30th June - De-Escalation Holds
- Jun 30
- 4 min read
The de-escalation from Monday held yesterday as there were no further hostilities between the US and Iran. The proposed meeting in Doha that Trump had announced, however, was not quite as advertised. There were no face-to-face talks, and only US intermediaries were actually in Doha yesterday. Talks are continuing, but they are doing so through mediators, and current discussions do not include the highest-level officials. Both sides are still posturing, with Iran claiming the Strait of Hormuz remains under Tehran's "exclusive management." The process is proving to be just as bumpy as had been anticipated going into the 60-day ceasefire.
Oil prices are now holding at around pre-war levels. Brent has been around $74 since Thursday last week and has not moved more than $2 either way since then. Markets are broadly ignoring the minor flare-ups between the two sides and are assuming the risk of escalation is now behind us.
Forex
The USD continued to struggle yesterday in the risk-on environment, which was also the case for JPY for the same reason. The DXY fell back to the low 101s and looks to be under a little pressure as we head towards Thursday's NFP figures, though moves are small compared to days that saw major news events.
This is likely due in part to the risk-on positioning of the market, but could also be due to profit-taking as we reach the end of the second quarter today. The USD overall has had a very strong quarter, so there is every chance the pullback is just as much to do with being able to show profitable results for Q2 as it is for any significant changes in market positioning. The true test for this will be the second half of the week; a weak NFP print for the dollar would be a real test to see whether the pullback is real or just end-of-quarter positioning.
The GBP showed some strength yesterday thanks to some of the expected new PM Andy Burnham's public comments, as well as the removal of further political uncertainty since no challenger to Burnham's leadership bid has emerged. Again, this could also be due to end-of-quarter positioning as the GBP has had a weak start to the year, so the second half of the week will prove to be interesting to see if the tide is turning for the Pound.
The CAD continues to struggle due to lower oil prices, while the AUD and NZD remained relatively flat after losing ground all of last week. The EUR and CHF were also relatively stable, as the markets continue to wait for the NFP figures to be released on Thursday.
Indices
Yesterday did see a sustained bounce after last week's falls - the S&P 500 rose 1.2%, the Nasdaq rose 2%, and the Dow rose 0.6% to close above 52,000 for the first time. This rise was driven by tech stocks, with the Dow supported by Alphabet rising by close to 5% on its first day as part of the index (replacing Verizon). This is an interesting wrinkle in the indices world, as it will blur the line a little further between the older 'value' stocks that typically make up the Dow and the newer 'growth' stocks that have recently dominated the S&P and, in particular, the Nasdaq.
The key question, as has been the case for recent bullish days for indices, is whether this is a resumption of the tech leadership or just a relief bounce. The exact stocks that drove yesterday's move were the ones beaten down over the past week or so. As one analyst noted this morning - "a bounce driven by short-covering and quarter-end positioning in the most beaten-down names is not an indication of fundamental health." As mentioned, today is the last day of the quarter, so investors looking to adjust positioning going into the end of the quarter does not mean this is confirmation of a larger move. As with USD weakness mentioned earlier, this move higher needs to take place over more than one day for us to change our position on the thesis we are moving from growth to value. The rest of the week will be key.
Precious Metals
Yesterday saw the positive moves in metals eaten into as de-escalation removed any safe haven demand, with both gold and silver falling just under 1.5% on the day. Gold remains around the key $4,000 level, whilst silver is trading just below the key $60 level.
As was mentioned yesterday, with the risk premium all but removed and rates still expected to be hiked in the near future, metals remain in the worst-of-both-worlds scenario for the short term. I would expect to see continued weakness until we get to mid-July and inflation figures from the US that take into account the reduction in oil prices. If we see proof that inflation is stickier than hoped, then metals will continue to struggle, so these figures will decide the medium-term fate of both gold and silver. Until then, unless we see surprises, there looks to be only one direction.
Today's Market Drivers
US/Iran Doha talks - Any updates would be significant, so news from the region will need to be looked out for.
Q2 end - Today is the last day of the first half of the year, so there could be profit-taking and positioning in advance of the second half of the year beginning.
US CB consumer confidence & JOLTS job openings - These are not as significant as NFP on Thursday, but surprises in either figure will move the market.
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