- U.S. President Trump signed a temporary agreement with Iran at the Palace of Versailles in Paris, extending the ceasefire by 60 days and resuming shipping in the Strait of Hormuz. Brent crude oil fell about 15% this week to $78 per barrel.
- The Federal Reserve (Fed) kept interest rates unchanged for the fourth consecutive time. New Chairman Kevin Warsh downplayed forward guidance, and the monetary market has fully priced in an interest rate hike in October.
- Global stock markets are experiencing a tug-of-war. U.S. stock futures rebounded, while South Korea's KOSPI index and Japan's Nikkei 225 index both hit record highs. Meanwhile, European stock markets closed slightly lower, dragged down by heavyweight energy stocks.
Middle East Agreement Triggers Decline in Geopolitical Premium
On Thursday, the risk premium in the global energy market saw a significant decline. According to the agreement text released by the U.S. and Iran, both parties signed a temporary agreement at the Palace of Versailles in Paris, extending the ceasefire by 60 days to allow for in-depth negotiations on a final truce. The agreement established terms for the full resumption of toll-free maritime transport through the Strait of Hormuz. In response to this news, the shipping market reacted quickly, with some vessels, including those from the Saudi National Shipping Company, beginning to traverse the strait again. Brent crude oil futures fell 2% to around $78 per barrel, while West Texas Intermediate (WTI) futures dropped 2.5% to $74.08 per barrel. The two benchmark oil prices have retreated by about 15% this week. Although U.S. crude oil inventories decreased by 8.3 million barrels last week, indicating tight supply and demand, the temporary easing of geopolitical risks has become the core variable dominating short-term oil prices.
Monetary Market Fully Prices in October Rate Hike
As energy prices decline, the fixed income market is facing the impact of the Fed's reshaping of its monetary policy path. At the monetary policy meeting that concluded on Wednesday, the Fed kept the federal funds rate unchanged for the fourth consecutive time. Fed officials stated that economic growth is robust and emphasized strong productivity gains and capital investment. New Fed Chairman Kevin Warsh did not include personal forecasts in the dot plot, continuing his policy style of downplaying forward guidance. Analysts pointed out that about half of the committee members expect a rate hike this year to curb inflation, sending a clear signal to the market. As a result, currency market traders have adjusted the probability of an October rate hike from 80% earlier this week to fully priced at 100%. If core inflation data rebounds in the future, the window for the Fed to restart rate hikes may officially open.
Cross-Asset Allocation Shows Deep Divergence
The easing of geopolitical tensions and hawkish signals from the Fed together form a complex cross-asset pricing logic. Supported by tightening expectations, the U.S. dollar index continued its strength, rising slightly to around 100.46, near a two-month high; the euro fell 0.1% to $1.15. In the commodity market, New York gold futures prices fell 1.2% to $4,328.20 in early trading, affected by the high opportunity cost of holding due to high interest rate expectations. Meanwhile, bond market yields slightly retreated after a sharp rise, with the U.S. 10-year Treasury yield holding at 4.45% and the 2-year Treasury yield slightly falling to 4.168%. Analysts believe that although short-term U.S. Treasury yields have risen due to economic data, the Fed's tacit approval of market tightening pricing may continue to push up the yield curve of government bonds in all G10 countries.
Equity Markets Tug Between Easing Inflation and High Rates
Global stock markets show clear regional and sectoral divergence. U.S. stock index futures rose, with S&P 500 futures up 0.9% and Nasdaq 100 futures up 1.5%, reversing the previous day's losses. In the Asia-Pacific market, optimism pushed major stock indices higher, with South Korea's KOSPI index closing up 2.25% at 9,063.84 points, breaking the 9,000-point mark for the first time in history; Japan's Nikkei 225 index also rose 1.6% to 71,053.49 points, both reaching new historical highs. In contrast, the European STOXX 600 index fell 0.5% overall. Although falling oil prices help alleviate Europe's overall imported inflation pressure and boost technology stocks like ASML (ASML:NL) and Infineon (IFX:GR), heavyweight energy stocks like Shell (SHEL:LN) and BP (BP:LN) fell sharply with oil prices, ultimately dragging down the overall index performance.
