Market Pulse

研报英文原文证据摘录

Market Pulse

It is of course, hard to discern a trend or narrative in the conflicting news items. But the action since Sunday does reveal what

'peace' would look like for markets - crude oil prices would fall sharply, equities would rally, and global yields would decline

as the threat of sustained global inflation receded. The USD's value in FX markets would decline too, as the US would lose

its terms of trade advantage (from higher crude oil prices) and the Fed might turn back toward fulfilling Kevin Warsh's "dovish"

inclinations more readily, without opposition from the "hawks" on the FOMC.

But even with a drop in oil prices coming on a peace deal, it is unlikely that the ECB will be swayed away from a policy rate

hike in June. Although EUR OIS yields have (since the weekend) moved away from projecting three rate hikes in 2026 and now

project a bit more than two hikes, that also merely attests to how weak Europe's activity data has been, of late, evidenced in

the preliminary May PMIs - see Figure below. European inflation, on the other hand has risen, judging by the preliminary batch

of national-level CPI inflation data for May, and so the eurozone-wide HICP (CPI) print next week should be high too. Seeing the

trend of higher inflation, ECB Executive Board member Isabel Schnabel said today that she thinks an ECB rate hike in June will

be needed even if the US-Iran War ended today, as Euro area inflation is likely to persist on the back of the damage already

done to energy infrastructure in the Persian Gulf. For this reason, it becomes easier to bet on a further rise in EUR/USD if

US-Iran negotiations are seen in the next few days to converge toward peace. We remain of the view that the USD will

stay strong if peace is not achieved.