[MARKET ANALYSIS] Markets are optimistic as a US-Iran deal seemingly inches closer; volumes are anaemic amid market holidays in UK and US

MACRO

Europe headed into the open near the peak optimism seen during APAC hours as geopolitics continues to drive macro price action with constructive US-Iran updates over the weekend. In short, US President Trump said a deal was largely negotiated and the Strait of Hormuz would reopen, but later said the blockade will remain until an agreement is finalised, certified and signed. Reports suggest 95% of a 60-day ceasefire extension is agreed, though drafting remains and Khamenei approval may take 5-6 days. US officials also said the blockade will only be lifted once Iran opens the Strait, with no funds released until enriched uranium is handed over.
The optimism waned slightly this morning, albeit remains largely intact. In an Iranian Foreign Ministry press conference, the spokesperson suggested a framework has been reached, with progress on many topics, but an agreement is not imminent. Further, the spokesperson said a potential MoU contains no specific details on managing the Strait of Hormuz, which Iran says belongs to coastal countries. Iran will not impose tolls there, though it says paid services should not be described as tolls.
Note: liquidity conditions are expected to be thin on Monday, due to holiday closures in the US, UK, and parts of Europe.

COMMODITIES

Brent futures opened at USD 100.73/bbl (vs Friday’s 103.54/bbl close) before relinquishing the USD 100/bbl handle to a current low of 97.10/bbl before clambering off worst levels. WTI similarly slipped under 95/bbl to currently trade towards the bottom of a USD 90.32-93.90/bbl range. Dutch TTF trades softer by almost 5% and on either side of the EUR 46/MWh mark Following the aforementioned commentary from the Iranian FM spokesperson, where modest but short-live upside were seen in crude futures. Spot gold is buoyed by the softer USD but off best levels, currently towards the middle of a narrow USD 4,520-4,580/oz range at the time of writing. Spot silver hit a high of USD 78.82/oz before stabilising just under USD 78/oz (vs low USD 76.42/oz). CME copper is on a firmer footing, in fitting with the broader softer USD and market optimism. As a reminder, LME is closed today amid the UK Bank Holiday.

EQUITIES

European equities (Euro Stoxx 50 +1.1%) surged at the open following a similar lead from APAC, which saw Nikkei close at a record high, whilst Hang Seng was closed amid a domestic holiday. Sectors are mostly positive (ex-Energy) with the overall configuration a pro-cyclical one, with Autos, Travel & Leisure, Construction all at the top of the bunch, whilst Telecoms, Healthcare, Food Beverages & Tobacco post the shallowest losses, and Energy sits in the red. In terms of the European breakdown, the IBEX 35 (+1.6%) and CAC 40 (+1.2%) lead as they are heavily constructed by cyclical names whilst FTSE 100 is closed amid the UK bank holiday. Single-stock stories have been light: Delivery Hero (+9.9%), Uber considering higher takeover offer; Nexi (+4.5%), Italy's CDP approves increase in stake. Elsewhere of note for chip names, USTR Greer said the Trump administration is still considering tariffs on imported semiconductors to support US chip manufacturing, though there are no immediate plans for levies “tomorrow or next week”. US equity futures gain; however, the cash market will be closed due to the US Memorial Day holiday.

FX shows a clear risk-on bias after the US and Iran signalled diplomatic progress over the weekend. USD is the clear underperformer amid the energy related moves, with DXY -0.2%, high-beta SEK, Aussie and Kiwi the best performers while Sterling sees reprieve from energy prices with domestic participants away on Bank Holiday. DXY closed at 99.32 on Friday before opening at 99.12 overnight and then dipping to a 98.95 low before stabilising around 99.00. CAD is among the G10 laggards as softer oil weights on the Loonie.

FIXED INCOME

Fixed income is firm amid hopes of a US-Iran deal. Money markets now price the ECB December deposit rate at 2.57% by year-end, down from 2.65%, while the current rate is 2.00%. The probability of a hike next month fell to 70% from 80%. Germany’s 2-year yield dropped 6.5bps to 2.575%, the lowest since May 8, vs an end-March high of 2.771%, the highest since July 2024. 10yr Bund futures trade higher by 75 ticks at the time of writing towards the upper end of a 125.72-126.16 range. 10yr UST futures are firmer by some 20 ticks but largely uneventful, with cash trade closed amid the US holiday. As a reminder, UK gilts are also away amid a UK holiday. Overnight, 10yr JGB futures rose alongside the declines in oil and with some support seen following the stronger-than-previous demand ratio at the 5yr climate transition JGB auction.