Good morning, or good afternoon, depending on where you are in the world.
Let’s begin with the latest developments in the Middle East.
Sunday afternoon, President Trump posted that he found the response from Iran’s so-called “representatives” to be, quote, “totally unacceptable” — and yes, that was written entirely in capital letters.
This followed a Wall Street Journal report suggesting that Iran was willing to transfer part of its highly enriched uranium stockpile to a third country, but would not dismantle its nuclear facilities.
The report was later disputed by Iran’s official news agency, which helps explain the relatively muted reaction in both oil and financial markets. Brent crude nevertheless rose by around three dollars, trading near one hundred and four dollars per barrel.
The situation remains complicated by uncertainty over exactly whom the United States is negotiating with — hence the reference to Iran’s “so-called representatives”. Even so, market participants still broadly believe that some form of resolution is ultimately inevitable, given the economic and political risks facing both sides.
One particular analysis we have been following throughout the conflict has recently evolved further.
The focus has now shifted away from signalling and towards observable execution, with actual ship movements through the Strait of Hormuz becoming the key real-time test.
At the same time, several major uncertainties remain unresolved. These include whether Iran will retain any role in transit control, how sanctions and frozen assets would be phased, whether the reported transfer of sixty per cent enriched uranium is genuine or already facing internal resistance, and whether Tehran’s fragmented political structure can actually authorise — and sustain — such an agreement.
Meanwhile, Washington appears to be pursuing a strategy of coercive diplomacy: maintaining visible military pressure, while avoiding outright escalation in order to preserve negotiations.
Pakistan has emerged as an important mediation channel, while China continues to support de-escalation without positioning itself as an enforcer on behalf of the United States.
Regional tensions, particularly around Beirut, as well as ongoing Israeli scepticism, remain significant complications.
As a result, markets are currently pricing in conditional stabilisation — not peace.
On the subject of Hormuz, it was encouraging to see at least one LNG tanker pass through the Strait over the weekend.
However, to borrow a phrase: one LNG tanker doth not a summer make.
Market expectations for the Strait reopening continue to weaken. Betting markets now show expectations for Hormuz reopening by the end of May falling from around seventy per cent in mid-April to just fifteen per cent today.
As a result, June is now viewed as the more realistic timeframe — although even that probability has declined from almost ninety per cent to roughly forty-one per cent.
And so, one might reasonably ask: why are global equity markets back at all-time highs?
There appear to be at least three main reasons.
First, the underlying resilience of the US economy.
Second, the continued momentum behind the AI capital expenditure boom, which increasingly appears to be matched by genuine demand for the output being created.
And third, the extraordinarily strong US earnings season, which is now approaching its conclusion.
The resilience of the US economy was reinforced by Friday’s payroll data.
The April jobs report gave Federal Reserve officials greater confidence that the labour market remains strong enough to withstand an extended period of stable interest rates, while the Fed continues focusing on inflation.
Non-farm payrolls surprised to the upside in April, rising by one hundred and fifteen thousand, compared with consensus expectations of sixty-five thousand.
That figure is also comfortably above the current estimated breakeven level, which sits somewhere between zero and fifty thousand.
Employment growth was led by Healthcare, although sectors such as Retail and Transportation also delivered stronger-than-expected gains.
The drag from federal layoffs also appears to be easing — although it still remains a headwind.
Meanwhile, Information Services saw the largest number of job cuts, following several high-profile redundancy announcements in recent months.
Management teams have largely attributed these reductions to AI-driven productivity improvements, although some debate remains as to whether this is simply covering for earlier over-hiring.
As for the AI trade itself, just two US companies have contributed more than half of the S and P five hundred’s gains this year.
That is quite extraordinary, and further highlights just how narrow market leadership currently is.
Returning to the United Kingdom, I shall avoid going into too much detail regarding last week’s local election results.
Suffice to say, market reaction was fairly limited, and Gilts actually outperformed slightly on Friday. That was partly because the results were broadly in line with expectations and perhaps also because the Green Party — now viewed by some investors as the most left-leaning political force — did not outperform expectations as strongly as some had feared.
On Monday, Prime Minister Starmer delivered a keynote speech defending his record and reiterating that he would not step aside.
The Prime Minister outlined what he described as a reset in relations with the European Union. He also announced the nationalisation of British Steel, alongside additional support for youth employment, although concrete details remained limited.
More notably, he did not entirely rule out the possibility of eventually joining the EU single market and customs union, suggesting that the next summit on trade, the economy, defence, and security could provide a platform for further progress.
Looking ahead, this week is not especially significant in terms of economic data releases.
However, the key numbers to watch will be US inflation data — with CPI tomorrow and PPI on Wednesday.
These releases will provide important insight into both current and future inflationary pressures within the US economy and may influence not only Federal Reserve policy, but potentially President Trump’s political positioning as well, given the implications of rising prices.
As for the Federal Reserve, Kevin Warsh’s Senate confirmation vote takes place today and is widely expected to pass without difficulty.
That means Friday will mark Jerome Powell’s final day as Chair, although he has indicated that he intends to remain on the board as a governor for the time being.
Here in the UK, we also have the State Opening of Parliament today, where the King’s Speech will outline the government’s legislative agenda, although much of the political focus is likely to remain centred on the ongoing leadership debate.