US Strikes Iran amid Potential Deal

Global Economic Calendar and Geopolitical Undercurrents

Markets are closely watching Sweden today as April's Producer Price Index (PPI) figures are released. This data, alongside Thursday's NIER survey, will serve as a critical gauge for the Riksbank's evaluation of whether escalating global price pressures are beginning to affect Swedish businesses. Recent months have seen a noticeable uptick in PPIs across the globe, a trend expected to persist in Sweden's upcoming report.

Adding to the day's agenda, the Riksdag Committee on Finance is scheduled to hold its annual open hearing. This session will feature the entire Riksbank executive board discussing the prior year's monetary policy. For those interested in Eastern European markets, the Central Bank of Hungary is widely anticipated to maintain its current interest rate at 6.25% today. Further afield, New Zealand's central bank is also expected to hold its cash rate steady at 2.25%, a sentiment shared by market participants.

The latter half of the week presents a more active economic calendar. Key releases include Norway's first-quarter Gross Domestic Product for 2026, the minutes from the European Central Bank's March meeting, and the crucial US Personal Consumption Expenditures (PCE) price index for April on Thursday. Friday will see the release of May's preliminary inflation data from Spain, Italy, Germany, and France, offering further insights into the economic landscape.

Overnight Developments: Geopolitical Strikes and Shifting Fed Stance

In a significant overnight development, the United States conducted strikes against Iranian missile launch sites and mine-laying vessels in southern Iran. United States Central Command (Centcom) stated the actions were in self-defense, a move that has once again placed considerable pressure on the fragile ceasefire that was established in April. This military action occurred shortly after President Trump had indicated that the two nations were nearing an agreement, having previously remarked that talks were "proceeding nicely." The immediate market reaction saw Brent crude oil climb to approximately $98.1 per barrel, though this figure remains notably below Friday's closing price of $103.5.

Over the weekend, the US saw Kevin Warsh officially sworn in as the new Federal Reserve Chair, commencing his four-year term and succeeding Powell. In parallel, Fed Governor Waller delivered remarks signaling a substantial pivot in the outlook for interest rates. His comments suggested the Fed should abandon its "easing bias" and consider the possibility of a rate hike. Waller's perspectives have historically aligned closely with the broader Federal Reserve consensus, often more so than those of more hawkish members. Consequently, US Treasury yields saw an upward tick following these remarks, and financial markets are now pricing in a full interest rate hike by December, aligning with our own projections.

Hopes for a US-Iran accord gained momentum over the weekend when President Trump announced that the "final aspects and details" were under discussion. The proposed framework appeared to involve a three-stage process: the formal cessation of hostilities, the reopening of the Strait of Hormuz, and the establishment of a 30-day renewable period for comprehensive negotiations covering nuclear issues and sanctions relief. Efforts to finalize these details continued into Monday, with Iran's Foreign Minister Araghchi traveling to Doha for discussions with the Qatari Prime Minister. However, on Tuesday morning, Secretary of State Rubio injected a note of caution, suggesting a deal might "take a few days." He also warned that the Strait of Hormuz would be opened "one way or the other," following the overnight US strikes.

European Economic Signals and Equity Market Movements

Within the Eurozone, the ECB's negotiated wage indicator for the first quarter of 2026 registered slightly below expectations, declining to 2.5% year-over-year from 2.9% in the fourth quarter of 2025. This indicator strongly suggests that wage pressures are easing across the Eurozone economy, a finding corroborated by the ECB's separate wage tracker, which points to a continued moderation in wage growth based on actual contracts for 2026. Such developments are expected to exert disinflationary pressure on services inflation, partially offsetting the upward pressure from higher energy-driven transport service costs. This should support a less aggressive response from the ECB than currently anticipated by market participants.

In Germany, the Ifo business climate indicator for May showed a modest improvement, exceeding expectations after a significant drop in April. This offers a somewhat more positive outlook than Thursday's Purchasing Managers' Index (PMI) suggested. Nevertheless, the indicator remains considerably below pre-conflict levels. Business expectations have been significantly impacted by the geopolitical tensions surrounding Iran, while the current business situation assessment has seen only a marginal decline. This is likely due to companies working through existing order backlogs, which temporarily sustain activity levels.

Equities experienced gains on Monday, trading in thin volumes as many US markets were closed for a holiday. European stocks, however, closed substantially higher, up by 1.1%. The session was characterized by a broad-based risk-on sentiment, with cyclical stocks outperforming defensive ones, small caps beating large caps, and growth shares advancing over value. Peace talks and oil price dynamics were among the catalysts. Furthermore, a reversal in long-term bond yields, which began the previous week, also contributed to the upward momentum. US futures indicated a strong opening, and Asian markets were generally higher, with the Kospi index showing particular strength. This rebound was driven by significant gains in SK Hynix and Samsung, following a brief pause in the semiconductor trade.

Market Ripple Effects

The overnight US strikes on Iranian assets, while framed as defensive, have injected fresh uncertainty into the geopolitical landscape. This development directly impacts energy markets, with Brent crude experiencing an immediate upward price adjustment. The broader implications extend to global risk sentiment, potentially affecting currency pairs like EUR/USD, which has stabilized around 1.1640 despite the energy market's cautious optimism. The Swedish Krona (SEK) saw some support from positive risk sentiment earlier, with EUR/SEK moving towards 10.80, though its gains in risk-on environments have been less pronounced than its losses during risk-off periods. Additionally, the shifting stance from Fed Governor Waller, suggesting a potential move away from an easing bias towards a possible rate hike, has influenced US Treasury yields and is now reflected in market pricing for a December rate increase, impacting global bond markets and potentially strengthening the US Dollar against other major currencies.