US
USD is powering forward against most currencies. Firmer crude oil prices are pushing bond yields higher and weighing on equities. Navigation flow through the Strait of Hormuz remains constrained with no clear endgame to the eleven-week long blockade. Meanwhile, global oil inventories are being drawn down at a record pace according to the International Energy Agency.
The US-China summit concluded with marginal diplomatic breakthrough. On trade, the relationship between the two countries has shifted from de-escalation to “constructive strategic stability”, as Chinese President Xi Jinping put it. On Iran, both countries called for the Strait of Hormuz to reopen.
The US macro backdrop argues for a more restrictive Fed which is USD supportive. The underlying disinflationary trend has stalled, the labor market is stabilizing, and consumer spending is resilient.
The policy-relevant US retail sales control-group – exclude cars, gas, food services, and building materials – rose 0.1ppt more than expected by 0.5% m/m in April and the previous month was revised 0.1ppt higher to 0.8%. Stronger retail sales may be overstated by the 0.6% m/m rise in headline CPI in April.
Nevertheless, US real personal consumption expenditure (PCE) has been resilient, contributing to half the 2% annualized real GDP growth over Q1. Going forward, the latest Atlanta Fed GDPNow model estimates annualized real GDP growth of 4.0% in Q2 (up from 3.8% previously) with PCE again driving nearly half that expansion (+1.87ppt).
The US swaps curve has adjusted higher in favor of USD, pricing in 35bps of hikes in the next twelve months, up from 25bps earlier this week. Today’s US April industrial production data is unlikely to shift the dial on rate expectations (2:15pm London, 9:15am New York).
UK
GBP is down versus USD and EUR. Gilts are selling off sharply and underperforming major peers on the rising likelihood the Labour government pivots further leftwards. Andy Burnham secured a by-election route back to Parliament yesterday, paving the way for an eventual challenge to Sir Keir Starmer. According to a recent poll, 61% of Labour members would back Burnham, compared to 28% for Starmer.
A Burnham-led Labour government will likely lead to more spending and borrowing. In a September 2025 interview, Burnham highlighted his economic vision: higher council tax on expensive homes in London and the South East, £40billion of borrowing to build council houses, income tax cuts for lower earners, as well as a 50p income tax rate for the highest-paid. Asked if this might alarm bond markets, Burnham said: “We’ve got to get beyond this thing of being in hock to the bond markets.”
Political uncertainty will continue to dominate the price action in GBP and gilts, with the bias skewed to the downside given worsening UK fiscal credibility. UK nominal GDP growth is tracking below 10-year gilt yields, making stopping debt growth very difficult.
PERU
PEN upside traction will likely fade in the near-term as Peru’s real rates lose some appeal. As was widely expected, Peru’s central bank (BCRP) kept the policy rate unchanged at 4.25% for an 8th consecutive meeting. The statement stopped short of signaling any rush to tighten despite inflation overshooting the bank’s 1 to 3% target range. In fact, BCRP reiterated it expect both headline and core inflation “to stabilize around 2 percent in 2027” as the effects of the supply shocks dissipate.
