German ZEW sentiment surges as US-Iran deal reshapes market outlook

Germany’s ZEW economic sentiment index surged 20.7 points in June, driven by optimism that the US-Iran peace deal will ease inflation, according to Reuters.usnews
The STOXX 600 edged higher Tuesday after hitting a record close Monday, while euro zone bond yields held near multi-week lows.usnews
Investors have trimmed ECB rate hike expectations following the deal, which sent Brent crude to its lowest level since March.economictimes

Euro Zone Bond Yields Hit Multi-Week Lows as US-Iran Deal Lifts European Markets

European government bond yields fell to their lowest levels in more than two weeks and the Stoxx 600 extended gains on Tuesday as the preliminary US-Iran peace agreement continued to reshape investor expectations around energy prices and monetary policy. Germany’s ZEW economic sentiment index, released Tuesday morning, surged to 10.5 points in June — far above the consensus forecast of minus 6 — adding further momentum to a rally that began Monday.zeit

Markets Digest the Iran Agreement

The pan-European Stoxx 600 rose 0.3% in early Tuesday trading, building on Monday’s record close when the index surpassed its previous all-time high from February 27. The benchmark had gained as much as 1% on Monday to reach 639.20 points after the United States and Iran confirmed a preliminary pact to end their three-month war and reopen the Strait of Hormuz.yahoo

Germany’s 10-year Bund yield, the euro zone benchmark, steadied at 2.954% on Tuesday after falling 5 basis points the previous session to 2.9443%, its lowest since May 29. The two-year yield, sensitive to ECB rate expectations, held near a two-week low of 2.547% reached Monday. Italy’s 10-year yield hovered around 3.685%, also near a two-week trough.lse

Easing Rate Hike Expectations

The decline in oil prices — with Brent crude futures dropping to their lowest since March — has dampened inflation concerns that had pushed the ECB to raise rates by 25 basis points to 2.25% at its June 11 meeting. Before the Iran deal, markets had been pricing in as many as three additional hikes this year. Investors have since trimmed those expectations, with traders now seeing a reduced path of tightening from the central bank.cnbc

German Confidence Rebounds

The ZEW economic research institute reported Tuesday that its indicator of economic sentiment jumped 20.7 points from May’s reading of minus 10.2, reaching plus 10.5 — a level analysts had not anticipated given the recent economic headwinds. The institute attributed the improvement to growing optimism that the Iran conflict will end, easing inflationary pressures. However, the assessment of current economic conditions deteriorated further, falling 3.2 points to minus 81.0.usnews