US and Iran closer to a ceasefire? Oil falls, and US markets hit new records
During the Asian session, oil prices fell further to $92 per barrel for Brent, which may support a decline in yields in the base markets today. We assume the downward move would be limited until final agreements are reached.
Today, the impact of lower oil prices on the domestic market may offset the May inflation reading, which is likely to rise above the NBP target. The EURUSD starts the session slightly lower around 1.163‑1.164, and a further decline could weaken the zloty from its current strong levels (about 4.226 at open).
The zloty gained against the euro EUR/PLN
Yesterday's session saw small changes in equity indices, but the green dominated. Indices rose about 0.6%. The zloty slightly gained against the euro towards 4.225, approaching a significant technical support level. In the interest rate market, rates initially rose about 3‑5 basis points, but by the end of the day IRS rates fell to near opening levels. Similar moves were noted in the debt market.
At the end of the day, the yield on 10‑year bonds was about 5.78%. The National Bank of Poland sold four series of bonds (FPC0229, FPC0231, FPC0332, and FPC0235) in yesterday's auction for a total of PLN 0.9 billion, with demand of PLN 1.6 billion. In an additional auction, BGK sold FPC bonds for another PLN 50 million.
After declines in Asian markets, European exchanges recorded modest falls. The focus remained on the Middle East. Axios reported that US and Iranian negotiators reached an agreement on a framework for ending the war, along with a 60‑day ceasefire extension. The agreement has not yet received final approval from President D. Trump.
The agreement is to include Iran's commitment not to pursue nuclear weapons and to set the first issues to be negotiated within 60 days: the disposal of highly enriched uranium in Iran and the resolution of the uranium enrichment problem in the country.
Exchange rate rose to about 1.164 from about 1.161
Eurozone data surprised positively, while US data were largely negative, leading to a modest rise in the rate to about 1.164 from about 1.161. The eurozone economic sentiment index rose in May to 93.5 points from 93.2 points in the previous month, against expectations of a stabilization at 93 points.
Meanwhile, ECB minutes from the April meeting indicated that many bank representatives would not object to a April rate hike. The US PCE deflator rose in April as expected to 3.8% YoY from 3.5%, and the MoM reading of +0.4% was slightly below the consensus of 0.5%.
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In contrast, durable goods orders in the US rose 7.9% MoM in April after a 1.3% rise the previous month, versus an expected +4%. After gains in the Asian session, during the European session US Treasury yields fell about 6 basis points to mid‑week opening levels (10‑year yields to about 4.46%).
In the German debt market, yields fell about 3‑5 basis points, with 10‑year Bunds reaching about 2.95% despite fairly good data. The yield decline may have been aided by a slight drop in oil prices to about $94.
