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The evolution of the geopolitical situation dampened hopes of an imminent signing of a ceasefire agreement last week.
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 Despite this uncertain context, the market remains convinced of a favorable outcome to diplomatic negotiations.
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In the euro zone, inflation rose to 3.2% in May (vs. 3.0% in April) and producer prices rebounded to 4.9%, reinforcing expectations of a rate increase by the ECB on June 11.
The evolution of the geopolitical situation dampened hopes of an imminent signing of a ceasefire agreement last week. The American demand for a firm commitment from Iran to renounce nuclear weapons, combined with the intensification of the conflict in Lebanon, has reignited tensions and led to new Iranian strikes. A ceasefire agreement has been concluded between Lebanon and Israel, but it remains rejected by Hezbollah.
Despite this uncertain context, the market remains convinced of a favorable outcome to the diplomatic negotiations, as evidenced by the paradox of Donald Trump’s declaration referring to “the middle of the end” of the negotiations to end the war in Iran. The latter also sees domestic pressure intensifying, with a (non-binding) vote by the House of Representatives aimed at reducing its financial and diplomatic margins of maneuver and putting an end to the conflict, supported by a few elected Republican officials.
In the United States, the “price” components of the manufacturing and non-manufacturing ISM remain high, at 82.1 and 71.3 respectively in April. The new customs duties envisaged by the Trump administration, between 10% and 12.5% on 60 countries accused of inadequacy in the fight against forced labor, which should take over from duties expiring at the end of July, are not likely to alleviate these inflationary pressures.
Activity data are improving, with ISM manufacturing and non-manufacturing indices at 54 and 54.5 in May, compared to 52.7 and 53.6 in April, partly supported by precautionary orders linked to political uncertainty. The job market also surprises on the rise, with JOLTS job offers up sharply to 7,618k in April compared to 6,887k in March, and ADP job creations at +122k in May compared to 109k in April. These elements reinforce the probability of a shift in Fed policy in favor of a rate increase by the end of the year.
In the euro zone, overall inflation is progressing in line with expectations, to 3.2% year-on-year in May, compared to 3.0% in April, with Germany going against the tide thanks to government measures (return to 2.6% compared to 2.9%). Producer prices rebounded significantly, to 4.9% in May after 2% in April. The composite PMI economic activity index came out above expectations, at 48.5 versus 47.5. On the other hand, retail sales fell by 0.4% over one month in April. All of these data support expectations of a rate hike by the ECB in June.
As for the Bank of Japan, Kazuo Ueda opened the way to a rate increase from June to respond to inflationary pressures.
In this context, marked by the expectation of a resolution allowing the reopening of the Strait of Hormuz, we maintain a positive exposure to equities in the medium term, while retaining our protections in the event of failure of negotiations. Our positioning on rates and credit remains positive, but vigilant in the face of short-term inflationary risks
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