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Mike Dolan: US bonds are about to bite stocks.
Investors attribute the rise in U.S. stock and bond yields in recent weeks to the Iran War, inflation, and AI arms race. Some models suggest that higher borrowing costs are now reaching a point where they begin to drag down equities. The inputs and methods used to calculate equity risk premia (ERP), the excess return promised by investing in equities compared with "risk-free" government bond investments, differ greatly. Yet,?Societe Generale’s proprietary version (which the bank updated this week) reckons that nominal?U.S. Treasury yields of 4.5% represent a pivotal point in the relative value between asset classes. The SG team found that the correlation between bond yields and equity prices is not static. This link historically turns negative once bond yields surpass 4.5%. The 10-year Treasury yields briefly broke through this level last week, before hovering just below it on Tuesday. They wrote: "This means that any increase in bond rates is generally negative for equity markets once U.S. Treasury returns are above 4.5 percent." They added that the ability of U.S. stocks to absorb higher yields on bonds is now limited. The next steps in the?Iran conflict and the disrupted Strait of Hormuz could be a tipping point for the broader financial markets by midyear. Since the beginning of the war on February 28, the yield for the 10-year bond has increased by more than fifty basis points. The initial oil shock caused the stock market to judder, but since then it has recovered almost 20%. This is due to a ceasefire in April and an upgrade of AI-related profit forecasts during the U.S. earning season. Bond yields are spiking this month as U.S. inflation is a hot topic and Federal Reserve officials become more hawkish. Oil analysts do not believe that an immediate end to war will solve all supply issues this year. Central banks are at risk of being forced to tighten their monetary policies by entrenched inflation. At current levels of long-term bond rates, we could be at a turning point for stocks. SocGen estimates that the U.S. Equity Risk Premium has fallen to around 3.5%, close to the 3% level where it believes equities are starting to struggle in comparison to more attractive bonds returns. MODELS AND FRAMEWORKS The ERP is a measure of the rate at which the U.S. Federal Reserve has raised interest rates since the 2008 banking crash and COVID-19 pandemic. It was also above 7% before the Fed began its rate-hike program in 2022. For a better understanding of how SG comes up with its figures, consider that the U.S. equity cost has remained over 7.8% for this year. This expected return is equal to the discount rate where the present value for all future dividends equals current index levels. The SG dividend discount model has four stages. The first three years of earnings are taken from consensus forecasts, the next three from the 10-year earnings growth average; and finally a nine-year linear decline until it reaches what is defined as "perpetual earnings growth" equal to the nominal GDP growth average over the past 10 years. Even without additional bond yield gains, any sudden drop in these inputs - from a surprise in growth or earnings, for example - would place the ERP in danger. This is just one model. Other models are already alarming. JPMorgan's proxy for the ERP, which it sees as the gap between the equity discount rate of the S&P 500 and the real ?10-year Treasury yield, has fallen to ?just 2.2% - a level it says is a new low for the post-financial-crisis period since 2007. This is 90 basis points lower than JPM's historical long-term average. The JPM strategist Nikolaos Pantigirtzoglou wrote: "While the bond yields are still some distance above their 2000 trough level, there is less room for a future rise in bond rates to become a problem both from an asset allocation and long-term perspective." There are obvious differences between the models. JPM uses two-stage discount models and real Treasury yields adjusted for rolling inflation expectations. Both signals are clear: the AI-driven equity boom will be harder to achieve at current yield levels. Over the last three years, the AI theme has swept aside a multitude of market concerns. The AI rally will have to work harder if the Iran conflict is not resolved quickly and a simmering inflation and interest rate problem is not addressed. The opinions expressed are those of Mike Dolan a columnist at. This column is great! Open Interest (ROI) is your new essential source of global financial commentary. Follow ROI on LinkedIn and X. Listen to the Morning Bid podcast daily on Apple, Spotify or the app. Subscribe to the Morning Bid podcast and hear journalists discussing the latest news in finance and markets seven days a weeks.
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New peaks in shares as markets look at shaky US/Iran truce. Kiwi jumps
On Wednesday, Asian shares reached record highs and oil prices remained elevated as the markets awaited signs that a fragile truce between Iran and the United States would be extended. After Iran claimed that the U.S. violated the ceasefire, the dollar maintained gains from its previous session. The?dollar of New Zealand rose after its central bank maintained its policy rate but indicated that future increases will have to be made sooner. After the U.S. stock market reopened after a long holiday, Japanese and South Korean stocks reached new highs thanks to AI optimism. The mood remains fragile, though, as the talks to end the three-month conflict that has rocked the energy markets continue. Central banker comments are also being closely monitored to see how it affects the outlook for interest rates and inflation. Kyle Rodda is a senior financial analyst at Capital.com. He wrote that the markets were waiting for "something tangible" in regards to a possible deal between Iran and the U.S. A lot of good news is already priced in. This leaves room for disappointment when nothing comprehensive is announced. The broadest MSCI index of Asia-Pacific stocks outside Japan rose for the fifth consecutive session, rising by 1.6% and reaching a new high. Japan's Nikkei index rose 0.5% and briefly traded above 66,000 for the first. South Korea's KOSPI rose 3.41% after Samsung Electronics unionised workers approved a tentative wage agreement averting an impending strike that threatened global chip supplies. Early trade saw the pan-region Euro Stoxx futures up 0.23%. German DAX futures also rose 0.24%. FTSE Futures fell 0.18%. The S&P 500 eminis futures for the U.S. edged up 0.06%. The dollar index on the currency markets, which measures greenbacks against a basket currencies, was unchanged at 99.07, after a gain of 0.15% in the previous session. The euro increased by 0.12% to $1.1642, and the yen remained at 159.25. Iran's Foreign Ministry said U.S. airstrikes in southern Hormozgan Province represented a "gross breach" of a truce. The U.S. claimed that its attacks were defensive. U.S. Secretary Marco Rubio said that a deal to end the conflict with Tehran could "take a couple of days." Iran's Tasnim News Agency reported that Tehran wanted the release of $24 Billion in frozen funds overseas. U.S. crude fell by 1.97%, to $92.04 per barrel. Brent, on the other hand, fell to $98.07 a barrel. This is a drop of 1.52%, after an almost 4% rise in the previous session. Reserve Bank of New Zealand kept interest rates at 2.25%, in a decision taken by a split board that emphasized the need to increase rates sooner. The kiwi rose 0.7% against the greenback, to $0.5878. Data from Australia showed that core inflation increased in April, but consumer prices rose less than expected. The Australian dollar fell 0.1% to $0.7161. Kazuo Ueda, the Bank of Japan governor, warned that a temporary shock in energy prices and wages could become permanent if they were to continue. Isabel Schnabel, a member of the European Central Bank's board of directors, advocated a rate increase in June despite if an agreement between the U.S. and Iran is reached. The yield on the benchmark 10-year U.S. notes dropped 1.8 basis points, to 4.473%. This is the lowest it has been since May 14, a third-day decline. The markets were anticipating Thursday's release of the Personal Consumption Expenditures (PCE) Index, which is the measure that the Federal Reserve uses to set its 2% inflation target. This week, with the PCE due, and geopolitical tensions around the Strait of Hormuz still simmering, could be pivotal for rate expectations, dollar, oil and gold, said Lukman tunuga, head of FXTM's market research. Spot gold increased 0.1% to $4.510.82 per ounce. Copper rose 0.55%, to $13,699.00 per metric ton. Bitcoin fell by 0.40%, to $75,711.92, while ether dropped by 0.26%, to $2,070.46.
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Sources say that China has allowed fresh urea to be exported amid the fertiliser crisis caused by the Iran war.
Sources with direct knowledge said that China had issued export quotas of urea 'fertiliser. This could ease the soaring prices of?one of the most widely used crop nutrients in the world after the'supply disruptions' linked to the Iran War. China, one of the largest exporters of fertilisers, banned the export of several categories of fertilisers in March in order to protect its domestic farmers from the price spikes caused by the closure of Strait of Hormuz. Urea exports can be managed through a quota-based system. The?issuing of quotas signals that authorities are confident enough in the domestic supply to release some for export. A Chinese urea manufacturer confirmed that it received export quotas, but refused to give further details. A Chinese importer told an Indian importer that the Chinese government issued a notification "permitting" urea exports. However, no specifics were provided. India is likely to welcome new export quotas, as its domestic urea prices are well below the international level. India imported over 40% of its DAP and urea from the Middle East in 2013. Bloomberg News reported that India had asked China in March to allow the sale of certain urea cargoes, as the U.S. and Israeli war against Iran threatened gas supplies and fertilizer production. In the current situation, we will prefer Chinese supplies as they are more predictable. A senior official of an Indian fertilizer producing company said this. They don't have to cross the Strait of Hormuz, and so are more likely to arrive on time. According to several fertilizer industry sources and social media accounts, around 1.5 million tons of urea would be allocated. However, we could not independently verify this total. According to StoneX, an independent consultancy, China exported 4.9 million metric tonnes of urea in 2025. This is below the historical range of between 5 million and 5.5 million tons that usually account for around 10% global urea imports.
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MORNING BID EUROPE: Markets cheer and central banks warn
Rocky Swift gives us a look at what the future holds for European and global markets. Central bankers warn that inflationary damage has already been done, even though markets seem to have 'looked past the Middle East Crisis and the havoc this has caused on energy supplies. Share?markets have soared in Japan and South Korea, riding AI optimism that sent U.S. benchmarks soaring to new highs. This euphoria depends largely on the United States' and Iran's ability to reach a deal that will end their three-month conflict, and reopen Strait of Hormuz for oil shipping. These hopes were dashed by U.S. airstrikes on Iran's southern Hormozgan Province, which Tehran claimed violated a truce. Even if President Donald Trump's vision of a "Great Deal" between the U.S., Iran, and hundreds of stranded ships in the Gulf is realized, the oil market and consumer price effects will remain for some time. Kazuo Ueda, the Bank of Japan governor, warned that a temporary shock in energy prices can have long-lasting effects. His comments follow those of European Central Bank board Member Isabel Schnabel who said that an interest rate increase?in June was warranted, even if the U.S. reached a peace agreement with Iran. In New Zealand inflationary pressures almost forced the central bank to announce a surprise rate hike today. Instead, it warned that they would need to raise rates more than expected at future meetings. We can still rely on the tech boom, even though oil is holding at near $100 per barrel and temperatures are rising in the Northern Hemisphere. Samsung Electronics employees voted in favor of a deal that would prevent a global chip supply strike. Jensen Huang, Nvidia's Jensen, said that the AI giant - and world's largest company - would increase annual investment in Taiwan by $150 billion. In Europe and North America, today is a relatively quiet day in terms of?economic data? and?earnings. Early trade saw the Euro Stoxx futures rise 0.16%. German DAX futures grew 0.06%. FTSE futures fell?0.25%. The S&P 500 eminis and U.S. futures were both flat. The following are key developments that may influence the markets on Wednesday. Earnings: Abercrombie & Fitch (Bath & Body Works), Abercrombie & Fitch (Bank of Montreal), DICK'S Sporting Goods and National Bank of Canada Data from Europe: Consumer confidence in France and Greece for May; Swiss investor sentiments for May Lorie Logan, President of the Fed?Bank of Dallas, participates in a panel discussion in Tokyo - Debt auctions: France - Reopening 3-month, 6-month and 1-year auctions of government debt; Germany - Reopening 15-year auction of government debt; United Kingdom - Reopening 7-year auction of government debt
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Aluminium hovers near four-year high and copper hits near two-week peak
London copper prices reached a two-week high Wednesday as lower oil 'prices eased concerns about inflation and economic growth. Aluminum hovered at its highest level for more than four years on supply concerns. The price of three-month copper at the London Metal Exchange rose 0.5% to $13,688.50 per metric tonne by 0334 GMT after reaching its highest level since May 15 during the previous session. The Shanghai Futures Exchange's most traded copper contract remained unchanged at $15,495. Brent crude oil fell this week and was trading at its lowest level in over a month, alleviating some concerns about inflation and global slowdown. This supported demand for copper which is widely considered a bellwether of the health and strength of the global economic system. Copper's popularity is also boosted by the expectation of a massive AI boom, which will require large quantities of copper to power data centres. Ilya Spirak, global macro head at Tastylive, said: "The main tension in the markets is whether or not this AI buildout story can continue to diverge?from?the inflation concerns triggered by?the U.S.-Iran War and its dramatic effects." Iran claimed on Tuesday that the U.S. violated a truce by attacking targets near the contested Strait of Hormuz. This could complicate efforts to end the war. The price of three-month aluminium at the London Metal Exchange increased by 0.5%, to $3 689 per metric ton. Prices rose to their highest level since March 24, 2020 in the previous session. The price of alumina, the main feedstock for aluminium, has risen. Also due to a reduced supply by Gulf producers there is a tightening in the market. The September alumina contracts on the 'Shanghai Futures Exchange' rose by?over 1 percent to reach their highest level since April 28. The LME Aluminium Cash Contract premium has also remained high despite the reduced aluminium production from Gulf producers as a result of the conflict. As of Tuesday, the price per ton was $73 Nickel gained?0.5%, tin rose 0.8%, and zinc increased 0.3% on the LME. Nickel reached?its highest levels since May 14?while the lead hovered around a four-month peak. Aluminium, among other SHFE metals rose by 0.8%, while zinc fell 0.7%, and lead increased 0.3%. Nickel gained 1.9%, and tin grew 0.6%.
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Indian shares are open with little change due to caution regarding the shaky US/Iran truce
The Indian share market opened on Wednesday with a?small increase, as caution prevailed over the fragile truce between?the U.S. Iran is a concern amid fears of a Middle East conflict escalation. Iran claimed on Tuesday that the U.S. violated a truce by attacking targets near the contested Strait of Hormuz. This could complicate efforts to end the three-month war. Lebanese sources of security said that Israel's?air strikes against Lebanon on Tuesday, one of the most intense days of bombings in recent weeks, further strained?peace attempts. Iran has demanded an end to Israeli attacks on Lebanon as part any deal. Brent crude was hovering around $98 per barrel. As of 9:24 a.m. IST, the benchmark Nifty 50 index rose 0.07% to 23928.01 while the BSE Sensex gained 0.05% -to 76047.25. Nine out of 16 major sectors registered?gains. Small-caps and middle-caps, which are broader categories, gained 0.3% each. Coal India lost 5.3% after the government announced a sale of up to 2% in the state-owned firm via an offer to sell at a discount of 10% to the last closing price. Oil and Natural Gas Corp. lost?4% despite modest revenue and profit growth in the fourth quarter. (Reporting and editing by Vivek M and Bharathrajeswaran, with Mrigank Dhaniwala).
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Oil prices drop as traders wait for US-Iran progress
The price of oil fell from its recent highs, wiping out some of the previous days' 4% increase. Traders sought clarity on the?complex?negotiations?between Iran and the U.S. Brent crude futures dropped $1.42 or 1.43% to $98.16 per barrel at 0253 GMT, while U.S. West Texas Intermediate crude (WTI), lost $1.66 or 1.77% to $92.23 per barrel. The price of oil soared after the U.S. The military launched new strikes against Iran, sapping hopes that the United States and Iran could?come to an agreement?to end the war. Iran claimed on Tuesday that the United States violated a truce by striking targets in the Strait of Hormuz. The U.S., however, said the strikes were defensive. Both sides claimed to have made progress in talks after an April ceasefire ended the three-month conflict. The Strait is a vital conduit for oil and gas flow around the world. The negotiations are now threatened by the escalating hostilities. Israel intensified its bombing of Lebanon on Tuesday, further straining the peace effort. The news that some LNG tankers had passed through the Strait in recent days raised hopes that it would reopen shortly, adding to the global supply.
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Markets eye the shaky US/Iran agreement as shares reach new heights
On Wednesday, Asian shares reached record highs and oil prices were still elevated as the markets awaited signs that a fragile truce between Iran and the United States would be extended. The dollar was up?from?the previous session, after Iran claimed that the U.S. violated a truce. New Zealand's currency rose after its central bank maintained its policy rate but indicated that future increases will have to be made sooner. After the U.S. stock market reopened after a long holiday, Japanese and South Korean stocks reached new highs on AI optimism. The mood remains fragile, though, as the talks to end the conflict that has rocked the energy markets for three months continue. Central bankers will also be watching to see how the crisis affects the outlook for interest rates and inflation. Kyle Rodda is a senior financial analyst at Capital.com. He wrote that the markets were waiting for "something tangible" in regards to a possible deal between Iran and the U.S. A lot of good news is already priced in. This leaves room for disappointment when something more comprehensive is not announced. MSCI's broadest Asia-Pacific index outside Japan has advanced for the fifth consecutive session, gaining 1.9% and reaching a new high. Japan's Nikkei index jumped by 1% and briefly traded above 66,000 for the first. South Korea's KOSPI rose 4.3% after the unionised employees of Samsung?Electronics voted in favor of a tentative wage deal that averted a strike which threatened to shake global chip supplies. Early European trades saw the Euro Stoxx 50 futures rise by 0.18%. German DAX futures also rose by 0.1%. FTSE futures fell 0.1%. The S&P 500 eminis, which are U.S. stocks futures, rose 0.09%. The dollar index (which measures the greenback versus a basket currencies) rose 0.01% in currency markets to 99.11, after a previous session of 0.15% gains. The euro gained 0.07%, to $1.1636. And the yen remained unchanged at 159.28 per US dollar. Iran's Foreign Ministry?said U.S. attacks in southern Hormozgan Province represented a "gross breach" of a truce. The U.S. claimed that its attacks were defensive. U.S. Secretary Marco Rubio stated that a deal to end the conflict with Tehran could "take only a few days." Iran's Tasnim News Agency reported that Tehran is seeking the release $24 billion of frozen funds overseas. U.S. crude fell 1.24%, to $92.73 per barrel. Brent fell to $98.70, down 0.88% for the day after nearly 4% of a surge the previous session. In a split board decision, the Reserve Bank of New Zealand kept interest rates at 2.25%. The decision emphasized that rates should be increased sooner. The kiwi gained 0.58% against the greenback, to reach $0.587. Data from Australia showed that core inflation increased in April, but not as much as expected. The Aussie fell 0.1% to $0.716. Kazuo Ueda, the Governor of the Bank of Japan, warned that a temporary energy crisis can persist if it is reflected in wages and pricing behaviour. Isabel Schnabel, a member of the European Central Bank's board, advocated for a rate increase in June despite achieving a U.S. Iran peace deal. Spot gold dropped 0.07%, to $4,502.72 per ounce. Copper rose 0.52%, to $13,695.00 per metric ton. Bitcoin fell by 0.40%, to $75,711.92 and ether dropped by 0.26%, to $2,070.46.
Indian shares are likely to start off muted, with the focus on US-Iran negotiations
Shares of Coal India are expected to be the focus on Wednesday as New Delhi plans to sell a stake in this'state-owned' miner.
Iran claimed on Tuesday that the U.S. violated a truce by attacking targets near the disputed Strait of Hormuz. This could complicate efforts to end the three-month war.
Israel's air strikes on Lebanon Tuesday, one of the most intense days of bombing for weeks, were more than 120, according to?Lebanese sources of security. Iran wants an end to Israeli attacks on Lebanon as part of any deal.
The GIFT Nifty Futures were 23,890.5 at 7:59 am IST. This means that the benchmark?Nifty50 would open around Tuesday's closing point of 23,913.7.
The rupee is expected to weaken against the dollar.
Brent crude hovered at $99 per barrel while Asian shares surged. Japan's Nikkei hit a new record high due to AI optimism.
Provisional data shows that foreign investors sold Indian shares valued at 24.08 billion rupees (251.67 millions dollars) on Tuesday. Foreign investors have sold $24.2 billion worth of shares so far this year. This is more than the record-breaking annual sale in 2025.
Coal India is the focus of attention on Wednesday as the government sells up to a 2.5% stake in the company. The offer will be made at 412 rupees per share - a 10% discount from its previous closing price.
STOCKS TO WATCH
** Oil and Natural Gas Corp. reports modest growth of revenue and profit in the fourth quarter. Jefferies reports that higher operational costs and dry well write offs contributed to the quarter's softness.
* Siemens reports a?lower profit in the March quarter.
** Indian Railway Catering and Tourism Corp reported lower quarterly profits amid an increase in catering service expenses.
(source: Reuters)