London Quick Take - 1 June - Oil up and stocks mixed as US-Iran re-escalate

European stock markets opened mixed and oil rose as the US and Iran exchanged strikes, cooling hopes for an imminent lasting peace deal. The US said they launched “self-defence strikes” on Iranian military sites while the IRGC said they targeted a US airbase. Meanwhile, Iran’s president Masoud Pezeshkian reportedly submitted his resignation, saying the IRGC have taken control and sidelined him and his administration. In a Truth Social post early on Monday President Trump said Tehran “really wanted to make a deal” and suggested critics “just sit back and relax". Brent crude futures rose around 3% to touch on $94, up from just short of $92 on Friday’s close. Anything under $100 is pricing a good outcome. It’s been 54 days since the ceasefire and it feels like a deal is close at hand.

Whilst European equity markets were subdued early Monday Asian markets continued to rally with South Korea’s Kospi up nearly 4% and the Nikkei 225 in Japan rising to a fresh record high above 67,000. Much of this was down to SoftBank, which surpassed Toyota as Japan’s most valuable company after it announced it would invest up to €75bn to build Europe’s biggest AI facility in France. Meanwhile Nvidia has gathered headlines again after announcing a new ARM-based chip for Microsoft, Dell and HP laptops. The RTX Spark is "a new superchip” for personal computing, according to CEO Jensen Huang. So, it’s the usual picture of AI vs geopolitics but I guess the main point is still that the extreme left tail risk has been cut off in terms of the Middle East.

On the economic front, two big releases this week in the shape of the US manufacturing ISM PMI today and Nonfarm Payrolls on Friday. These are expected to cool to +89k from +115k in April while the unemployment rate is seen steady at 4.3%. Before this we have a raft of labour market data - JOLTS (Tue), ADP private payrolls (Wed), Challenger layoffs (Thu). Treasury yields are firmer and the dollar holding up while gold is down with oil higher. Yields are however lower than they were at the start of last week as oil backed off on Iran deal hopes. Inflation expectations have cooled.

The S&P 500 managed yet another record high on Friday, closing at 7,580, 11% above its 200-day moving average. US markets remain on solid ground from earnings momentum. The Nasdaq rose more than 8% in May, while the S&P 500 rallied around 5% and the Dow Jones Industrial Average climbed almost 3%. Earnings season has been one of the strongest in years with 85% of S&P 500 companies beating expectations. Per FactSet, companies are on aggregate surpassing profit forecasts by +16.7% against +7.3% average of the last 5 years. With the gains seen recently and earnings optimism baked into stock prices we may see some flows-based pullbacks this month.