Markets React to US-Iran Ceasefire with Mixed Results

The recent 'new' ceasefire between the US and Iran has led to a relaxation in markets, with President Trump expressing optimism for a solution. The Strait of Hormuz passage negotiations between Iran and Oman have also contributed to this positive sentiment. However, not all parts of the market are equally affected by this development.

The energy markets saw oil prices close below $89 per barrel, while the European/Dutch contract for gas (TTF) fell sharply from €63 last week to €58 per kilowatt hour. Interest rate markets remained cautious, with US yields declining 0.8 basis points on the 2-year and 3 basis points on the 10-year.

The market still sees a 35% chance of a Fed rate hike at tomorrow's meeting, despite the recent easing in energy prices. European bond markets outperformed slightly, with German yields easing 3.0 basis points on the 30-year to 3.6 basis points on the 2-year.

The market assumes that both the Fed and the ECB may still need to act to keep inflation under control, even at current lower energy prices. Equity markets were mixed, with doubts about AI valuations outweighing the positive impact of lower oil prices. The dollar held its strength, with EUR/USD unable to recapture 1.14.

In Asia, uncertainty over tech valuations dominates sentiment, with Nikkei and Kospi indices experiencing losses. US yields are again ceding basis points across the curve, while Brent oil trades below $88 per barrel.