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- Crowded short positions reportedly exacerbated yesterday's US equity rally
- US investment grade credit remains resilient while high yield appetite fades
- Euro area composite PMIs disappoint
- Japan's initial shunto outcomes signal sustained wage momentum
- China’s stock market rebounds but underlying market breadth remains weak
- South African Reserve Bank expected to keep rates on hold amid upside inflation risks
Markets Tense on Reports of More Strikes in The Middle East
European bourses traded sideways as investors struggled for direction and US equity futures signaled a negative opening following reports that Iran launched missiles and drone attacks at Israel and Gulf states overnight. Yesterday, US equity markets rebounded, and oil dropped as the US President announced a 5-day reprieve on US strikes against Iranian energy infrastructure, citing renewed talks aimed at brokering a ceasefire. This morning, however, markets were on alert, with the VIX index and crude oil prices rising. Advanced economy sovereign yields rose modestly, partially retracing yesterday’s rally. In the euro-area, short-end yields increased with yield curves resuming their flattening trend since the conflict started. Although euro-area inflation breakevens traded lower this morning, talk about stagflation risks reignited, following disappointing euro area PMIs and comments by ECB Governing Council member Vujcic, who will become ECB Vice President in June, that the ECB must be vigilant about stagflation risks. Overall, market sentiment remains very fragile, with investors waiting for some confirmation of talks between Iran and the US for clarity.
