The United States and Iran have agreed to extend the ceasefire, raising market expectations that the Strait of Hormuz may reopen, leading to a sharp drop of 5% in international oil prices on Tuesday, June 17, falling below $80 per barrel. This signal of stabilizing energy supply has effectively eased global inflation pressures, causing government bond yields in various countries to decline, with the market focus now shifting to the first policy meeting of the new Federal Reserve Chairman, Kevin Warsh.
The US and Iran have finalized a memorandum of understanding (MOU) to extend the ceasefire period from April for another 60 days to facilitate permanent ceasefire negotiations. Under the agreement, the US will lift the blockade on Iranian ports, while Iran will allow blocked oil tankers to pass through the strait.
Encouraged by this news, both Brent crude and West Texas Intermediate (WTI) futures fell below the $80 mark on Tuesday. Although there was a slight rebound in early trading on Wednesday, Brent crude remained steady around $79 per barrel, while WTI was around $75.
Hiroyuki Kikukawa, Chief Strategist at Nissan Securities Investment, stated, “The oil market retreated due to expectations of the reopening of the Strait of Hormuz after the agreement, but traders are cautious about further selling until the details are finalized.” He added that WTI crude oil could still fluctuate within a range of $10 around $80 per barrel in the future.
The anticipation of reduced inflation due to falling oil prices immediately impacted the bond market. The yield on the US 10-year Treasury note fell by 0.92% to 4.428%, leading to strength in the Asian bond market, with Japan’s 10-year bond yield dropping by 1.5 basis points to 2.63% and Australia’s 10-year rate decreasing by nearly 5 basis points to 4.787%.
As expectations of interest rate hikes ease, the spot gold price continued to rise for the fifth consecutive trading day, reaching around $4,348 per ounce. According to the latest survey by the World Gold Council (WGC), as many as 45% of central bank reserve managers interviewed expect to increase their gold reserves in the next 12 months, a record-breaking figure.
On a macroeconomic level, global investors are eagerly awaiting the first policy meeting of Federal Reserve Chairman Warsh.
Kim Fustier, Senior Oil and Gas Analyst at HSBC, said, “The market seems to be reflecting a high likelihood of comprehensive normalization of flow through the Strait of Hormuz.” However, the bank estimates that it may take until the end of September for flow to fully recover. Industry experts also caution that it could take several months or even years for Middle Eastern countries to fully restore production and refining levels to pre-war levels.
Furthermore, Israel continued drone attacks in southern Lebanon on Tuesday, resulting in at least four deaths, adding uncertainty to the fragile ceasefire agreement.
Currently, the market generally expects the Federal Reserve to keep interest rates unchanged, but Warsh’s stance on inflation and rate path will be crucial in determining the dollar’s trend and market sentiment in the second half of the year.