Hey June, don’t let me down. Apologies the Beatles

A couple of interesting facts were pointed out to me: firstly, since the Iran conflict started, after the initial shock to the S&P 500, the index has made new highs; strip out the US, and the MSCI World Index has broken even. Demand for Chips and all things AI-related has contributed much to this outperformance of the US, but investor surveys continue to point to a return of confidence that the war will not cause lasting damage to the global economy.

This week, ahead of the Central Bank meetings the following week, we get the monthly PMI reports from S&P Global. The Flash PMIs for May indicated widening global economic disparity. In a nutshell, a bit like the stock market, the US economy is resilient, but the Eurozone and the UK are less so. All are facing rising input costs and selling prices, driven by geopolitical tensions. I imagine most of the indications from the flash PMIs will be confirmed in the full reports that come out this week. We do get the monthly inflation data for the eurozone tomorrow, and year-on-year inflation is set to climb to 3.3%. It’s going to be a tough one for the ECB: raise rates and risk a policy mistake, or leave rates where they are in the hope that the closure of the Straits of Hormuz is resolved and oil prices settle back. Their decision may ultimately rest on the current state of negotiations between Trump and Iran.

What may well influence the Fed next week will be the raft of employment data we get at the end of this week. Consensus is for a modest drop in non-farm payrolls from the previous month, with some economists also forecasting a modest rise in the unemployment rate.  Whatever happens, I cannot see anything but no change to US interest rates. But it is noteworthy that the 2-year US Treasury yield has risen over the past month, now back to 4%. The 2-year is the most sensitive to changes in interest-rate sentiment.

After Bodycote’s approach last week from Apllo, this morning Castlelake are apparently interested in wining and dining Easyjet, to see if a marriage can be arranged. UK mid-cap companies continue to trade at attractive valuations compared to their equivalents in other regions. Don’t rule out more arranged marriages.

As we all wait to see if an agreement can be reached to open the Strait, stock markets are in something of a holding pattern this morning. Crude oil remains just around $90 a barrel, and stock futures indicate an unchanged start to the month from Friday night’s close. June is historically a fairly uneventful month for stock markets, with markets eking out small gains on average. We shall see what this June provides; uneventful is not a word that immediately comes to mind.