Written by Middle East tensions persist
Mixed movements persist in financial markets, as investors are trying to predict the next leg of the renewed Middle East conflict while also positioning ahead of Wednesday’s pivotal earnings reports. More specifically, military operations from both the US and Iran continue, as mediators have already proposed a 10-day pause to reinstate the provisional peace agreement. There are few indications that both sides are closer to a ceasefire, especially as US President Trump maintains his aggressive rhetoric.
That said, markets are used to Trump’s unpredictable reactions. Hence, a pause in the hostilities might actually be on the cards once the US President feels that the Iranians have understood his commitment to resolving this regional conflict. Until this takes place though, upside pressure on oil is expected to persist.
Spot WTI oil is hovering near $82, having failed to break above the busy $85.45-$85.93 resistance area, while the December 2026 oil futures contract is maintaining its recent gains, trading north of $77, up 17% from its early July trough. Notably, these price movements could make the July CPI figures an extremely challenging read for central bank doves.
Mixed dollar movements
Compared to the first few days of the restarted hostilities, the dollar is currently failing to make significant gains, despite the upward pressure seen on US Treasury yields. Notably, the bulls cannot rely on hawkish Fedspeak until the July 29 Fed meeting as the usual blackout period is already in effect.
Euro/dollar has been moving in a rather tight range ahead of Thursday’s ECB meeting, while the antipodeans continue to post gains. Crucially, after a strong weekly performance, dollar/loonie is in the green this week as Trump’s tariff threats have materialized. Additional tariffs of up to 50% on Canadian alcohol, dairy and motor vehicle products have been announced, clouding the loonie’s outlook.
This mixed dollar performance has allowed both gold and bitcoin to bounce higher, partly benefiting from the overnight improved appetite in equity markets. The former has reversed last week’s dip and is climbing towards $4,090, while the latter is once again attempting to break the $65k ceiling. Both remain in long-term bearish trends, raising the possibility of false upward breakouts.
Fragile risk appetite ahead of tech earnings
Meanwhile, markets are preparing for Wednesday's double earnings report from Alphabet and Tesla, as concerns about valuations, the profitability of AI investment and the threat of cheaper Chinese AI models are keeping equity investors on their toes. Based on the bloating earnings expectations, any sign of lower investment or a less upbeat outlook could have a disproportionate impact on equity markets. The Nasdaq 100 index has broken below its recent triangle pattern, testing the support set by the early June lows, with the 100-day simple moving average (SMA) standing at 27,630.
Gilts disapprove of Burnham’s first speech
The prevailing wait-and-see mode has allowed investors to shift their focus to UK developments. Following last week’s encouraging GDP print for May, today’s data confirmed the robustness of the labour market. More importantly, tomorrow’s UK CPI report for June has a strong chance of a downside surprise, like the US and eurozone inflation reports, thus reducing the pressure on the BoE to act.
But the most important event, so far this week, has been PM Burnham taking office. Defying expectations, John Healey, the former Defence Secretary, has been appointed Chancellor of the Exchequer, with Burnham stating that he is seeking “any flexibility” within the government’s existing fiscal rules to increase borrowing. Gilt yields jumped as investors are gradually realizing Burnham’s government plans, with pound bulls also puzzled after four consecutive weeks of gains against the euro.
By XM.com
