Written by Weekend US-Iran skirmishes end
No one expected the much-advertised US-Iran ceasefire with the 60-day roadmap to go without hiccups. However, following the limited military strikes over the weekend, both sides agreed to lay down their weapons and meet tomorrow (Tuesday) in Doha, Qatar, to discuss the management of the Strait of Hormuz and the inauguration of a hotline to prevent shenanigans like Saturday’s strikes. An agreement on Hormuz should unlock the negotiations over Iran’s nuclear intentions, which are expected to be fierce and time-consuming.
Risk assets did not react to the weekend’s developments, with WTI oil hovering above $70 and December 2026 WTI futures flatlining at $68. Both trade within touching distance of the mid-February levels, but a ‘war’ premium could remain present until the situation in the Middle East calms down completely, generating fewer headlines.
Data-heavy week, rebalancing flows expected
Hawkish Fed expectations and the lingering valuation concerns kept stock markets under pressure last week but boosted the US dollar. Both the S&P 500 and Nasdaq 100 indices posted losses, with the Communications and Technology sectors leading the sell-off and the Healthcare and Real Estate sectors outperforming. Meanwhile, euro/dollar is hovering near 1.14, slightly above last week’s trough but almost four big figures below its pre-Middle East conflict level, as the euro lacks bullish catalysts while the greenback keeps finding unexpected pockets of demand, in both risk-on and risk-off trading sessions.
The first two sessions of the week will be dominated by the month-end, quarter-end and half-year-end rebalancing flows, potentially raising market volatility and causing movements that could counter the prevailing market trends and newsflow.
ECB Forum in focus; Fed’s Warsh will speak on Wednesday
Today’s calendar is relatively light, but that will progressively change as the focus shifts to both the data releases and the central bank rhetoric. ECB President Lagarde will deliver the opening speech at this year’s ECB Forum in Sintra, Portugal, which will last until July 1, with ECB heavyweights talking tomorrow and Fed Chair Warsh participating in a panel discussion on Wednesday.
Meanwhile, the key US data releases will commence tomorrow, with the nonfarm payrolls report being published on Thursday, one day earlier than normal due to the July 3 bank holiday. With inflation remaining in the spotlight, a weak set of labour market data could generate further obstacles to the current significant market expectations for a Fed rate hike in September.
Both the pound and yen remain in the spotlight
Despite dollar/yen remaining stuck above 161, and most market analysts counting down to the next intervention, Japanese authorities appear extremely relaxed, allowing investors to continue testing the reaction function of the Finance Ministry.
Overnight, the Japanese government published its draft economic blueprint and, apart from the usual target to accelerate growth, the document “urges the central bank to align its monetary policy decisions with the government's growth agenda”, which means low interest rates and a very gradual exit from the current accommodative stance. This is not groundbreaking though, as, only last week, PM Takaichi expressed her objections to another rate hike soon.
Meanwhile, investors will finally hear from Andy Burnham, as the UK’s incoming PM is scheduled to detail his economic plans in a speech in Manchester today. The markets’ focus will be on the mix of measures aimed at funding Burnham’s nationalization and public investment plans, with a new high value property levy and higher capital gains tax expected to be announced soon.
Both the pound and gilts have welcomed that Burnham is now expected to take office in mid-July, avoiding a protracted leadership contest, but could react negatively to any plans for increased borrowing and taxes. Pound/dollar’s decline has paused at the key support area of 1.3140, but the short-term outlook remains bearish.
By XM.com
