•Meanwhile in markets, punters are taking a glass-is-half-full approach to the cease fire in the Iran war, which is still holding despite yesterday’s flare-up of strikes;

•While the fog of war is plenty thick, it has become clear that the US has managed to free two US-flagged vessels that had been trapped in the Gulf because of the Strait of Hormuz blockade. Reportedly under attack from the Iranians, US warships safely escorted the vessels through the Strait yesterday. Freeing just two ships is the proverbial drop in the ocean though. According to estimates, more than 800 ships are still trapped in the Strait. Iran’s rather ‘fiery’ response to the US gambling with the safety of two merchantmen confirms that reopening the Strait by the (threat of) force is a hazardous undertaking. According to the US, the US the Iranians used small boats to try to attack the convoy (which the US claims were successfully destroyed). Furthermore, Iran retaliated against the United Arab Emirates with missiles and drone strikes;

•A Bloomberg report this morning mentioned that Iran expanding its zone of control in the Strait has forced about 60 ships to flee towards Dubai, thus further away from the key bottleneck that is Hormuz. However, the article and accompanying graphics do not make clear how many ships are left in the vicinity of the Strait. If the Iranians successfully forced most ships to evacuate towards Dubai, that certainly doesn’t bode well for any renewed attempts to force open the Iranian blockade;

•Turning to some market commentary, European equities markets are up, with the Stoxx 50 gaining more than a percent. S&P 500 futures are rising in tandem while Bund and US Treasury yields are down several bps across the curve. In the greater scheme of things, bonds don’t share the equity market’s optimism about the Iran war (depending on jurisdiction, equities are either at a record or have erased a good chunk of the war-induced losses). 2y, 10y, and 30y yields are close to their highest level in years, if not decades (in the case of Bunds);

•ECB hawks are ruling the airwaves, with one Governing Council member after the other punting for a hike next month. ESTRs now price in slightly more than three 25bps hikes this year. I think that’s overdoing it: a cautious ECB will stick to two 25bps hikes;

•Kevin Warsh, when he finally becomes the new Chairman of the Fed next month, will be confronted with a steeper OIS forward curve that is leaning towards a hike as the next move. Spare a thought for poor Warsh when President Trump realizes that he won’t get the cuts he has been looking for. If Warsh tries to force through cuts, by the way, he will not just split the FOMC – he will likely trigger a violent long end sell-off as punters realize that the Fed’s inflation target counts for little;

•Brent crude oil futures prices have steadied, with the black gold trading around yesterday’s highs of around $112-$113 a barrel. FX is a quiet affair, with the broad dollar showing little or no movement. The yen has started to weaken gradually versus the dollar. •We’ve grinded higher to 157.5 though that’s still four points below last week’s pre-intervention highs;

•Looking ahead, eyes will be on this afternoon’s US ISM services PMI, in particular the prices part (which should show even stronger inflationary pressures). At the same time, the US job openings data should point to a stabilizing labor market. Besides, there is the usual Iran headline watching.

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