.54% and 10-year Gilt yield at 4.46%. 10-year Treasury yield: 4.29%.

Economic data

- (EU) Euro Zone May EU27 New Car Registrations: 1.6% v 1.3% prior.

- (FI) Finland May Unemployment Rate: 10.5% v 10.0% prior.

- (JP) Japan May Final Machine Tool Orders Y/Y: 3.4% v 3.4% prelim.

- (NO) Norway May Credit Indicator Growth Y/Y: 4.1% v 4.1% prior.

- (FR) France Jun Consumer Confidence: 88 v 89e.

- (ES) Spain Q1 Final GDP Q/Q: 0.6% v 0.6% prelim; Y/Y: 2.8% v 2.8% prelim.

- (ES) Spain May PPI M/M: -0.7% v -3.2% prior; Y/Y: 0.0% v 1.6% prior.

- (TH) Thailand Central Bank (BoT) left Benchmark Interest Rate unchanged at 1.75% (as expected).

- (CH) Swiss Jun Expectations Survey: -2.1 v -22.0 prior.

- (PL) Poland May Unemployment Rate: 5.0% v 5.0%e.

Fixed income issuance

- (VN) Vietnam Finance Ministry sold total VND13.8T vs. VND17.5T indicated in 5-year and 10-year, 15-year and 30-year bonds.

- (IN) India sold total INR190B vs. INR190B indicated in 3-month, 6-month and 12-month bills.

- (UK) DMO sold £3.25B in 4.375% Jan 2040 Gilts; Avg Yield: 4.850% v 4.917% prior; bid-to-cover: 2.88x v 2.58x prior; Tail: 1.0bps v 0.9bps prior.

- (SE) Sweden sold total SEK6.0B vs. SEK6.0B indicated in 2033 and 2035 bonds.

- (NO) Norway sold total NOK vs. NOK3.0B indicated in 2029 and 2035 Bonds.

- (IT) Italy Debt Agency (Tesoro) sold €3.0B vs. €2.5-3.0B indicated range in 2.10% Aug 2027 BTP Bonds; Avg Yield: 2.12% v 2.01% prior, Bid-to-cover: 1.49x v 1.61x prior.

- (IT) Italy Debt Agency (Tesoro) sold 3.0B vs. €2.5-3.0B indicated range in new 1.10% Aug 2031 I/L Bonds (BTPei); Real Yield: 1.21%; bid-to-cover: 1.46x.

- (GR) Greece Debt Agency (PDMA) sold €600M vs. €500M indicated in 6-month bills; Avg Yield: 1.75% v 1.74% prior; bid-to-cover: 2.12x v 1.91x prior.

Looking ahead

- (US) May Final Building Permits: No est v 1.393M prelim; M/M: No est v -2.0% prelim.

- (CO) Colombia May Retail Confidence: No est v 24.9 prior; Industrial Confidence: No est v -0.3 prior.

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

- 05:30 (PL) Poland to sell Bonds.

- 05:30 (ZA) South Africa announces details of next bond auction (held on Tuesdays).

- 06:00 (RU) Russia to sell OFZ Bonds.

- 07:00 (US) MBA Mortgage Applications w/e Jun 20th: No est v -2.6% prior.

- 07:00 (BR) Brazil Jun FGV Construction Costs M/M: 1.4%e v 0.3% prior.

- 07:00 (UK) Weekly PM Question time in House.

- 07:30 (BR) Brazil May Current Account Balance: -$3.1Be v -$1.3B prior; Foreign Direct Investment (FDI): $4.6Be v $5.5B prior.

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

- 08:30 (CZ) Czech Central Bank ( CNB) Interest Rate Decision: Expected to leave 2-Week Repurchase Rate unchanged at 3.50%.

- 10:00 (US) May New Home Sales: 694Ke v +743K prior.

- 10:30 (US) Weekly DOE Oil Inventories.

- 11:30 (US) Treasury to sell 2-Year FRN Reopening.

- 11:30 (US) Treasury to sell 17-Week Bills.

- 12:00 (RU) Russia May PPI M/M: No est v -1.4% prior; Y/Y: No est v 2.7% prior.

- 12:00 (RU) Russia May Industrial Production Y/Y: 0.4%e v 1.5% prior.

- 12:00 (CA) Canada to sell 10 Year Bonds.

- 13:00 (US) Treasury to sell 5-Year Notes.

- 15:00 (AR) Argentina Q1 Current Account Balance: No est v $1.0B prior.

- 17:00 (KR) South Korea Jun Manufacturing Business Survey: No est v 94.7 prior; Non-Manufacturing Business Survey: No est v 88.1 prior.

- 18:00 (HU) Hungary Jun Business Confidence: No est v -13.8 prior; Consumer Confidence Index: No est v -29.3 prior; Economic Sentiment: No est v -17.8 prior.

- 21:30 (AU) Australia May Job Vacancies Q/Q: No est v -4.5% prior.

- 23:35 (JP) Japan to sell 2-year JGB Bonds.

- 22:00 (NZ) New Zealand to sell combined NZ$450M in 2029, 2035 and 2041 bonds.

- 01:00 (FI) Finland May House Price Index M/M: No est v 1.2% prior; Y/Y: No est v -0.5% prior.

- 01:00 (SG) Singapore May Industrial Production M/M: -2.5%e v +5.3% prior; Y/Y: 2.3%e v 5.9% prior.