Extending the “ceasefire”

Daily update

Energy markets gave a cautious response to reports the US and Iran may extend the terms of the “ceasefire”. Key approvals are missing—US President Trump wishes to think about it, which will take a couple of days. Market caution also reflects the more muted tone from the Iranian side. Energy markets need to consider a post-war environment—how quickly production normalizes, what damage must be repaired, and what a newly empowered Iran means.
Japan’s May Tokyo consumer price inflation data showed a more modest increase than had been expected. Some of this was a favorable comparison to last year’s higher rice prices. Much of the subdued inflation was due to government influenced prices and gasoline subsides, which means inflation pressures are obscured. Retail sales were stronger in April.
German May consumer price inflation is expected to be fairly static. The first-round effects of the oil price increase have been passed through relatively quickly and there is no real evidence of second round inflation effects. Why, then, are German policy makers baying for rate increases? Why, indeed.
Federal Reserve President Williams described current monetary policy as appropriate. This is against a backdrop of less robust growth—the post-shutdown bounce-back was less bouncy than expected.