Until a few days ago, investors were concerned that the Middle East war would keep oil high for months, fueling a new wave of inflation and forcing central banks to maintain the Interest rates at restricted levels for more time. Today the account has been reversed.
The prospect of an agreement between the US and Iran, the reopening of Ormuz Strait and the possible return of significant quantities of Iranian oil to the market have sparked massive sales on slow and a strong rally on state bonds.
Brent retreats below $79 a barrel, at $78.8. – the lowest level since early March, having lost about 15% in four meetings. This is one of the sharpest corrections in recent years and the biggest downward movement since last summer. The American slow in a corresponding dive, negotiates at $75.78 a barrel.
The market oil It essentially anticipates that the end of the conflict will be accompanied by an increase in supply. Analysts estimate that, once American sanctions are lifted, Iran's exports could approach 2% of world demand, overturning the estimates that prevailed until recently for a narrow market and upward price pressure. It has already been known today that the first Iranian tankers They came out of the ports without the obstacle of the American naval blockade. They are estimated to export 3.8 million barrels of argon.
The great relief of bonds
The fall in oil worked as a catalyst for the sovereign debt markets. The prices of government bonds in the US, Europe and Asia are engaged in rallying and yields are significantly declining.
The German 10-year performance retreated to 2.925%, at the lowest level since early April, while the Italian 10-year performance split to 3.639%, low nearly three months. Greek 10 years sees its performance at 3.59% on Wednesday morning.
In Asia, the Japanese 10-year performance declined to 2.61%, while the Australian title equivalent was formed to 4.78%.
The reason is simple: when oil falls at such a speed, investors downward their inflation forecasts. And when inflation expectations decline, the need for new interest rates increases decreases.
The conversion is impressive. A week ago the market discussed how high the oil could reach if the war was to be extended. Today it discusses how quickly bond yields could retreat if the agreement was implemented without obstacles.
REUTERS/Evelyn Hockstein
At the heart of the new president of the Fed
In this environment, the first meeting of the Fed is held under Kevin Wars.. The market considers that interest rates will remain unchanged. However, interest is focused on the forecasts of the central bank and above all on the first public positions of the new president.
Wars takes over at a time when investors find it difficult to decode Fed's next move. Some houses, such as PGIM and BNP Paribas, still see interest rate increases later in the year. Others, such as Citigroup, consider a reduction scenario more likely.
Uncertainty is also reflected in derivatives markets. Although there is still a possibility of an increase in interest rates by the end of the year, this rate has been significantly reduced following the announcement of the details of the US-Iran agreement.
From geopolitical to inflation
For investors, the substance is less in the diplomatic dimension of the agreement and more in its economic consequences.
If the Straits of Hormuz return to normal operation and Iranian oil returns seamlessly to international markets, then the global economy will accept a strong deflationist boost. This does not mean that inflation disappears or that central banks will change their course immediately. But it means that the main argument in favour of a new period of aggressive monetary consolidation is weakening.
That is why today's Fed meeting is so important. Investors don't expect a change in interest rates. They expect to know if the world's largest central bank sees the same thing that markets now see: that the biggest threat to inflation in recent months may have just begun to retreat.
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