US equity futures lower; Brent continues to slide with focus on ships traversing the Strait - Newsquawk US Market Open

• Iranian Deputy Foreign Minister said the safe passage through the Strait of Hormuz without consideration of Iran's sovereignty is not guaranteed. This follows an Iranian strike on a Singapore-flagged cargo ship after failing to follow the set route.
• US President Trump said we have a new market coming up called Iran and added that Iran wants to make a deal with us very badly and thinks they will make a deal.
• US equity futures are softer, with the NQ underperforming after further tech selloff in South Korea.
• DXY continues to pull back but remains firmly above the 100.00 handle; G10s are broadly firmer with the EUR outperforming.
• Fixed income benchmarks are off best levels as the haven bid returns to bonds.
• Energy benchmarks continue to fall despite the recent strike on the Singapore cargo ship.
• Looking ahead, highlights include US Goods Trade Balance Advance (May), Wholesale Inventories (May), UoM Sentiment Final (Jun), Speakers including Kashkari, ECB's Vujcic, RBNZ's Bremen and Norges Bank's Bache.

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EUROPEAN TRADE

EQUITIES

• European bourses (STOXX 600 -0.9%) are entirely in the red in the last session of the week, driven by another day of losses in South Korea (SK Hynix -8.4%, Samsung -5.3%). Some analysts are citing Apple's price hikes on products due to memory chip shortages as a catalyst for the recent sell-off, raising concerns that rising component costs could curb demand for devices. An analyst at Javelin Wealth Management also said the recent gains for chipmakers could come at the expense of product manufacturers. The losses in South Korean giants have weighed on European chip names (Infineon -3.1%, ASML -1.0%) and indices composed of technology companies (DAX 40 -0.8%, AEX -0.6%).
• European sectors highlight a negative bias. Optimised Personal Care (+0.8%), Food, Beverages & Tobacco (+0.6%) and Utilities top the sector pile. Energy (-1.5%) is the underperformer again, with Technology (-1.4%) and Financial Services (-1.1%) also lagging.
• US equity futures are mixed, with the NQ (-0.9%) holding onto Thursday's sell-off, though off its worst levels. After-hours, ON Semi (-10% pre-market) announced the acquisition of Synaptics (+7.6% pre-market), totalling c. USD 7bln.
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FX

• USD finds itself under modest pressure. DXY at a 101.18 base, but well clear of the 100.76 WTD low, with the index set to see the week out around the middle of its range. In brief, a tale of two halves for the index which began the week on the front foot before reversing after Thursday’s data deluge and continuing to slip since.
• EUR outperforms as a result of the continued USD pressure. No real move to the ECB CES, which showed a moderation in the 12-month price view and an uptick in the growth view. The growth revision is not enough to provide comfortable space for further tightening, and equally the price moderation is not sufficient to take another move off the table. Nonetheless, the price moderation does add to the post-PMI & Lagarde dovish tilt we have seen in recent days.
• In more detail, EUR/USD has breached 1.14 to the upside. Picking up gradually across the morning, as the US data on Thursday has and continues to permit an unwinding of some of the yield differential moves we have seen in recent days, with the Fed more-hawkish and ECB mixed but net less-hawkish, particularly from Lagarde as referenced. However, while it has hit a 1.1407 peak, EUR remains in the red on the week and continuing the near unbroken downward trend of the last seven weeks.
• Elsewhere, G10s generally are slightly firmer against the USD. With GBP the next-best behind EUR, comfortably above 1.3200 and flat/firmer WTD, but again, still towards post June policy announcement lows, as BoE expectations coalesce around the on hold for the foreseeable narrative, despite the hawkish dissenters.
• CAD, JPY and CHF all faring around equally. Of those, USD/JPY participants remain on watch for potential intervention risk, particularly as Japanese authorities tend to target Friday’s and go with the market move rather than fighting it. USD/JPY just above a 161.53 base, and while the JPY is firmer today the bearish trend remains near-enough unbroken at a weekly level over the last month and a half.
• Today is spot month/quarter-end. As a reminder, Barclays model was neutral overall for the USD against all majors, formed of a moderate USD buying signal on the month-end, but countered by a strong USD sell signal for quarter-end.

FIXED INCOME

• Global fixed benchmarks are firmer across the board as government debt returns as a place of safety, with tech stocks weighing on the broader equity space. Energy prices also continue to fall, which further drives the fixed-income space higher.
• Bunds (+12 ticks) have extended on Thursday's high to make a new WTD high, currently trading at the upper end of the 127.25-127.64 range. The ECB released its May Consumer Expectations Survey, in which it showed consumers expect inflation to fall to 3.5% next year, down from April's 4% figure. This comes as a surprise, as the survey was conducted before the signing of the US-Iran MoU. Despite this, the German benchmark was unreactive. In terms of market pricing, the ECB is still expected to hike once more by year-end, with only a 12% chance of two more hikes.
• USTs (+4 ticks) are bid, trading towards the upper end of their 110-00+ to 110-09+ band, with the 10yr yield touching 4.37%. The MOVE index has completely reversed the wartime bid seen at the start of the Iran war, and with BofA's weekly flow report showing USD 16.6bln of flows into bonds, it potentially shows a renewed demand for debt. Looking ahead, a lack of tier 1 data, with final University of Michigan figures ahead, while Fed's Kashkari is also expected to be on the wires.
• Gilts (U/C) remain on high alert for any updates on who the newly-appointed MP (and expected PM) Burnham will choose for Chancellor, with Reeves not expected to stay in the role. More recently, The Times's Swinford reported that it will more likely be a two-horse race between Ed Miliband and Shabana Mahmood, with people close to Streeting stating that they do not think he will get the job. The fact that Miliband is still in the running could put a ceiling on gilts.
• Italy sells EUR 7bln vs exp. EUR 5.5-7bln 3.15% 2031, 3.80% 2036 and 3.45% 2036 BTP & EUR 2.0bln vs exp. EUR 1.5-2bln 1.645% 2036 CCTeu.

COMMODITIES

• The US-Iran situation remains complex. It was reported that the IRGC attacked a Singapore-flagged cargo ship, after it attempted to traverse through the Strait through a route not designated by the Iranians. This led the UN to pause its evacuation plans for ships around the Strait. Despite the attack, Bloomberg data continues to indicate that ships continue to traverse through the Hormuz, highlighting that traffic continues to flow in “both directions”.
• On the Lebanon front. The US-mediated Lebanon-Israel talks were expected to conclude on Wednesday, but were then extended into today. Israeli sources have suggested that there has been some progress, but no deal has been reached thus far. The negotiations focus on the withdrawal of Israeli troops from southern Lebanon; there may be a chance that Israel will only withdraw from areas where operations have already been concluded, and continue such action in other parts of the region. Therefore, the risk is that Iran is not satisfied by the outcome of the talks, and potentially restart closures of the Strait.
• Crude benchmarks are in the red, with WTI (-3.5%) and Brent (-3.4%) holding at the bottom end of their respective USD 68.98-71.86/bbl and USD 72.14-75.13/bbl ranges. Despite the flare-up on the Strait in the prior session and the continued lack of progress between Lebanon and Israel, crude prices continue to slip. It is the case that as long as ships continue to traverse the Strait, other friction points can be ignored… at least in the short term.
• Spot gold (+0.2%) is ever so slightly firmer this morning, but continues to remain near recent troughs. Today, the yellow-metal holds just above the USD 4k/oz mark, and within a USD 3,982-4,039/oz range. Elsewhere, base metals are broadly slightly lower this morning, with 3M LME copper currently off by c. 0.6%. It currently holds around USD 13.25k/t and within a USD 13,088.3-13,281/t range.
• Saudi Aramco reopened the Ras Tanura oil loading operations after a prolonged halt, with two supertankers loading oil at Ras Tanura on Friday, while another is awaiting loading, according to shipping data.
• Several Japanese-related vessels passed through the Strait of Hormuz as part of IMO evacuation plans, which have since been suspended following the attack on a cargo ship, according to Mainichi.
• China's MOFCOM released a list of non-state Chinese companies eligible for oil imports.
• Kazakhstan cut the gas production at the Karachaganak gas field after Ukraine drone attacks on Russia's Orenburg gas processing plant. Raw gas from the field is usually delivered to the Orenburg plant.
• Kazakhstan Energy Minister said we may consider fuel exports to Russia if there is an official request.
• Russia is considering a short-term ban on diesel exports for a few months, TASS reported.