Investors Hopeful about A Path to an Enduring Deal Between the United States and Iran
May 7, 2026
The softer dollar, stock market rallies and lower long-term interest rates that have occurred this week rest heavily on the premise that political leaders in the United States and Iran now have strong incentives to strike a deal after absorbing considerable pain from their ten-week-old war, rising energy costs and voter disapproval of President Trump in the U.S. case and massive infrastructural damage and a greatly weakened economy in Iran’s. The United States has presented Iran with a one-page memorandum of demands, and all eyes are on Iran, which has yet to respond. Much can still go wrong, but ruptured negotiations are more likely to happen down the road as talks get bogged down in the details than right now, so market gains earlier in the week have been sustained thus far today.
The price of West Texas Intermediate crude oil has fallen another 3.3% and is hovering just under $92 per barrel.
Overnight trading in the dollar this Thursday resulted in further losses of 0.4% against the kiwi, 0.3% versus Aussie dollar and peso, 0.2% relative to the euro and and sterling and no change in the yen or Canadian dollar. The reopening of Japan’s stock market following the Golden Week holidays resulting in a spectacular 5.6% leap in the Nikkei 225 index, which now exceeds the end-1989 peak, which wasn’t broken until late February 2024, by 61.5%. Other stock market advances today included gains of 1.4% in South Korea and Taiwan, 1.6% in Hong Kong, and 1.0% in Australia. European stock markets have relinquished some of their advances, but key U.S. indices in pre-open futures trading are holding onto all the sharp gains made earlier in the week.
Ten-year sovereign debt yields have retreated further today, slipping three basis points in the U.K., Japan, Italy, Spain and Australia and by two basis points in the United States, Germany and France.
The price of Bitcoin is 0.8% cheaper, while silver and gold prices have strengthened 5.6% and 1.2%.
Besides the the Middle East war negotiations, today’s other big theme concerns how central banks around the world might respond to the resulting supply-side economic shock from that conflict. The results of monetary policy reviews so far today have been announced in Malaysia, Sweden, Norway, Moldova, Serbia and the Czech Republic, plus minutes from the Bank of Japan Board meeting in March got published.
Officials at Bank Negara Malaysia reaffirmed the appropriateness of the current stance, wherein the key interest rate has been at 2.75% since a 25-basis point cut last July that reversed the final increase of a tightening cycle that ended in May 2023. The latest consumer price inflation reading (1.7%) lies not far above the 1.5-2.5% target floor. Today’s statement explaining the decision promises to “remain vigilant to ongoing developments and assess the balance of risks surrounding the outlook for domestic inflation and growth.”
At the National Bank of Serbia, the 5.75% policy interest rates was also not modified. A trio of 25-basis point cuts between June and September of 2024 were the last changes made in the rate. Serbian CPI inflation had dropped from 16.2% at peak in early 2023 to just 2.4% this past January, but March’s reading of 2.8% was back to a 4-month high and close to the target midpoint of 3.0%. Officials are aware that “economic activity remains affected by global uncertainty caused by geopolitical tensions and rising energy prices, which may negatively impact investment and consumer confidence, as well as capital flows.” By the same token, “if assessed that the increase in global oil prices is having more pronounced second-round effects on other prices through inflation expectations, the NBS will respond using all available instruments.”
Too high inflation is not a current problem in Sweden. A 0.1% year-on-year dip in Swedish consumer prices in April was in deflationary territory for the first time in six years. The Swedish Riksbank‘s key interest rate has been at 1.75% since last September, having crested at 4.0% during September 2023-May 2024. Officials are well aware that inflation could flare up if the war’s effects persist but note too that “economic activity has been weaker than expected.” Today’s statement concludes that “The range of potential outcomes for what can happen going forward is wide and the Riksbank is monitoring developments closely.”
As expected, officials at the Czech National Bank left their interest rate unchanged at 3.50% where such has been for the past year. CPI inflation was at 2.5% last month but rose from a lower level in March. “The Bank Board confirms its determination to continue its monetary policy in order to maintain inflation near the 2% target in the long term. At present, this requires relatively tight monetary policy,” according to a released statement.
In Moldova where CPI inflation rose to 5.8% in March from 4.9% two months earlier, officials felt that they could not merely wait and see as many other monetary authorities are doing. A 150-basis point interest rate hike to 6.5% at the National Bank of Moldova today restores the peak level of restraint that had existed over the six months ending last August.
Bank of Norway officials also veered from the wait-and-see approach, surprising analysts who’d predicted no change with a 25-basis point interest rate hike to 4.25%. That was the first increase since the final month of 2023, but there had been only two subsequent cuts of 25-basis points, most recently in September 2025. Norwegian CPI inflation of 3.6% is above target, and “there are prospects that inflation will remain elevated ahead. High inflation over time can lead firms and households to plan for persistently high inflation. It may then become more difficult to bring inflation down again. The Committee judges that a higher policy rate is needed to return inflation to target within a reasonable time horizon.” That said, officials are projecting no more than one more 25-bp hike this year.
Minutes from the Bank of Japan Board meeting in March show officials wrestling with concerns policy might being falling behind the curve but fearful that a rate hike so soon after the Middle East war outbreak might unduly destabilize financial markets.
Among data released today, new U.S. jobless insurance claims last week bounced above the prior week’s 57-year low to a still-depressed 200k last week. U.S. quarterly productivity growth settled back to 0.8% in the first quarter but climbed to a 6-quarter high of 2.9% in the year-on-year comparison. That helped slash unit labor cost growth to just 1.2% year-on-year.
German industrial orders climbed 3.0% in March following a 1.4% advance in the prior month. For 1Q 2026 as a whole, however, orders sank 4.1%.
Retail sales volume in the euro area slipped in each month of the first quarter, including a 0.1% dip in March. Their 1.2% year-on-year rise in March was a tad more than predicted, however.
Australia’s A$ 5.3 billion trade surplus was 63% narrower in the first quarter than a year earlier. France’s current account deficit of EUR 0.73 billion in 1Q 2026 was 42% smaller than a year earlier.
Taiwanese CPI inflation accelerated half a percentage point to 1.7% last month. Austrian wholesale price inflation jumped 1.2 percentage points in April to a 38-month high of 6.7%. Cypriot CPI inflation more than doubled to 2.8% last month.
The construction sector in Europe last month was hit bad by rising costs of imported inputs, according to purchasing manager surveys of that sector that fell to a 20-month low of 41.7 in the whole euro area, including readings of 38.1 in France (19-month low), 42.1 in Germany (13-month low) and 44.8 in Italy (44-month low). The British construction PMI dropped 5.9 points further from the 50 neutrality level to a 5-month low of 39.7.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: Bank Negara Malaysia, Euroland retail sales, National Bank of Moldova, National Bank of Serbia, Norges Bank, Swedish Riksbank
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