Markets Overview
- ASX SPI 200 futures down 0.7% to 8,627.00
- S&P 500 up 0.4% to 7,473.47
- Dow Average up 0.6% to 50,579.70
- Aussie little changed at 0.7157 per US$
- US 10-year yield fell 1.3bps to 4.5578%
- Australia 3-year bond yield fell 4.4 bps to 4.54%
- Australia 10-year bond yield fell 4.3 bps to 4.92%
- Gold spot down 0.7% to $4,509.40
- Brent futures up 0.9% to $103.54/bbl
Economic Events
Crude oil fell to the lowest level in more than two weeks and the dollar weakened on expectations that a deal to reopen the Strait of Hormuz and restore oil flows may be near.
Brent dropped more than 5% to about $98 a barrel as the US and Iran appeared to close in on a deal. The dollar weakened against all its Group-of-10 peers, gold jumped and US equity-index futures rallied on the optimism that a deal will help resume the flow of energy through the vital Middle East artery and ease inflation pressures.
Treasury futures also gained, with cash trading closed today due to a US holiday. Markets in Hong Kong and London are also closed for public holidays.
Senior US officials said Sunday that the US and Iran were nearing a deal that would reopen the Strait of Hormuz, though negotiations over key language were continuing and final approval from both sides could still take several days. However, Iran’s Tasnim news agency cautioned that the draft agreement could yet collapse because the US is obstructing some key clauses, including Tehran’s demand that its assets be unfrozen.
The broad improvement in risk sentiment follows weeks of stalemate between the US and Iran after the two sides agreed to a ceasefire in April. Traders are closely tracking the economic fallout from the Middle East conflict after concerns about elevated oil prices and higher inflation sent bond yields to multi-year highs earlier this month.
Friday’s “upside momentum looks set to extend,” Tony Sycamore, an analyst at IG in Sydney, wrote in a note to clients. While any deal could still collapse, “financial markets appear to be, at this point, giving the reports the benefit of the doubt.”
US Personal Consumption Expenditures data and inflation readings across Europe will be in focus this week after bond yields rose to multi-year highs, prompting investors to speculate that central banks may have to hike interest rates. Traders have fully priced in a Federal Reserve rate hike by the year-end, underscoring expectations that Kevin Warsh will need to act swiftly against inflation.
Strategists expect global bond yields to remain elevated even if a US-Iran deal eases oil-driven inflation pressures. Investors are also grappling with concerns that already large public debt burdens will continue to grow, while the capital demands of the AI investment boom are adding further strain to global funding markets.
Monday’s drop in oil comes as signs emerge that ships are beginning to transit the Strait after a supertanker hauling Iraqi crude to China crossed the US blockade line into the Arabian Sea.
Thirty-three vessels, including oil tankers, container ships and other commercial craft, sailed through the Strait of Hormuz over 24 hours after obtaining authorization from the Islamic Revolutionary Guard Corps Navy, the semi-official Iranian Students’ News Agency reported on Sunday, citing an IRGC statement.
“While any reopening of Hormuz would be positive for global oil flows, the fluid nature of the negotiations and the unresolved differences suggest oil price volatility could persist for some time yet,” ANZ Bank strategists including David Croy wrote in a note to clients.
