- U.S. President Trump signed a temporary agreement with Iran at the Palace of Versailles in Paris, extending the ceasefire by 60 days and fully resuming maritime transport in the Strait of Hormuz. As a result, Brent crude oil futures fell sharply by 2% to around $78 per barrel, while West Texas Intermediate (WTI) futures on the New York Mercantile Exchange dropped 2.5% to $74.08.
- Global stock markets showed mixed performance. Asian markets were boosted by the easing of geopolitical risks, with South Korea's KOSPI and Japan's Nikkei 225 both reaching record highs. Meanwhile, the European STOXX 600 index was dragged down by weaker energy stocks, closing lower, while U.S. stock futures rebounded from previous corrections.
- The fixed income market fully priced in the expectation of an October rate hike, with the Federal Reserve (Fed) keeping rates unchanged for the fourth consecutive time. About half of the committee members indicated a possible rate hike this year. The 10-year U.S. Treasury yield fell to 4.45%, and the dollar index continued its upward trend, marking the largest single-day gain since April, reaching 100.46.
Geopolitical Premium Dissipation Reshapes Energy Supply Expectations
The temporary U.S.-Iran agreement reopened commercial shipping lanes in the Strait of Hormuz, with companies like Saudi National Shipping resuming passage, leading to a cumulative 15% drop in Brent and WTI prices this week. Although U.S. crude inventories fell by 8.3 million barrels last week, indicating tight spot conditions, countries like Iraq are preparing to increase shipments, effectively stripping away geopolitical risk premiums. Analysts at Mitsubishi UFJ Financial Group (MUFG) noted that the increase in shipments has significantly suppressed oil price expectations. If the subsequent 60-day temporary framework fails to convert into a long-term agreement, energy market volatility may amplify again.
Hawkish Monetary Policy Stance Limits Asset Valuation
The Federal Reserve announced it would keep rates unchanged for the fourth time, but officials noted that economic growth is robust, and inflation risks are more pressing than labor market improvements. The dot plot shows that about half of the members expect a rate hike this year. Bob Michele, Chief Investment Officer at JPMorgan Asset Management, stated that this indicates the decision-makers are preparing for a policy shift towards tightening. Although Fed Chair Kevin Walsh continues to downplay forward guidance, currency market traders have fully priced in the probability of an October rate hike. Analysts at Goldman Sachs (GS:US) pointed out that while the baseline scenario remains for rates to stay unchanged this year, the risk of a rate hike has significantly increased.
Global Stock Markets Exhibit Structural Divergence
Global stock markets are clearly torn between the sharp drop in oil prices and rising rate hike expectations. Major Asian indices performed strongly, with South Korea's KOSPI closing up 2.25%, surpassing the 9,000-point mark for the first time, and Japan's Nikkei 225 rising 1.6%, both setting new records. In contrast, the European STOXX 600 index fell by 0.5%, weighed down by high-weight energy stocks like Shell (SHEL:US) and BP (BP:US), offsetting gains in tech sectors like ASML (ASML:US). U.S. stock futures showed a rebound trend, indicating that the market is trying to digest previous hawkish comments, supported by profit expectations in the artificial intelligence industry.
Currency and Bond Market Linkage with Commodity Pressure
With the October rate hike expectation already priced in, U.S. Treasury yields experienced a brief technical pullback, with the 10-year yield slightly down by 1 basis point to 4.45%, and the 2-year yield stable around 4.168%. In the forex market, the dollar index performed strongly, rising to a nearly two-month high of 100.46. Under the dual pressure of a strong dollar and high interest rate expectations, New York gold futures prices fell 1.2% in early trading to $4,328.20 per ounce. Analysis by Saxo Bank indicates that non-yielding assets like gold are seeking a balance between short-term macro pressures and long-term structural support. If core inflation rebounds, market pricing may be reassessed.
