Global Macro Commentary: June 8: Mideast Detente Hopes Reemerge

Research evidence excerpt

Global Macro Commentary: June 8: Mideast Detente Hopes Reemerge

UpdateMthe Tokyo trading session, with geopolitical tensions also weighing on

sentiment after renewed conflicts between Iran and Israel. Long-end JGBs,

particularly the 20y sector, came under pressure, while front-end remained

relatively supported amid the risk-off backdrop. Ultimately, JGB curve bear-

steepened in 2s20s curve; 2y JGB sold off by 0.5bp to 1.415%, 10y JGB sold

off by 5.0bp to 2.715%, 20y JGB sold off by 6.5bp to 3.635% on a simple yield

basis. USD/JPY extended its upward momentum into the Tokyo morning

session following Friday's price action. The pair continued to test the upside

as geopolitical tensions remained elevated. Into London hours, the pair

drifted back toward the 160 level, with caution ahead of the upcoming US

CPI release midweek also contributing to the lack of follow-through.

• European rates sold off across core markets as oil rose and the ECB

decision approached (Germany 2y: +1.6bp; 10y: +2.1bp; 30y: +2.2bp).

Bunds pared earlier losses after ceasefire headlines, but yields still ended

higher as markets continued to price a 25bp ECB hike this week. German

factory orders fell 3.8% m/m in April, adding to evidence that the growth

backdrop was weakening as energy costs rose. Gilts also cheapened, led by

the front end after oil touched higher levels intraday (2y: +3.9bp; 10y:

+4.0bp; 30y: +3.7bp).

Emerging Markets

• Most AxJ currencies and rates weakened amid a renewed increase in

Middle East tensions and higher oil prices during the Asia session. KRW

was an outlier, strengthening 2.0% despite a 8.3% decline in KOSPI, aided by

unconfirmed reports of the NPS activating FX hedging and the finance

ministry saying on Sunday that it will increase oversight of offshore currency