Written by US and Iran make progress, Trump wants weekend deal
Not long after threatening to take control of Iran’s oil and gas markets, President Trump cancelled yesterday’s planned strikes on the country, signalling that a deal is near. Although there is no confirmation yet of any final deal and, as has become customary during these negotiations, Iran is playing down the prospects, Trump is hopeful that an agreement could be signed by this weekend, ending the three-and-a-half-month conflict.
There are few details about the deal under discussion, but Trump is claiming Iran will have no nuclear weapons and the Strait of Hormuz will be reopened without any tolls, in return for sanctions relief for Tehran.
The encouraging part is that Iran’s Foreign Ministry has reportedly said most of the text has been agreed, although there is no final conclusion, despite Trump saying he understands Iran’s Supreme Leader has approved it.
Oil prices test key support, gold rebound loses steam
But as these negotiations have shown, “nothing is agreed until everything is agreed”, hence, there is significant trepidation still about a lasting solution that would lead to the normalization of oil and gas flows from the Gulf.
Oil futures have plunged 4% today and are headed for weekly losses of about 7%. Crucially, however, key technical support for WTI in the $85 region is being tested but has not yet been broken.
Investors would probably want to see oil below $80 before worrying less about energy-induced inflation, and gold’s reaction is reflecting these concerns.
After rebounding almost 3.5% yesterday from a plunge to a six-month low of $4,022, the precious metal is struggling to advance its gains today, slipping towards $4,200, even as government bond yields fall further.
Fed no longer seen hiking in 2026
The drop in US Treasury yields is weighing on the US dollar somewhat, as rate hike expectations for the Fed have been pushed back on the hope that a US-Iran deal is round the corner. A 25-bps rate increase is now not fully priced in until March 2027.
A December hike looked almost certain yesterday following a bigger-than-expected jump in headline PPI to 6.5% y/y in May.
But other data this week have been less strong, with May CPI printing in line with expectations and weekly jobless claims rising for the third straight week.
ECB signals pause after expected hike
Rate hike expectations for the European Central Bank, however, haven’t budged much. This is probably because the ECB has already signalled it is not embarking on a pre-set hiking path after yesterday raising its benchmark rates by 25 basis points. President Lagarde gave little away in terms of forward guidance in her press conference, but ECB sources later told Reuters that a pause is more likely in July.
Nevertheless, the dollar’s pullback has allowed the euro to climb towards $1.1580 today.
The yen also received a slight boost, firming to around 160.00 per dollar from the 160.50 region. Similarly, the pound edged up to $1.3410, although it is trading flat on Friday, being dragged slightly by a 0.1% month-on-month contraction in UK GDP in April.
Stocks rally on Iran optimism, SpaceX IPO hype
Barring any updates in the US-Iran talks, attention later in the day will switch to the University of Michigan’s preliminary consumer sentiment survey, as well as the highly anticipated IPO for Elon Musk’s SpaceX.
The stock is expected to begin trading at $135 each, with shadow trading implying a 35% surge upon launch.
In the meantime, shares on Wall Street staged a strong comeback on Thursday. The S&P 500 rebounded by 1.8% and the Nasdaq 100 by 3.3% as chip stocks bounced back from the recent days’ selloff.
Stocks in Asia and Europe are also up sharply today as sentiment has improved on the back of the optimism for peace in the Middle East.
By XM.com
