•Meanwhile in markets, oil prices and the latest from the Iran war continue to set the tone. With Iranian attacks on Gulf oil infrastructure overnight pushing crude prices higher, bonds and equities are predictably lower. Losses are contained though;

•Unless President Trump decides to cross the Rubicon and put boots on the ground, I think the worst of the turmoil is behind us with regards to shipping in the Strait of Hormuz. Because that’s what it’s all about, the Strait – notice how do the US has abandoned the various objectives of the campaign (regime change, destroying key (military) infrastructure assets). The Strait is mostly closed to traffic, but Tehran’s blockade is managed and there are key exemptions. Friendly/neutral countries can parley with the Iranians to secure safe passage. Daring Greek-owned merchantmen have successfully made the passage. More importantly, from press reports we’ve learned that there is an understanding between the US and Iran to allow some ships of the former to transit unharmed and ship their crude to needy customers across the globe. So, lines of communication are open;

•Talking to the press in the White House yesterday, Trump was in good spirits. He claimed that he could end the war any day, but just not now. As discussed yesterday, even for the mercurial US President it will be difficult to claim victory and simply walk away when the Strait remains in dire straits;

•Turning to some market commentary, Brent crude prices are up this morning, though at $103.84 a barrel we’re slightly below yesterday’s high. US Treasury yields are up in the Asian session, though still below yesterday’s high. S&P 500 futures are down, but losses are modest. Asian equities are mostly flattish this morning, as is the broad dollar. In the crosses, keep an eye on USDJPY as we’re close to yesterday’s high of nearly 160, which triggered strong verbal warnings of intervention by Japanese officials;

•Ahead of Thursday’s ECB meeting, ESTR OIS are parked at close to fully pricing in a hike for the June meeting. Methinks that the ECB won’t flag a hike for the June meeting but instead tilt hawkish while keeping all options on the table. The USD OIS forward curve remains strongly inverted, with about 40bps of cuts priced in at the low point of the curve eighteen months out. Odd, given the bear-steepening of the ESTR OIS curve;

•Keep an eye on inflation-linked swap rates, especially those in euros. Our short-term benchmark, the 1y1y forward, has increased by about 50bps to around 2.20 because of the war. That’s still way below the 2022 peak of 3.1 percent, though the speed of the increases match the 2022 episode;

•In overnight news, the Reserve Bank of Australia raised the overnight rate by 25bps as expected. That failed to ignite the Aussie dollar, which is flat against the greenback. Furthermore, Australian sovereign yields are down by 3-6bps across, perhaps because of the contentious nature of the hike: a 5-4 vote;

•President Trump has asked the Chinese to delay his much-vaunted meeting with his Chinese counterpart because of the war. Trump was supposed to travel to Beijing at the end of the month. The Chinese are probably happy with the delay though. According to reports, Beijing thinks the Americans are ill-prepared – they like highly choreographed events and don’t want to give the advantage to Trump, who favors chaos and improvisation;

•Today’s calendar is empty, and focus will be on tomorrow’s FOMC meeting,  and the central bank meeting galore on Thursday with the ECB, BOJ, BOE, SNB, Riksbank, and Czech National Bank meetings.

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