Oil Prices Ease on Reduced Tensions, Weighing on Inflation Concerns

Oil prices have eased after recovering from their June losses last week, thanks to reduced tensions between Iran and the US. This development brings crude oil closer to OCBC's base case of a gradual downtrend. According to Sim Moh Siong and Christopher Wong of OCBC, lower oil prices should alleviate inflation concerns for central banks and partially reverse the recent bear-flattening in global bonds.

The renewed decline in oil prices has brought developments closer to OCBC's expectation that crude will trend lower over time. However, it's possible that oil could rebound at some point as the underlying issues of freedom of navigation through the Strait of Hormuz and Iran's nuclear program remain unresolved.

Carry trades, which pair high-yielding currencies such as the USD and AUD against low-yielding currencies like the EUR, CHF, JPY, and THB, should continue to perform well. The macro backdrop still favors overall USD strength and carry trades.