- Negotiators from the US and Iran reached an agreement on a roadmap for a final deal during talks in Switzerland, easing market concerns about escalating conflicts in the Persian Gulf. Brent crude futures fell 1.7%, approaching $79 per barrel.
- Despite the decline in geopolitical premiums, US stock index futures fell on Monday, with S&P 500 futures down 0.2% and Dow Jones Industrial Average futures down 0.1%, as the market remained cautious amid a series of macro uncertainties.
- UK Prime Minister Keir Starmer officially announced his resignation at 10 Downing Street on Monday, marking the seventh prime minister in the UK in a decade. The pound's decline against the dollar narrowed after hitting its lowest point since 2026.
Decline in Energy Premiums and Progress in Geopolitical Negotiations
Closed-door talks between the US and Iran in Switzerland made marginal progress, with negotiators from Tehran and Washington reaching a preliminary consensus on a roadmap aimed at achieving a final agreement within 60 days. Previously, tensions in the Middle East were high after Iran threatened to close the Strait of Hormuz, accompanied by the US Central Command's shipping data report and subsequent strong statements from the US. The latest mediation results show that both sides agreed to establish a mechanism to ensure the cessation of military actions related to Lebanon, involving sanctions waivers on Iranian oil sales and the release of some frozen assets. As a result, international oil prices came under significant pressure, with Brent crude falling 1.7%, indicating a market reassessment of supply disruption risks. However, most Wall Street analysts point out that given the many political obstacles still facing both sides before a final signing, the actual recovery of Persian Gulf shipping and LNG flows will take time to verify.
Sudden Political Change at Downing Street and UK Fiscal Uncertainty
The UK political landscape is once again facing upheaval. Prime Minister Keir Starmer announced his resignation at 10 Downing Street, with the Labour Party's new leadership nomination process set to begin on July 9 and conclude by September 1. Former Manchester Mayor Andy Burnham is currently seen as the clear favorite to succeed as Prime Minister. The financial market's reaction was relatively restrained, with the pound stabilizing after a brief sharp drop to its lowest point since 2026. London asset management firms generally believe that the fundamental reason for Starmer's departure is the current government's failure to propose a credible fiscal solution to address the UK's severe structural fiscal deficit. The market's future focus will be on Burnham's choice for Chancellor of the Exchequer. If the new fiscal team adopts a left-leaning policy stance or lacks fiscal discipline credibility, UK government bonds may face a new round of credit risk premium shocks.
Hawkish Fed Expectations Suppress Global Risk Assets
On a global macro level, US Treasury yields remain high, further suppressing the valuation of risk assets such as stocks. Influenced by the Fed's recent hawkish signals, the swap market has priced in a 75% probability of a rate hike in September and expects a cumulative tightening of about 38 basis points by the end of the year. The yield on the US 2-year Treasury note rose 4 basis points to 4.230%, the highest level since early 2025; the 10-year Treasury yield also rose to 4.484%. Bond traders are currently focused on the US Personal Consumption Expenditures (PCE) inflation data to be released on Thursday. The market generally expects this Fed-favored inflation indicator to show both year-on-year and month-on-month acceleration in May. If this week's PCE inflation rebounds more than expected, global market tightening expectations will be reassessed, potentially forcing major banks to adjust their baseline forecasts for the 2027 rate hike path.
