• Meanwhile in markets, enjoy the AI rebound – while it lasts. Furthermore, keep an eye on French sovereign bonds, which have underperformed as of late;

• AI darlings like the Korean Kospi index, SK Hynix, and Samsung are off the lows, trading roughly halfway between last week’s highs and yesterday’s lows. S&P 500 futures and Nasdaq futures are all off the lows. European cash equities are in the green, with the Stoxx 50 up 0.8% led by solid gains of nearly two percent for banks;

• Identifying a catalyst for the AI-driven rebound in stocks is hard. We haven’t found any. With an eye on Friday’s expected Ipo of SpaceX, perhaps we are witnessing dip buying plain and simple;

• Turning to bonds, Eurozone government bond and UST Treasury yields are lower for the day by several bps. The Bund curve remains relatively flat, with the 2y10y spread at 37bps, not far off its recent low. A hawkish ECB on Thursday – which I don’t expect, by the way – could trigger more curve flattening. That would be a sign that the ECB is overdoing it with tightening, and that the expected contraction in real GDP may not end up being confined to the second quarter;

• OATs continue to underperform – if Bloomberg generic pricing is any guide. France’s 10y Bund spread has blown higher by about 15bps to 77bps since the start of the month. At the same time, other Southern European Bund spreads have barely budged;

• Finding a driver for the OAT underperformance has proven to be very hard. Recent PMI data shows that France’s economy is hit harder by the Iran war and expected ECB tightening compared to Germany’s economy. However, in the greater scheme of things, we’re splitting hairs here. Post-pandemic France’s real GDP growth has handily outperformed that of Germany;

• On the French political front, we see no ‘new news’. The National Rally is likely to win the first and second rounds of next year’s Presidential elections if the recent polls are any guide. Runner ups are center (right) candidates Edouard Phillipe (President Macron’s former Prime Minister) and Gabriel Attal (the current Prime Minister. The National Rally has no majority in Parliament and would need to work with the opposition to pass legislation. That’s called Cohabitation in French and is likely to moderate the National Rally. So, not a bad outcome and perhaps reminiscent of Italian Prime Minister Meloni’s moderation;

• Brent crude futures are going places. Lower that is. In the morning we hit a session low of $92 a barrel for the nearest dated Brent future. Mind you, just a day ago we we’re approaching the $100 mark following what turned out to be choreographed strikes between Iran and Israel. What triggered the tit-for-tat strikes were Tehran’s objections to Israel’s ongoing military campaign in Lebanon. Tehran is trying to link Lebanon with the truce with the US. At the same time, Israel wants to be ‘heard’ with regards to the – I presume – ongoing peace talks between Washington and Tehran. As a matter of fact, the strikes might signal that a US-Iran deal is closer than we think it is, and that the deal that could be taking shape isn’t to Israel’s liking. Hence Israel’s attacks can be seen as an attempt to interject itself indirectly in the peace talks;

• Regarding the US-Iran talks, President Trump was his usual self by emphasizing that a deal is close, saying that we’re in the “final throes” of negotiations. As in days left. Coinciding with the start of the World Cup on Thursday. In any case, with Trump you never no for sure where reality begins and where it ends;

• If military strike activity is any guide, perhaps Trump is right on a deal being quite close. Except for a deadly Israeli strike in the south of Lebanon this morning, it has quite simply been relatively quiet;

• Elsewhere, we see little excitement in FX, where the broad dollar is softening on the back of the Iran situation having calmed down. USDJPY is loitering slightly above the 160 handle, but that’s all there is to it at this point. EURCHF touched a three-month high a wee bit above the 0.92 handle this morning. The cross could be moving on the divergence between the ECB and the Swiss National Bank. We expect that the former will raise rates two times by 25bps each (June and September). On the other hand, in the next twelve months we expect the SNB to simply sit tight;

• Looking ahead, today’s calendar is basically empty. Focus will be on Iran headlines (again). Plus, tomorrow’s US CPI figures. Which are likely to be a rude awakening for new Fed Chairman Warsh. Who will be confronted with inflation above target for a sixth year straight this year.

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