23rd June - From Brinkmanship To A Concrete Roadmap
- Jun 23
- 4 min read
After the back and forth over the weekend, with threats coming from both sides, Monday's talks in Switzerland seemed to bring positive outcomes. Iran cited 'good progress', while US Treasury Secretary Bessent confirmed the US had authorized Iranian oil sales through to the end of August. There now seems to be a clear roadmap on the way to a deal at the end of the 60-day period, something the markets had been betting on throughout.
In the UK, there continues to be fallout from PM Keir Starmer's resignation. New MP Andy Burnham currently looks to be the only person in line to take over the position, with the timeline of the handover yet to be established. Should there not be another contender, the change should be a relatively swift one; if there is a challenger, there would be a selection process, and we could see a long wait for a new PM.
Forex
The USD continued its march higher, moving past 101.000 on the DXY and showing no signs of slowing down. The market now seems to have completely priced in peace in Iran; any positive news from the negotiations that would have put a dent in the USD's momentum now seems to be ignored, with full focus now on the FOMC and its path forward.
The USD/JPY continues to be the pair to watch out for. Yesterday, we hit the July 2024 intervention level once again and saw a sharp selloff in the pair from 161.900 down to 161.100. However, the move was temporary and small, with the pair rising back to 161.500 within hours. It was almost certainly BoJ intervention once again, but once again, it was only a small intervention that has not had a significant effect on the market as a whole. The question now for the BoJ, as it has been for weeks, is what do they do next? Do they continue with small interventions, go big with one large intervention to move the market significantly, or give up their fight and allow the pair to move higher?
The GBP had a very strong reaction to the news of Starmer's resignation, performing well against all currencies (with the EUR/GBP a particular standout). There seems to be relief in the market that the uncertainty has been removed, as there is currently only one candidate to take over the PM role; the path forward is clear for the UK. The interesting part will be whether this was a temporary boost to the GBP, or whether markets like the look of the incoming PM and are willing to put more money into the GBP. I would suggest we will see some reversion to GBP weakness in the short term as doubts remain about the UK economy's strength. Once Burnham is in place and we see the cabinet he builds around him, markets will then react to the expected policies that the cabinet appointments will suggest.
The AUD has seen significant sell-off this morning, but there does not seem to have been an obvious catalyst as of yet. The AUD CPI print will be released overnight (the morning of the 24th, Australian time), so we may be seeing some selling off in advance of this to position for an unexpected print. This, alongside some precious metal weakness and USD strength this morning, could be adding together to give us the AUD move today. The CPI print will be one to watch to see if this weakness continues.
Indices
Yesterday saw a slower day with indices, with the main story being that the US30 & Russell 2000 performed well and the Nasdaq & SPX500 were mixed on the day. The Russell 2000 hit an all-time high and was above 3000 for the first time, which seems to continue the trend of smaller-cap stocks seeming to outperform mega-cap stocks as a whole over the past few weeks, continuing the growth to value move that we have discussed as a possibility before. It is worth noting, however, that we have seen this move before only for it to reverse over the next few days, as a news event hits that is positive for growth stocks. This has often been related to the Iran war and a peace deal being agreed, so with that no longer part of the picture, it will be interesting to see whether the rotation reverses again.
The theme to look out for over the next few weeks is whether the move from the tech/AI sector gathers pace as investors begin to be concerned about high spending with uncertain returns, or whether with the war in the rear-view mirror investors double down on AI firms.
Precious Metals
We saw a small pullback yesterday for precious metals as the good news from Iran filtered through the markets. Most markets did not see a significant reaction, but the precious metals' desperation for good news may have meant a larger than expected reaction. Confirmed peace means lower inflation and lower interest rates, something the metals are currently craving. As a result, investors seem to be clinging to any good news they can find to slow the bleeding. The key figure this week will still be the CPI print released on Thursday; up until then, I am concerned we may see continued falls (as has been seen this morning) as the market continues to be bearish on the metals as a whole.
Today's Key Market Drivers
Iran Peace Talks - News on their progress will be followed, but only unexpected negative news will really move the market. A deal is already priced in, so confirmation of this will not cause waves.
UK PM Succession Plan - Any announcement on the plan for succession will cause movements, though only in the GBP markets themselves.
AUD CPI, 2:30 am UK time - This will have an effect on the AUD as it will affect the RBA's plans moving forward, so it will be one to monitor for AUD markets and NZD markets by extension.
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