Written by US launches new Iran attacks but peace talks continue
The United States carried out fresh strikes across several targets in southern Iran late on Monday, targeting missile sites and mine-laying boats. The move, described by the US Central Command as “self-defence” to protect American troops, has raised tensions in the region just as Washington and Tehran edge closer to a peace deal.
However, the ceasefire seems to be holding, with Iran yet to respond to the attacks. Moreover, negotiations to reach a permanent agreement at ending the war are ongoing, with US Secretary of State Marco Rubio maintaining on Tuesday that a deal could “take a few days”.
Rubio also repeated that substantial progress had been made on the two key issues of reopening the Strait of Hormuz and Iran halting its nuclear programme, while President Trump commented on his Truth Social platform that the talks are “proceeding nicely”. Trump additionally indicated that Iran’s enriched uranium doesn’t necessarily have to be brought to the United States but can be destroyed at another location.
Oil prices pare losses as Iran deal not imminent
All this suggests the White House wants a deal, the only caveat being that a final agreement doesn’t appear to be imminent and the talks could drag on for far longer than expected by the markets.
The risk of further complications cannot be ignored either, the latest being that Trump is pressing his Muslim allies involved in the negotiations to accept the Abraham Accords, which would force countries such as Saudi Arabia and Pakistan to normalise ties with Israel.
The renewed setbacks are spurring a rebound in oil futures, which plunged to multi-week lows yesterday. But both WTI and Brent crude are up today, climbing by about 3%.
Dollar off lows despite drop in Treasury yields
The US dollar is also on the front foot against its major peers, edging up to around 159.20 yen even though Fed rate hike bets have eased slightly this week. Hopes that the Strait of Hormuz will be fully reopened soon have helped to calm fears about runaway inflation, pushing government bond yields lower across the board.
The 10-year Treasury yield has plunged to 4.51% today as trading resumes after yesterday’s closure due to the bank holidays in both the US and UK. But Japan’s 10-year yield has reversed most of yesterday’s decline amid fresh concerns about the Japanese government’s latest borrowing spree.
Japan’s extra budget weighs on yen
Prime Minister Sanae Takaichi has announced yet another supplementary budget, amounting to $19 billion, to support the economy during the energy crisis. The government is insisting that the extra borrowing will not change the overall bond issuance, but it is still sending the wrong signal about tackling the mounting debt.
It’s no wonder, therefore, that the yen remains under pressure, with not even yesterday’s risk-on-driven dollar selloff doing much to boost the beleaguered currency.
Gold shrugs off Mideast hopes, stays subdued
Also not staging much of a recovery from the progress in the Middle East is gold. Although gold posted decent gains of 1.4% on Monday, it lagged other precious metals and equities.
The sharp pullback in bond yields should ideally have triggered a much bigger rebound in gold, but the strong resistance in the $4,580 region seems to be holding, underlining the caution around the prospect of energy flows from the Gulf being restored and the threat of higher interest rates receding substantially.
Nasdaq eyes new record highs
In stock markets, however, there is not a huge sense of alarm about the US attacks or disappointment that a deal could be some time away. Stocks in Asia closed mixed, with Japan’s Nikkei taking a breather after yesterday’s record close but South Korea’s KOSPI jumped to a new all-time high.
In Europe, London’s FTSE 100 is playing catchup after Monday’s bank holiday, though shares on the continent are down. Wall Street futures are up too, with the Nasdaq 100 expected to gain 0.8% into record territory when traders return from the long holiday weekend.
Later today, the Conference Board’s consumer confidence index will be watched for any impact from the Iran war.
By XM.com
