Markets swing on Iran news

00:00:00: Hi and welcome to Swiss Coats Daily Market Talk.

00:00:03: It's Tuesday, the twenty-sixth of May And the world continues to turn round and around Around the Middle East conflict With good news being drawn by bad ones Just hours after they come in Making a market swing between optimism & reality.

00:00:18: But as the Middle East conflict drags into a third month, oil prices are becoming an increasingly dangerous source of inflationary pressures across world.

00:00:27: at its home when many economies were already struggling with sticky.

00:00:31: price growth and slowing activity remember.

00:00:33: So in this uneasy context, all eyes will remain on the Middle East.

00:00:41: Well, the week started too good to be true on Monday with news that U.S and Iran peace talks were progressing nicely.

00:01:08: Two sticky points out there about this nuclear program that should be clarified.

00:01:22: Iran's foreign minister said very clearly they are not signing any agreement with the

00:01:27: U.S.,

00:01:27: and no one can claim close to reaching an agreement until there is clarity regarding it.

00:01:41: negotiations completely.

00:01:43: And this morning, we woke up to the news that US strikes targets in Iran and also Russia tells them to evacuate its diplomats from Kyiv as a result.

00:01:55: The U.S.

00:01:55: crib tanked more than seven percent yesterday to ninety dollars per barrel level rebounds again past the ninety-three dollar per barrel mark and yields across the globe come under renewed pressure with Japanese ten year yield Very closely watched in the context of potential yen-carry unwind flockchains near the two point seventy percent level.

00:02:16: Remember that's about one full percentage point above a level, which could have triggered a carry on wind last winter!

00:02:23: The US ten year yield on the other hand returns from long weekend having tanked below four and half percent mark but is also inching higher this morning.

00:02:32: So we continue to turn round and around, around the middle of this.

00:02:35: It's very annoying indeed because US officials are playing with markets And they're narrative off-the market The way a cat plays WITH A MOUTH.

00:02:44: There is just too much optimism on the U.S side Too much resilience all in the Iranian side... ...and that situation goes ON AND ON!

00:02:50: There is nothing you can do about it except for observing the same thing over and over again every single week.

00:02:58: And well, moving forward and given the chaotic track record of negotiations through this Iranian conflict.

00:03:04: Well I would say that we could easily see the barrel off US crude return about a hundred dollar per barrel.

00:03:11: psychological level if The peace talks in Iran don't evolve toward the right direction?

00:03:17: If traffic industry is not quickly restored.

00:03:22: It's also worth noting that approaching your third month additional day is moving the physical market toward a pain level that we haven't seen yet.

00:03:31: So Laramie's volatility and potentially sharp upside moves in oil prices, in preparation for prolonged period of limited oil supply.

00:03:39: as world oil reserves also decline at record speed I still believe that the hundred twenty dollar per barrel or above will continue to act like pushing the market narrative, tilting.

00:03:52: The market narrative toward they demand destruction side and keeping upside cap.

00:03:58: but until these levels tactical long so that have a nice room to play.

00:04:03: I always come back to the same subject, obviously.

00:04:05: The rising and higher oil prices have been fueling inflation expectations across the globe And a lot of pressures globally yield in some places too levels we haven't seen since the subprime crisis.

00:04:17: In other places two levels not seen in decades like in Japan for example.

00:04:21: Although most not-to-say all central banks are now considering tighter monetary policies To fight back the rising inflationary pressures the sensitivity of economies to energy price devices remains diverse, leading to interesting divergences and opportunities across the FX markets.

00:04:38: And as context, energy importers like the UK and EU for example are clearly the most sensitive economies today.

00:04:46: Middle East conflict, because the Ukraine conflicts is also going on as a result of central banks in Europe will likely react more sharply to rising price pressures in the continent than the energy exporter countries like Canada and US.

00:05:00: And latest inflation numbers from the UK released last week may have given sense of relief for the hawkish bank of England expectations.

00:05:07: but we all know that Larry doesn't change fact if middle east war It doesn't end, if it does not end very quickly.

00:05:16: The only thing that could eventually spare the UK markets from interest rate hikes is a severe economic meltdown.

00:05:24: I am NOT sure how appetizing it is.

00:05:26: and same applies for European economies on main continent as well where government debt rising while GDP growth made dull?

00:05:34: I fell in this interesting chart showing how German Government consumption faster than the capital investment there and GDP, suggesting that Germany as many Western economies today are running on government debt.

00:05:49: That becomes more unsustainable by the day This is.

00:05:56: inflation is clearly the one best remedy to deflate real debt levels away.

00:06:01: But it also slowly erodes purchasing power, distorts capital allocation and keeps long-term borrowing cost structurally higher.

00:06:09: And when that finances consumption rather than productive investment It becomes much harder to generate growth needed to stabilize the debt burden over time.

00:06:19: Ask Prince if you don't believe me.

00:06:21: And eventually, markets began questioning not only the sustainability of today itself but also credibility after a climate model supporting it.

00:06:31: So in this context that we are preparing to discover the latest inflation figures from Australia and US later in Japan Tokyo this week.

00:06:41: Inflation in Australia is expected to stabilize near the full point four percent level slightly lower than the full-point six percent printed a month earlier while the US Co PC index, the Fed's favorite coach of inflation and one that the central bank watchers are watching very closely.

00:06:59: And that spike to three-and-a half percent level from below three percent before the Iranian war is expected.

00:07:05: come in just a bit lower than that at three point three percent but add three point Three percent still significantly higher.

00:07:13: then.

00:07:13: the feds inflation target on price pressures were already sticky the Iranian war and longer this conflict drags on, higher the risk that elevated energy prices become more entrenched in the economy by feeding into other components of inflation especially wages and transportation costs.

00:07:32: Making inflation even stickier & more difficult for central banks to contain!

00:07:37: So the new Fed chair Kevin Walsh was sworn last Friday as activity on funds futures pointed at about a fifty-six percent chance rate hike in the US versus two to three rate cuts expected by then before the Iranian war started.

00:07:55: And this hawkish shift and Fed expectations has been drawn out by an even more hawk-ish repricing of expectations for other major central banks, especially the European ones keeping the U.S.

00:08:07: dollar in check so far.

00:08:08: But a renewed rise in oil prices could give a renewed boost to the U.S.

00:08:12: seller, and a stronger U. S. seller would further fuel inflationary pressures elsewhere on currency valuations before interest rate gap plays in favour of these currencies.

00:08:24: In simpler words I'd expect the EURUSD end-cable to remain under pressure if Middle East conflict doesn't end soon or if oil prices don't come down roughly.

00:08:34: and for equity markets, both for EM and DM markets.

00:08:38: Rising borrowing costs are screaming for attention as cyber financial conditions are becoming increasingly difficult to ignore.

00:08:45: for investors higher global yields raise the cost of capital pressure valuations and threaten to slow both consumer spending and corporate investment.

00:08:54: Both or bad for equity variations?

00:08:56: And a child from Oxford economy actually summarizes how technology stocks have been distorting our perception of what's really happening beneath the surface.

00:09:05: because if you strip out companies like TSMC, Samsung Electronics and SK Heining's emerging market valuations have falling back to depressed level seen during last April's past Liberation Day selloff.

00:09:18: So The question is whether a handful of mega-cap technology companies around the world can continue soaring toward the moon while much of global economy remains stuck in hell?

00:09:30: I guess time will tell.

00:09:31: So, this is all for today.

00:09:33: I'm Ipek Oskar Deshkuya and thank you for joining me!

00:09:36: And Thank You For All Your Beautiful and Supportive

00:09:38: Comments!!

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00:10:11: So I will meet again tomorrow, until then good day

00:10:30: trading!