Market Report.
🗞️ Al Arabiya has exclusively published the final draft of the Iran-US agreement.
✍️ The preliminary framework extends the ceasefire for 60 days, with the option to renew or change it by mutual agreement. There is a 30-day period to restore freedom of navigation in the Strait of Hormuz and lift maritime restrictions. Iran can resume oil sales and exports based on interim understandings. Ongoing negotiations about the Iranian nuclear program will take place during this period. The U.S. will ease restrictions on Iranian ports and grant sanctions waivers for oil exports. Some frozen Iranian assets will be released in the first phase, with discussions on the financial mechanism for future releases continuing later.
⚖️ These are the conditions Iran was demanding. As you can see, there is a complete absence of the conditions the US was demanding. Iran will not give up its nuclear fuel or its missile programme. That is why Israel is categorically opposed to this agreement.
💥 On the same day Trump touted diplomatic progress, Netanyahu announced intensified strikes against Hezbollah, declaring Israel at war with the group and ordering heavier bombing. Israel insisted on its right to act independently, viewing any deal leaving Hezbollah intact as legitimizing Iranian influence.
⚠️ As we mentioned in previous reports, the conflict seems to end because the US miscalculated the operation. There are clear indications that the war cannot continue due to lack of ammunition. Bunker-buster shortages forced the Pentagon to seal tunnel entrances rather than destroy them; Iran quickly dug many out. On the other hand, the defense systems employed were highly costly and have revealed an economically asymmetric war, with $3,000 drones against $3 million defensive missiles.
🏛️ U.S. Domestic Political Pressure: Trump’s approval fell to 34 percent with critical voting blocs eroding. The Senate advanced a War Powers Resolution to end unauthorized hostilities, the first such procedural success. The administration reduced troop levels in Europe. The IRS settled Trump’s long-running tax disputes for 250 to 300 million dollars.
🗣️ Former Trump National Security Adviser John Bolton stated that Iran is taking advantage of Trump’s desperation to make a deal. Senior Republican figures like Ted Cruz, Roger Wicker, and Lindsey Graham have attacked the emerging deal. They argue that allowing Iran to retain regional capacity, financial access, and nuclear margin is a disastrous error, and that a temporary ceasefire would render the military campaign meaningless.
🔥 There is a war within the U.S. Republican Party, pitting the MAGA isolationist base against the pro-Israel interventionist establishment. This internal conflict has become public due to the pressure surrounding the preliminary U.S.-Iran agreement to end the war.
⚔️ The division would also be within Trump’s own team, personalized in the rivalry between Secretary of State Marco Rubio and Vice President J.D. Vance. Rubio is aligned with the pro-Israel, interventionist wing, while Vance remains tied to the anti-war MAGA base and the tech donors of Silicon Valley, putting them on opposite sides of the internal party fracture.
✅ The most viable exit strategy for Trump would be a congressional vote opposing the war’s continuation. Such a move would hand Trump the political cover needed to withdraw U.S. troops from the Middle East.
⛽ Since the conflict started, Global inventories drew down by hundreds of millions of barrels, with warnings that stocks could hit critically low levels by July or August, risking extreme price spikes.
📉 The price of the conflict: Inflation, Bonds, and Central Banks.
📊 US CPI hit 3.8 percent and PPI jumped 6 percent. Japan’s new core inflation gauge rose to 2.8 percent. A global bond rout sent the US 30-year yield to 5.20 percent, the highest since 2007, and Japan’s 10-year yield to 2.80 percent. Markets shifted to pricing Fed rate hikes. New Fed Chair Kevin Warsh pledged a regime change to shrink the balance sheet. The Bank of Japan faced an 80 percent chance of a June rate hike.
🏠 The 30-year fixed mortgage rate averaged 6.51 percent last week, a nine-month high, compared to 5.98 percent at the end of February when the war began. Mortgage rates are tracking the 10-year Treasury yield, which is near a one-and-a-half-year high.
New inflation data from Japan:
🔍 Japan’s service-sector inflation, measured by the services producer price index, rose 3.0 percent in April compared to a year earlier. This index tracks the prices companies charge each other for services.
📈 The reading follows a revised 3.3 percent gain in March, showing that price pressures in services remain elevated. The central bank has stressed that it needs to see inflation durably hit its 2 percent target, driven by rising wages and services prices rather than just higher raw material costs, before proceeding with further interest rate hikes.
📈 Consumer inflation has exceeded the 2 percent target for nearly four years. The BOJ ended its decade-long massive stimulus program in 2024 and raised short-term interest rates to 0.75 percent in December.
Europe is suffering the pain of Iran’s war.
🏦 The ECB is committed to doing what is necessary to bring inflation back to its 2 percent target over the medium term. Bank of France Governor Francois Villeroy de Galhau, a member of the ECB Governing Council, told CNBC that markets can be assured of this commitment.
📈 Eurozone inflation fell below the ECB’s 2 percent target to 1.9 percent just before the Iran war began in late February. It then jumped to 3 percent in April, up from 2.6 percent in March, driven by the surge in energy prices following the effective closure of the Strait of Hormuz.
⛽ Europe is particularly vulnerable to energy shocks as a major net energy importer. Gasoline, diesel and jet fuel prices have surged, prompting government intervention in some countries and warnings of possible flight cancellations over the summer.
⚖️ The ECB kept its key interest rate steady at 2 percent last month because officials lacked sufficient data on the risk of second-round inflation effects. The governor stressed that the central bank will act as much as necessary.
📅 Markets are overwhelmingly pricing in a rate hike at the ECB’s June meeting, with most traders expecting a rise of at least 50 basis points by the end of the year.
Iran’s war has had less impact on the Chinese economy.
🤝 President Trump’s earlier visit to China delivered only modest commercial commitments and an agreement to build a constructive relationship, leaving firms exposed to persistent domestic headwinds and global uncertainty.
🏭 China’s industrial profits in April jumped 24.7 percent from a year earlier, the fastest growth since November 2023. For the January to April period, profits rose 18.2 percent, accelerating from the 15.5 percent gain recorded in the first quarter.
⚖️ The recovery remains highly uneven. Export strength, fueled by a global surge in AI investment and front-loaded buying due to Iran war cost fears, is a rare bright spot, but most other indicators have undershot expectations.
🧾 A stark profit divergence exists between sectors. Upstream industries, especially non-ferrous metals like aluminium, copper, gold, and lithium, saw profits soar 117.8 percent in the first four months, driven by AI and emerging industry demand. Downstream sectors, however, face severe profit pressure from rising upstream costs and cutthroat competition described as involution.
🚗 The auto sector exemplifies the domestic weakness. BYD, China’s top electric vehicle maker, saw its first-quarter profit fall 55.4 percent, its steepest drop since 2020, despite record overseas sales as a share of total sales. Leapmotor posted its strongest first quarter in revenue but saw its net loss widen.
Europe is shifting towards China.
🏢 European companies are keeping or expanding their manufacturing supply chains in China despite political calls for de-risking. A survey by the European Union Chamber of Commerce in China found that 68 percent of responding firms are either staying or expanding operations, while only 7 percent are moving sourcing out of the country.
🤖 Rapidly increasing automation is making labor costs almost irrelevant. A consulting firm noted that the jump in automation levels in just two years is staggering, with factories now running almost entirely on robots, allowing around-the-clock production.
🏭🤖 Chinese electric vehicle maker Nio, for example, operates a factory with 941 robots that work fully autonomously across multiple vehicle models with no workers on the production floor. Lower industrial energy prices, raw material costs, quarterly supplier price negotiations, and selective state subsidies all help Chinese-made products reach global markets earlier and at far lower cost.
✅ About three quarters of EU companies said their production facilities in China were more efficient than their operations elsewhere.
Market View.
📈 Markets hit new highs on the announcement of a deal between the US and Iran that neither side appears to believe. Mini S&P 500 futures have surpassed 7,540 points, having set fresh all-time highs on Monday; Nasdaq 100 futures have reached new records above 30,000 points and are currently trading at 30,085 points.
💱 Meanwhile, the US Dollar Index (DXY) remains range-bound between 99.40 and 98.95 points, causing confusion among the other pairs. EUR/USD recovers a bullish tone, edging towards the 1.1650 area.
🇪🇺 In Europe, DAX 40 futures are holding above 25,300 points, whilst Euro Stoxx 50 futures are trading around 6,085 points after having reached more than 6,150 points on Monday.
🛢️ Crude oil saw some upward movement during yesterday’s session but has cooled again and is trading at $95 per barrel for spot Brent.
🪙 Gold futures have fallen once more from Monday’s levels, losing the $4,500 per ounce support and currently trading at $4,480.
₿ Bitcoin remains weak and is currently trading at $75,685.
