MNI EUROPEAN OPEN: Oil Spikes As Israel-Iran Trade Strikes
EXECUTIVE SUMMARY
- ISRAEL HITS IRAN WITH NEW STRIKES DESPITE TRUMP ADMONITION - RTRS
- OIL JUMPS AS ISRAEL RETALIATES AGAINST IRAN AFTER MISSILE ATTACK - BBG
- ZELENSKY'S CLOSE EUROPEAN ALLIES SET OUT FIVE CONDITIONS FOR PEACE TALKS - BBC
- JAPAN'S GROWTH HOLDS UP DESPITE DROP IN BUSINESS INVESTMENT - BBG
Fig 1: USD BBDXY Index & 10yr Nominal Tsy Yield
Source: Bloomberg Finance L.P/MNI
UK
JOBS (BBG): “British employers scaled back hiring at an accelerated pace in May amid continuing war in the Middle East and political turmoil at home, according to a survey watched by the Bank of England.”
DEFENCE (BBC): “"This is the most dangerous period that I have known," Chief of the Defence Staff Sir Richard Knighton told BBC Radio 4's Today programme. He said Russia has been "probing, challenging, testing our defences", and is "raising the stakes and risks crossing a line".”
DEFENCE (TIMES): “The Royal Navy spent more than a third of its time last year responding to Russian undersea threats, Britain’s most senior naval officer has revealed. General Sir Gwyn Jenkins, the first sea lord, said the danger from Russia’s navy poses a “direct challenge” to the UK’s security.”
DEFENCE (BBC): “The Defence Investment Plan (DIP) was supposed to be published in the autumn but is now due to be released ahead of a Nato summit early next month. The Public Accounts Committee (PAC) says the hold-up means procuring the latest equipment will be more expensive, "hindering the government's attempt to modernise the Armed Forces".”
FISCAL (TIMES): “Sir Keir Starmer is preparing to cut spending on net-zero projects such as carbon capture and storage to pay for an increase in defence spending, prompting another rift with Ed Miliband, the energy secretary.”
POLITICS (TIMES): “Gary Smith, head of the GMB union, said the push for green energy was ‘closing factories’ like in the 1980s deindustrialisation under Margaret Thatcher.”
EU (TIMES): “Labour will look again at its Brexit “red lines” that prevent further integration with the European Union ahead of the next election, the minister in charge of negotiations with Brussels has said.”
EU (POLITICO): ““To date, financial services have not been included in the strategic UK‑EU reset,” UK Finance, a lobby group representing Britain's lenders, said in a report out Monday. “Now is the moment for that to change.””
EU
ITALY (BBG): “Intesa Sanpaolo SpA is preparing a bid for Banca Monte dei Paschi di Siena SpA, hours after rival Banco BPM SpA proposed a €50 billion ($58 billion) tie-up, according to people familiar with the matter, injecting fresh momentum into a two-year consolidation push that’s transforming Italy’s finance industry.”
FRANCE (BBG): “A consortium of French telecommunications companies have agreed to buy billionaire Patrick Drahi’s SFR in a deal that values the country’s second-largest mobile carrier at €20.4 billion ($23.5 billion) including debt and will test European regulators’ tolerance for consolidation.”
UKRAINE/RUSSIA (BBG): “European leaders called on Russian President Vladimir Putin to agree to an immediate and complete ceasefire that allows talks to begin on a lasting peace deal.”
UKRAINE (BBC): “In a joint statement after talks in London, Volodymyr Zelensky, UK Prime Minister Sir Keir Starmer, French President Emmanuel Macron and German Chancellor Friedrich Merz said they would "stand firmly with Ukraine". The five conditions include a stop to the fighting, starting negotiations from the current position in the field as well as "robust" security guarantees for Ukraine. The leaders reiterated the need for the US to be part of the process.”
RUSSIA (BBC): “Russian President Vladimir Putin has said he does not see any point in meeting Volodymyr Zelensky after the Ukrainian leader requested face-to-face talks over ending the war between the two nations.”
RUSSIA (BBC): “Russia says Ukraine has launched an "unprecedented attack" on and around St Petersburg, as the city hosted the final day of an economic forum.”
UKRAINE (POLITICO): “Reacting to the Russian leader’s remarks, Zelenskyy said in a statement Friday evening, “Unfortunately, Russia once again chooses war. He just does not want to end it. Many will be disappointed by this weak response … So it means Russia needs to have less money and more pressure on it.””
DEFENCE (POLITICO): “France and Cyprus will sign on Monday a status of forces agreement allowing Paris to station troops on the Mediterranean island, two senior Cypriot government officials told POLITICO. The agreement will be signed by French Armed Forces Minister Catherine Vautrin and Cypriot Defense Minister Vasilis Palmas in Nicosia, as both will attend the informal European Foreign Affairs Council meeting in its defense configuration the same day.”
BUSINESS (POLITICO): “The European Commission is preparing new measures to prop up the EU’s chemicals industry as a wave of cheap Chinese imports pushes the sector to the brink. EU leaders will discuss a Commission effort to curb the Chinese supply glut at a summit on June 18–19.”
EU (POLITICO): “EU leaders are seeking consensus on a plan to offer candidate countries some of the economic and political benefits of membership while they navigate the years-long process of joining the bloc.”
ARMENIA (POLITICO): “Pro-EU ruling party leads Armenia parliamentary election, exit polls show. Turnout was strong on Sunday amid concerns of Russian meddling. … The prime minister’s Civil Contract party had 56.7 percent of the vote, with the main opposition Strong Armenia party receiving 17.5 percent according to the first exit polls after voting ended, Armenian media reported.”
US
MIDDLE EAST (RTRS): “Israel said it struck military targets in western and central Iran on Monday, even after U.S. President Donald Trump reportedly told Israeli Prime Minister Benjamin Netanyahu to refrain from further attacks.”
FED (MNI): Federal Reserve Bank of Cleveland President Beth Hammack said Friday it’s reasonable to hold interest rates steady for now given uncertainties about the economic outlook, but officials may need to act soon to address elevated inflation.
FED (BBG): “President Donald Trump said the Federal Reserve would be wrong to raise interest rates as his nominee Kevin Warsh prepares to chair his first Fed policy meeting.”
JAPAN
GDP (BBG): "Japan’s economy grew at a still solid pace at the start of the year even after the turbulence in Iran prompted businesses to cut investment.
OTHER
OIL (BBG): “ Oil surged after Israel said it struck military targets in Iran following missile attacks by the Islamic Republic, threatening a fragile ceasefire in the Middle East as talks to end the war falter.”
SOUTH KOREA (BBG): “Nvidia Corp. and SK Hynix Inc. have agreed to partner on designing future generations of memory chips for AI, a win for a South Korean leader vying with Samsung Electronics Co. in a red-hot arena.”
NORTH KOREA (BBG): “Chinese President Xi Jinping is heading to North Korea in a likely bid to reassert Beijing’s influence over an emboldened Kim Jong Un, a neighbor with a rapidly expanding nuclear arsenal and deepening alliance with Russia.”
MALAYSIA (BBG): “Malaysian Prime Minister Anwar Ibrahim’s grip on power is set to be tested as he prepares to face off against his erstwhile allies, with his party’s urban base in play in two upcoming state elections.”
CHINA
MNI China Press Digest June 8: Yuan, Trade Surplus, FX Reserves
NORTH KOREA (BBG): "- Chinese President Xi Jinping arrived in North Korea in a likely bid to reassert Beijing’s influence over an emboldened Kim Jong Un, a neighbor with a rapidly expanding nuclear arsenal and deepening alliance with Russia."
MNI: PBOC Net Injects CNY207.5 Billion via OMO Monday
MNI (BEIJING) - The People's Bank of China (PBOC) conducted CNY218.5 billion via 7-day reverse repos, with the rate unchanged at 1.4%. The operation led to a net injection of CNY207.5 billion after offsetting the maturity of CNY11 billion reverse repos today, according to Wind Information.
- The seven-day weighted average interbank repo rate for depository institutions (DR007) rose to 1.3996% at 09:58 am local time from the close of 1.3822% on Friday.
- The CFETS-NEX money-market sentiment index, measuring interbank money-market liquidity, closed at 53 on Friday, compared with the close of 47 on Thursday. A higher reading points to tighter liquidity condition, with 50 representing an equilibrium.
MNI: PBOC Sets Yuan Parity Higher At 6.8198 Mon; +6.09% Y/Y
MNI (BEIJING) - The People's Bank of China (PBOC) set the dollar-yuan central parity rate higher at 6.8198 on Monday, compared with 6.8157 set on Friday. The fixing was estimated at 6.7979 by Bloomberg survey today.
MNI: China CFETS Yuan Index Up 0.67% In Week of Jun 5
The CFETS Weekly RMB Index was 101.33 on Jun 5, up 0.67% from 100.66 on May 29.
MARKET DATA
JAPAN APRIL TRADE SURPLUS Y395.7B; EST. +Y512.6B; MAR +Y830.5B
JAPAN APRIL CURRENT ACCOUNT SURPLUS Y3.91T; EST. +Y3.12T; MAR +Y4.68T
JAPAN APRIL ADJUSTED CURRENT ACCOUNT SURPLUS Y4.21T; EST. +Y3.22T; MAR +Y3.90T
JAPAN MAY BANK LENDING EXCLUDING TRUSTS +6.3% Y/Y; APR +5.9%
JAPAN MAY BANK LENDING INCLUDING TRUSTS +5.7% Y/Y; APR +5.4%
JAPAN Q1 GDP +1.8% Q/Q ANN.; EST. 1.4%; Q1 P +2.1%; Q4 +0.7%
JAPAN Q1 GDP +0.5% Q/Q; EST. 0.3%; Q1 P +0.5%; Q4 +0.2%
JAPAN Q1 PRIVATE CONSUMPTION +0.3% Q/Q; EST. 0.3%; Q1 P 0.3%; Q4 +0.1%
JAPAN Q1 BUSINESS SPENDING -0.7% Q/Q; EST. -0.9%; Q1 P +0.3%; Q4 +1.2%
JAPAN Q1 INVENTORY -0.1 PP FROM Q/Q GDP; EST. -0.1 PP; Q1 P -0.1 PP; Q4 -0.4 PP
JAPAN Q1 NET EXPORTS ADDS 0.3 PP TO Q/Q GDP; EST. 0.3 PP; Q1 P +0.3 PP; Q4 0.0 PP
JAPAN FINAL Q1 GDP DEFLATOR +3.2% Y/Y; EST. +3.4%; Q1 P +3.4%; Q4 +3.4%
JAPAN MAY ADJ. ECO WATCHERS CURRENT INDEX 43.6; EST. 41.3; APR 40.8
JAPAN MAY ADJ. ECO WATCHERS OUTLOOK INDEX 40.7; EST. 40.1; APR 39.4
CHINA FOREIGN RESERVES MAY $3.44T; EST. $3.40T; APR $3.41T
MARKETS
US TSYS: Cash Yield Rise Extends, 2yr Eyeing Break Above 4.20%, As Oil Spikes
Cash Tsy yields have extended Friday's gains, as oil futures hold up close to 4.2%, as Iran and Israel trade tit for tat strikes. This suggests any US-Iran peace deal will be some distance away although US President Trump is still pushing for this and insisted the recent strikes don't change US-Iran deal prospects. Tsy yield benchmarks are around 3-5bps higher, with the front end still leading the move.
- For the cash US 2yr is around 4.19%, looking to move back into 4.20-4.40% region, last seen back in early 2025. The 10yr is yet to test recent May highs, at 4.57%, we are around 10-11bps short of this region.
- In the TSY futures space, the 10yr is down -07 to 108-27. Bearish risks likely persist in the near term, with the low 108 region, (lows from May) eyed for the active contract.
- Near term sentiment will be dictated by Middle East developments and its spill over to oil prices. Risk sentiment was hit notably on Friday in the equity space, with the NFP result seeing US yields surge. We are doing better today, with Nasdaq futures marginally higher. If this backdrop deteriorates we may see some safe haven US Tsy support, although this is likely to be at the back end.
- The US data backdrop remains very strong, the Citi US surprise index up to 63.2, highs since Oct 2023.This is supporting the more hawkish US Fed backdrop. The next focus point will be Wednesday's CPI print.
JGBS: Futures Lower, Downtrend Intact, Amid Multiple Weights
JGB futures track at 128.51, -.34 versus settlement levels in latest dealings. Negative spill over from a softer US TSY futures backdrop, coupled with higher oil prices (as Iran and Israel trade tit for tat strikes), are weighing. On the data front we also had Q1 GDP revisions, which weren't as bad as feared. This may marginally add to the near term BoJ outlook. Growth was unchanged at +0.5%q/q (the market had been expected a downward revision to 0.3%), with business spending revised to a -0.7% dip (versus -0.9% forecast and 0.3% originally reported).
- For futures, May lows sub 128.00 are still intact but broader downtrend conditions in futures persist. Recent highs were around the 50-day EMA resistance point, which comes in at 129.49. We would likely need a sustained move above this level to challenge the bearish technical backdrop.
- In the cash JGB space we are around 2 to 5bps firmer in yield terms, led by the 7 and 10yr tenors. The 10yr is around 2.725%, with May highs just above 2.80% eyed on a further extension higher.
- The 2/10s curve is back to +130bps, also close to May highs, while the 2/30s curve is is less threatening in terms of these recent highs (last +252bps, May highs were above +270bps).
- On the data front, we have more second tier outcomes this week, but there will be some focus on May PPI, out Wednesday.
BONDS: NZGBS: Yields Firm +7bps, But NZ-US 10 Still In Downtrend
NZGB yields are up a little over 7bps in Monday trade to fate. This puts the 2yr to 3.525%, while the 10yr is around 4.585%. We have played catch up with US Tsy moves, post Friday's NFP beat and the higher oil prices since the open amid fresh Israel-Iran strikes. US Tsy yields have risen a further 2.5 to 4.5bps, led by the front end.
- The 2yr is now testing the 50-day EMA resistance point in yield terms, with upside focus likely on a move back above 3.60%. For the 10-yr the focus will be on a move up through 4.60%. Late May highs were around 4.65%.
- The NZ-US 10yr spread is around +3bps, up from flats. Still, downside risks persist for the spread. Greater risk rests from the US leg, given the up coming US CPI print.
- In NZ this week, the main events this week will be on Friday with some monthly data and RBNZ chief economist Conway speaking. The May BNZ manufacturing PMI is released on Friday. The index moderated to 50.5 in April from 52.8 but has held in expansionary sector since June last year.
• There is further manufacturing sector data on Tuesday with Q1 volumes and activity.
FOREX: Early Risk Off Fades, Despite Oil Bounce, AUD/USD Near 100-day EMA
The early tone in G10 FX was risk off, with the likes of AUD and NZD underperforming, as the market digested fresh tit for tat strikes between Israel and Iran (seemingly derailing near term peace hopes). However, we have largely reversed these losses as the session has progressed, with the BBDXY index little changed (last near 1211.55). Oil futures are holding up strongly, +4% for the benchmarks, but Brent remains under $100/bbl at this stage. Core yields have risen further, building on Friday moves from the US (after the US NFP beat).
- Some offset is likely coming from the resilient US equity futures backdrop, which saw early downside before rebounding back into the green, despite the surge in oil prices. Nasdaq futures are up +0.30%, but this follows sharp cash losses (more than 4%) in Friday trade. Regional Asia Pac equities are all weaker, led by tech related plays, as some of the positive momentum has come out of the AI/chip backdrop.
- AUD/USD got to lows of 0.7018 in the first part of trade, but now sits back at 0.7045/50, little changed for the session. We are currently near the 100-day EMA support point. NZD/USD got to lows of 0.5780, but is now back above 0.5800, slightly above end Friday levels from NY.
- USD/JPY is little changed, holding at 160.35 currently. We had Q1 GDP revisions earlier, which weren't as weak as feared (with headline growth steady at 0.50%). The contraction from business spending wasn't as large as feared. Yen didn't react though.
- Looking ahead, the Fed’s communication blackout has begun ahead of the 17 June FOMC decision. US May NY Fed 1-yr inflation expectations and Germany’s April factory orders are released today.
EQUITIES: Asian Equities Down As AI- And Geopolitical Risks Rise
Asian equity indices have followed the US’ Friday move lower as the market became jittery over tech stocks. In addition, geopolitical risks rose sharply with a significant escalation of Middle East hostilities in a short time risking what the US and Iran have agreed and the negotiations themselves. Israel and Iran continue to exchange missile fire. US equity futures are slightly higher though.
- Israel struck military targets across Iran in retaliation for Iran targeting Israel earlier and following reports of more Iranian missiles heading towards Israel, an Iranian Petrochem plant was reportedly struck. Iran said after its first attack that it was the “beginning of a full week of continuous strikes”.
- The S&P e-mini is up 0.1% while the Nasdaq is +0.3% after the physical market fell 4.2% on Friday. Social media giant Meta’s announcement of an AI-related new share offering spooked the market.
- Weak AI/tech sentiment weighed on the Kospi which is down 6.5% while Taiwan’s TAIEX is 3.5% lower. The Nikkei is down 4%.
- The Kospi is off its lows due to a turn around in Samsung Electronics and SK Hynix helped by Nvidia’s announcement of increased cooperation in developing future AI chips.
- The Hang Seng is down 1.3% while China’s CSI 300 is -1.8%. China’s Moonshot AI startup is looking for an extra $2bn bringing the total requested funding to $30bn. There is increasing demand for its large language models and chatbot.
- The ASX was closed due to a holiday across most of Australia but the NZX50 is down 0.9% - outperforming most of APAC.
OIL: Crude Up Over 4% As Iran-Israel Strikes Continue But Still Below Resistance
Oil prices jumped on news of explosions in Iran and are up again following reports of further Iran-Israel missiles. WTI is up 4.3% to $94.42/bbl, close to the intraday high at $94.80 reached earlier, and Brent is 4.3% higher at $97.10/bbl after a peak of $97.32. Given the escalation of Middle East hostilities in less than 24 hours and the ever-growing risk to what the US and Iran have agreed and the negotiations themselves, oil’s response has been fairly restrained and benchmarks remain below initial resistance levels.
- Israel struck military targets across Iran in retaliation for Iran targeting Israel earlier and following reports of more Iranian missiles heading towards Israel, an Iranian Petrochem plant was reportedly struck.
- There were also reports that Saudi Arabia triggered its missile alert amid reports of the Saudi Prince Sultan base being targeted. Iran denied it was them.
- Iran said after its first attack that it was the “beginning of a full week of continuous strikes” and recent reports confirm this. Despite the apparent unravelling of the prospects for free shipping through Hormuz, President Trump told the FT that he thinks the US-Iran deal is “still on”.
- US Central Command reported 1000 commercial vessels had passed through the Strait of Hormuz since the ceasefire in early April, above Bloomberg’s estimate of 650 using its ship tracking data, which is likely due to vessels increasingly turning off transponders to go undetected.
- Saudi Arabia reduced its July oil price for Asian customers for the second straight month.
- The Fed’s communication blackout has begun ahead of the 17 June FOMC decision. US May NY Fed 1-yr inflation expectations and Germany’s April factory orders are released today.
Gold Breaks Below Support, Inflation Worries Offset Save Haven Flows
Gold rallied early in Monday’s APAC session on increased safe-haven flows following an escalation of the Middle East conflict. It reached a high of $4353.38/oz before falling as derailed US-Iran talks to open the Strait of Hormuz would push average oil prices higher, which could trigger interest rates hikes. There is now a full 25bp Fed hike priced in by year end with strong May payrolls signalling that monetary policy is more likely to tighten in the US rather than ease. Bullion is down 0.2% to $4317.6 after falling to $4300.1, breaking below support at $4306.4 opening $4200.
- Israel struck military targets across Iran in retaliation for Iran targeting Israel earlier. There were also reports that Saudi Arabia triggered its missile alert amid reports of the Saudi Prince Sultan base being targeted. Iran denied it was them. However, the IDF detected more Iranian missiles heading to Israel.
- Silver has range traded around $67.80/oz. It fell to $66.94 before recovering to around $67.84.
- Asian equities are sharply weaker while the S&P e-mini is up 0.2% and Nasdaq +0.5%. The USD index is slightly lower but US 2-year yield is higher. Oil prices are up with WTI +3.7% to $93.84/bbl.
- The Fed’s communication blackout has begun ahead of the 17 June FOMC decision. US May NY Fed 1-yr inflation expectations and Germany’s April factory orders are released today.
UP TODAY (TIMES GMT/LOCAL)
| Date | GMT/Local | Impact | Country | Event |
| 08/06/2026 | 0600/0800 | ** |  DE | Manufacturing Orders |
| 08/06/2026 | 1200/0800 | * |  US | NY Fed SOFR |
| 08/06/2026 | 1300/0900 | * | US | NY Fed EFFR |
| 08/06/2026 | 1500/1100 | ** | US | NY Fed Survey of Consumer Expectations |
| 08/06/2026 | 1530/1130 | * | US | US Treasury Auction Result for 13 Week Bill |
| 08/06/2026 | 1530/1130 | * | US | US Treasury Auction Result for 26 Week Bill |
| 09/06/2026 | 2301/0001 | * |  GB | BRC-KPMG Shop Sales Monitor |
| 09/06/2026 | 0600/0800 | ** | DE | Trade Balance |
| 09/06/2026 | 0600/0800 | ** | DE | Industrial Production |
| 09/06/2026 | 1000/0600 | ** | US | NFIB Small Business Optimism Index |
| 09/06/2026 | - | *** |  CN | Trade |
| 09/06/2026 | 1200/0800 | * | US | NY Fed SOFR |
| 09/06/2026 | 1215/0815 | *** | US | ADP Employment Report |
| 09/06/2026 | 1230/0830 | ** | US | Trade Balance |
| 09/06/2026 | 1230/0830 | ** | US | Trade Balance |
| 09/06/2026 | 1230/0830 | ** |  CA | International Merchandise Trade (Trade Balance) |
| 09/06/2026 | 1255/0855 | ** | US | Redbook Retail Sales Index |
| 09/06/2026 | 1300/0900 | * | US | NY Fed EFFR |
