First Light News: Geopolitics and Data Remain Front and Centre

Mixed messaging from Washington, Israel, and Tehran has become the norm, not the exception, unfortunately, and traders have to navigate this.

As you would expect, oil prices and bond yields caught a bid on the back of recent developments, despite President Trump stating that a deal could be on the table within the week. Frankly, we have heard this before, and markets are rightly sceptical. Iran has also pushed back against Trump’s statement, and Israel’s campaign in Lebanon appears far from concluded. Brent and WTI prices are slightly on the back foot this morning, paring a portion of yesterday’s rally and snapping a series of daily losses.

Equities Refresh Record Highs

In the equities space, Monday wrapped up the session positively across the board in the US, with record highs printed for the S&P 500, the Nasdaq and the Dow. Overnight in Asia, dip-buyers emerged at the tail end of the session, leaving regional indices off their worst levels and largely unchanged by the close. The broader rally clearly remains intact, particularly for Japan’s Nikkei 225 and South Korea’s KOSPI.

US Manufacturing PMI Signals Strongest Growth in Years

On the data front, the May US ISM manufacturing PMI report yesterday showed continued sector expansion with a reading of 54, bettering the 53.3 consensus and marking an acceleration from 52.7 in April. The surge points to the fastest factory activity expansion since mid-2022, largely driven by a jump in new orders to 56.8 from 54.1.

The prices paid component surprised to the downside, reporting 82.1 versus 85 expected (down from 84.6), while the employment index increased to 48.6, beating expectations of 47.5 and up from 46.4. Ultimately, the report was mixed, with the USD index upside swiftly faded from the underside of a daily double-bottom pattern neckline at 99.34.

Day Ahead: Eurozone Inflation and US Jobs Data on Deck

Looking ahead to today’s data slate, the May eurozone CPI inflation report will be released at 9 am GMT, followed by the April US JOLTS job openings report at 2 pm GMT.

Eurozone inflation data is expected to rise at the YY headline and core levels to 3.2% (from 3% in April) and 2.4% (from 2.2%), respectively. If the headline comes in as expected, inflation will have nearly doubled since the 1.7% reading in January, largely bolstered by rising energy prices. Investors have assigned a 97% chance that the ECB will increase rates at next week’s meeting. With EUR positioning still modestly overstretched to the downside, a headline (core) print above 3.4% (2.6%) would reaffirm the hike and possibly bring forward another rate increase in July or September, which should be positive for the currency overall.

In terms of the US JOLTS number, analysts expect job openings to have remained largely unchanged at 6.9 million (m) ahead of Friday’s NFP release. However, for today’s report, the estimate range spans from 6.7 m to 7.1 m. Based on the forecast distribution, 7.1 m would likely catch the markets off guard and may prompt investors to increase Fed rate-hike expectations. On the other hand, it may take a number below 6.7 m to generate enough interest for investors to begin paring back Fed-tightening expectations. Ultimately, should we see stronger-than-expected jobs data this week, it could encourage the market to bring forward a potential rate hike this year (with 15 bps of hikes currently priced in by year-end).

Written by FP Markets Chief Market Analyst, Aaron Hill