Central bank decisions and US jobs report take the spotlight this week

In focus today In the euro area, two notable surveys, the ECB's SPF and SMA, will provide insights into analyst expectations for ECB policy rates and the region's economic outlook . The SPF also features special questions about the war in Iran regarding the expected duration of the war, duration of disruptions, and the economic impact. Additionally, the May Sentix investor sentiment indicator and final manufacturing PMI for April will be released. Danmarks Nationalbank is set to publish its April FX reserve report, shedding light on whether there was any currency intervention as EUR/DKK reached a historic high of 7.4735. In Sweden, the manufacturing PMI has remained robust, rising further to 56.3 in March. While the overall level will continue to attract attention today, significant focus will be on the subcomponent tracking raw material and input prices, which saw a sharp surge of 9.6 index points last month. In the US, Fed's Williams is scheduled to speak this afternoon. Overnight, we expect the Reserve Bank of Australia to hike rates by 25bp. Market pricing suggests an 80% likelihood for the hike, though the decision remains uncertain. Key labour market reports will dominate the US economic calendar this week, culminating in Friday's jobs report. On Thursday, we expect Norges Bank to hike policy rates by 25 bp, while the Riksbank is expected to leave its policy rate unchanged. What happened over the weekend In US-Iran conflict, Donald Trump announced "Project Freedom," a plan to guide ships through the Strait of Hormuz from Monday, though Iran strongly criticised the move as a violation of the ceasefire. Iranian officials dismissed US claims of positive discussions. Energy markets remain heavily impacted, with US gas prices rising to an average of USD 4.45 per gallon on Sunday, a nearly 50% increase since the conflict began, according to AAA data. Meanwhile, Israeli evacuation orders in southern Lebanon underscored growing regional instability. Despite a temporary pause in US-Israeli bombing, the conflict continues to disrupt energy markets, fuelling inflation risks. What happened Friday In the US, the April ISM manufacturing index held steady at 52.7 in April, marking the fourth consecutive month of expansion. However, underlying trends reveal vulnerabilities, with employment contracting and supply chain challenges persisting, including slowing deliveries and low inventories. Prices surged to its highest since 2022, driven by metals, tariffs, and energy costs linked to Middle East tensions, raising inflationary concerns. Equities : Most equity markets finished higher on Friday across the relatively few markets that were open, again led by tech and growth. One of the most notable developments last week, however, was that we are starting to see the good old negative correlation between equities and bonds returning. There is no doubt that Iran, and of course the higher oil price, has been a major factor, but the very strong earnings season has also had an impact. As a result, last week ended with both higher equities and higher yields. Yes, there is still potential downside risk from Iran and the conflict in the Middle East, but there is also potential upside risk in equities from the strong earnings momentum. The strong earnings backdrop also means that even though equity markets are up around 6-7% year-to-date, not that many of the negative equity voices can point to valuation as the key argument, because returns primarily have been driven by positive earnings growth. On Friday, tech lifted not only hardware, but also software, and we are increasingly seeing the largest part of the HALO trade is now behind us, also given the valuation differentiation we now have within the tech space. When talking about technology, look at Asia this morning. Asian markets are higher, driven by tech. If in doubt, look at South Korea and Taiwan this morning. We will not mention the numbers here, check your own monitors if you are in doubt about the tech run we are currently in. European futures are in a small catch-up move this morning, while US futures are close to flat, with support still coming from the tech side. FI and FX: The focus remains on the war between Iran and US and the closure of the Strait of Hormuz. The continued uncertainty surrounding the war and the rise in the oil price is putting pressure on global bond yields and interest rates. Last week, the 2Y Treasury rose 10bp despite a small setback. 10Y US Treasury yields rose 7bp. In Europe, 2Y and 10Y German government bond yields rose 10bp and 4bp, respectively. We are pricing less than 1 cut in the US and 3 hikes by ECB in 2026. In the currency market, EURUSD has been trading above the 1.17-level, while it looks like there was intervention in JPY last week, which suddenly strengthened the JPY versus the USD and moved the cross towards 156, but there has been no official confirmation. This morning EURUSD is trading above 1.17 and USDJPY dipped shortly below 156.