US-Iran deal paves way to reopen Hormuz – BoJ hikes to 1.0%

In focus today

The US-Iran deal is in the spotlight after a series of overnight updates. The agreement has been virtually signed, ending the US naval blockade of Iranian ports, reopening the Strait of Hormuz and launching 60 days of nuclear talks. Trump said ships are already moving and Hormuz will be fully open by Friday, though mine clearance will take time. Passage is expected to be toll-free for at least 60 days, with Iran and Oman to manage the strait thereafter. Details remain unclear, and Israel's leadership and Hezbollah's ongoing attacks underscore persistent regional tensions.

In Sweden the NIER releases its economic forecast, providing an update on consumer and business sentiment and, crucially, new information on price plans, which are highly important for the Riksbank.

In Germany, the ZEW survey is released which will give a first assessment of sentiment in June. Though it remains at low historical levels the May survey was slightly better than expected, as expectations improved.

Economic and market news

What happened overnight

In Japan, the Bank of Japan (BoJ) raised its policy rate by 25bp to 1.0%, the highest since 1995. The vote split was 7-1, with Governor Ueda absent due to hospitalisation. BoJ signalled further rate hikes and outlined a gradual reduction in JGB purchases, effectively pausing QT from 2027. Market reaction was modest, leaving USD/JPY just above 160 and keeping intervention risk alive ahead of tomorrow's FOMC, with Deputy Governor Uchida now in focus. 

China's latest monthly releases underscored a deepening two‑speed economy. Retail sales fell from 0.2% y/y in April to -0.6% y/y in May, while property investment slumped further and new home prices continued to decline, albeit sales appear to be stabilising. In contrast, industrial production accelerated to 4.5% y/y from 4.1% y/y. The figures argue for more consumer stimulus, but Beijing may refrain as external demand and technology underpin growth and deflationary pressures have eased.

In Australia, the RBA left its policy rate unchanged at 4.35%, in line with market expectations. This follows a 25bp hike in May, the third increase in 2026, as the RBA responds to persistent inflationary pressures. Higher energy prices linked to the Middle East conflict and broader capacity pressures are key drivers. The unemployment rate rose in April, although other labour market indicators remain relatively resilient, while growth in consumer spending is slowing.

What happened yesterday

ECB speeches: Lagarde described the US-Iran ceasefire as "good news" if confirmed, potentially easing energy tensions, but warned that key issues remained unresolved. Nagel saw no near-term relief for euro area inflation, noting that oil supply normalisation would take months and keeping all rate options open. Kazimir stressed that oil damage could not be reversed quickly and signalled that further monetary tightening was likely.

In Sweden, unemployment measured by the LFS rose to 8.8% in May from 8.5% in April. The LFS has become increasingly volatile, and Statistics Sweden has noted that non-response composition may have led to overestimated unemployment (March) and underestimated employment (March and April). By contrast, the Public Employment Service's less volatile statistics have shown unchanged unemployment for five consecutive months.

Equities: Who would have imagined European equities underperforming the day of the Iran peace headlines? However, that is just what happened yesterday. European equities started strong only to grind lower through the session. At the closing bell, Stoxx 600 was only a meagre 0.2% higher. Rate sensitive sectors and styles outright underperformed; banks beat real estate, large caps beat small caps, and so on. In other words, this was not the textbook reversal, where the companies that had underperformed the most due to high energy prices or rates, rebounded. The sector preference was not more selective than a cyclical outperformance funded by defensives, which comes down to the surprisingly small reaction in bond markets.

The limited reaction in European equities stands out even more in contrast to the much stronger move in US markets. There, equities ended sharply higher with S&P 500 up a full 1.7%, admittedly helped by a rebound in tech, but also general cyclicals like consumer discretionary, materials and industrials were ~1% higher. Memory and semis rallied, with Micron, AMD and LAM up ~10% in a single session.

FI and FX: The BoJ hiked by 25bp to 1.00% as expected, the highest policy rate level since 1995, and signaled further hikes ahead. USD/JPY showed very little reaction and trades continuously above the 160 threshold, as the hike was widely anticipated. Brent oil prices are hovering at roughly unchanged levels compared to yesterday with the front Brent oil future at USD 83/bbl. Rate levels in Europe stabilized yesterday at lower levels after the initial rally while US treasury yields rates start to lift again this morning with the 10y rate trading back at levels from Friday close. China published a batch of data this morning showing a concerning picture of weakening consumer demand. Trump and JD Vance have signed an electronic copy of the MOU, with very little details known about the content.