Key events

The jump in energy prices this year has pulled the European Union into a trade deficit in April.

Statistics body Eurostat has reported that the EU recorded a trade in goods deficit of €7.1bn, compared with a surplus of €2.3bn in March and a surplus of €7.3bn in April 2025.

It adds:

This shift reflects a deterioration of €14.4 bn year-on-year, primarily driven by an increase in the energy deficit and a reduced surplus in the machinery and vehicles product group.

Oil is the worst-performing major asset this morning, as this chart from XM shows:

Photograph: XM

What Humpty Dumpty can teach us about oil prices....

Looking further ahead, the prices for oil delivery in a year’s time have dropped today, but remain higher than before the Iran war.

The cost of a barrel of Brent crude for delivery in June 2027 is down around 2% to $76.89 a barrel today.

That’s down from $82/barrel a month ago, but still much higher than before the Iran war when this contract traded at around $66 a barrel.

Kit Juckes, economist at French bank Société Générale says:

Many important lessons were learnt through nursery rhymes and the fact that you can’t put an egg back together after a fall is one of them….

The forward market remains concerned that getting supplies back to pre-war levels will take a long time.

German shipping firm Hapag-Lloyd has welcomed the US-Iran peace breakthrough.

Hapag-Lloyd said news about a US-Iran peace deal sounds encouraging, and that it was looking forward to the end of any military actions in the region.

Hapag-Lloyd told Reuters:

“We hope that vessels will be able to cross the Strait of Hormuz this week.”

Analysts at Sentosa Ship Brokers have predicted that there could be a cautious start to travel through the strait of Hormuz.

“The market is clearly pricing in a return to business as usual, but after months of disruption, (ship) owners and charterers alike will likely remain cautious until ships are consistently moving freely through Hormuz once again.

Wall Street is set to start the new week with a jump.

The Dow Jones industrial average is up 0.9% in pre-market trading, while the broader S&P 500 share index is 1.2% higher.

Tech stocks could lead the rally; the Nasdaq is 2.2% higher in the futures market.

Lale Akoner, global market analyst at eToro says:

“Markets got a dose of relief after the US and Iran agreed to halt hostilities and move toward reopening the Strait of Hormuz, one of the world’s most important oil shipping routes.

“For markets, the story is less about geopolitics and more about inflation. Lower oil prices could ease pressure on consumer prices, reducing one of the key risks facing central banks. The caveat is that markets are pricing in a lasting improvement in the situation. Any renewed tensions in the Middle East could quickly reverse some of the recent moves, particularly in energy markets.

“Investors should view this as a positive development for risk assets, but not necessarily a game changer. Lower oil prices and easing inflation concerns are supportive for equities and bonds, yet the bigger drivers remain economic growth, inflation trends and central bank policy. This week’s Fed meeting is likely to matter more for markets than the headline itself.”

Peace deal should keep mortgage rates down

Mortgage borrowers can breathe a sigh of relief at the news of a peace deal in Iran, says Adam French, head of consumer finance at Moneyfactscompare.co.uk.

While we are far from being out of the woods yet, a lasting peace deal should dramatically reduce the risk of the Bank of England’s worst-case scenario for inflation and interest rates becoming a reality.

“Under that scenario, Base Rate could have risen to 5.25%, potentially pushing typical rates on new mortgages towards 6.75%. Instead, today’s news means mortgages rates, which have already been slowly falling for several weeks, have likely already passed their peak – at least until the next unwelcome crisis.

“Borrowers can be optimistic but with a word of caution, as inflation and economic data will continue to influence the outlook. However, a lasting peace should remove one of the biggest risks to mortgage costs and may help restore a more stable environment for hard-pressed remortgage borrowers and prospective buyers.”

Even before this morning’s drop in UK bond yields (see earlier post), average mortgage rates have dipped slightly.

Moneyfacts reports:

• The average 2-year fixed residential mortgage rate today is 5.61%. This is down from 5.62% the previous working day.

• The average 5-year fixed residential mortgage rate today is 5.58%. This is down from 5.59% the previous working day.

Why it may take months for oil flows to return to normal

Donald Trump excitedly declared: “Ships of the World, start your engines. Let the oil flow!” last night, but the reality is that it will take some time for oil flows through the strait of Hormuz to return to pre-war levels.

One reason is that many oil tankers are simply in the wrong place, after the long closure of the strait.

Another is that some production and refining facilities have been damaged by the conflict, while others were mothballed after storate facilities filled up to the brim.

A third factor is that insurers could still be wary of the conflict reigniting, and price their cover accordingly.

Neil Shearing, group chief economist at Capital Economics, explains:

Even if ships now have safe passage, tankers are in the wrong place, oil production/refining facilities need to get up to full capacity, and questions over the cost and availability of insurance for ships traversing the Strait will remain.

Our current working assumption is that ~80% of energy flows will resume by the end of Q3. Natural gas flows will be slower to return, following the damage to Qatari facilities earlier in the conflict, which according to local officials has put 17% of production offline for two to three years.

US crude drops below $80

US crude oil has dropped to its lowest level since the second week of the Iran war.

The cost of a barrel of West Texas Intermediate (WTI) light sweet crude has dropped by 6% today to $79.72 per barrel, the first time since 10 March that it has been under $80/barrel.

That could help to pull down US gasoline prices, which climbed after the conflict began, hitting consumer confidence.

UK bond yields fall

Today’s relief rally is also driving up government bond prices, pushing down the cost of borrowing.

The yield (or interest rate) on 10-year UK government debt has dropped by 6.5 basis points (0.065 of a percentage point) to 4.775%.

Two-year bond yields are down 8bps to 4.16%.

Lower bond yields indicate that that the cost of issuing new government debt has fallen, which will be a relief for the UK Treasury after the Iran war drove up borrowing costs.

Copper mining company Antofagasta is now the top riser on the FTSE 100, up almost 8%.

Trader will be concluding that an end to the Iran war will boost the world economy, leading to more demand for raw materials such as copper.