• Trump says Iran deal has been signed, text to come soon
• US at odds with allies over how easy it is to reopen Hormuz
• BoJ set to hike rates as faster energy pass-through risks build
• Wall Street rallies, Dow ends with record on US-Iran deal, oil price slides

Forex

USD got hit on the interim peace agreement between the US and Iran. This still appears to be a rather fragile environment with Israel’s attacks on Lebanon possibly a concern, plus questions around the unfreezing of blocked Iranian funds. The US will lift its naval blockade, whilst the Iranians will reopen the Strait of Hormuz. The Pakistan PM suggested it would be signed in person on Friday. Eyes are on this week’s FOMC meeting, the first to be chaired by new boss, Kevin Warsh. The market clearly expects a less dovish set of communications which likely means an easing bias and expected 2026 rate cut will be removed.

EUR was one of the stronger major currencies as the progress on the US-Iran peace deal is boosting sentiment. Last week’s relatively hawkish ECB meeting means the spotlight will be on ECB speakers and whether there needs to be another rate hike soon. Markets price in less than a one in five chance of a 25bps move at the next meeting, so things appear more comfortable. The three major long-term SMAs have congregated around 1.1671/83.  

GBP rose above the 200-day SMA at 1.3416 as the dollar sunk on the Middle East good news. The UK’s domestic calendar is packed this week, with CPI data on Wednesday, employment on Thursday, along with the BoE rate decision (expected hold at 3.75%), as well as a byelection for anticipated future Labour Party leader Burnham. Softening BoE rate hike expectations are outpacing the Fed’s, but sentiment is the key driver at present.

JPY underperformed as focus turns to today’s expected BOJ rate hike. That should be paired with a relatively hawkish message managing expectations for additional tightening later this year. See below for more on the meeting. The late April high sits in the major at 160.72.

Stocks

US stocks: The S&P 500 added 1.65% to close at 7,554, the Nasdaq closed up 3.06% at 30,544 and the Dow Jones settled higher by 0.92% at 51,676. Tech surged, up 3.4%, with Communication Services and Consumer Discretionary next best up 2.4% and 1.91% respectively. Four sectors were in the red with Energy the big laggard, down 3.6%. SpaceX jumped 19.6% as the company revealed the IPO has raised another $10.7 billion after exercising its ‘greenshoe’ option to buy another 83 million shares. The stock is now up close to 40% since its $135 listing on Friday. Elon Musk said SpaceX’s revenue might be able to top $1 trillion in 2030. Micron led memory chipmaker and hard-disk drive makers higher, rising 10.4%, with Western Digital up 16.1%.

Asian Stocks: Futures are positive. APAC stocks rallied hard on the interim peace agreement. The ASX 200 was lifted by mining and materials while energy was red. The Nikkei 225 surged above 69,000 to record highs as tech and manufacturing boosted the index amid lower oil prices. The Shanghai Composite and Hang Seng rose in line with regional indices helped by tech and mining.

Gold

Gold rose for a third straight day, its best since late March. Inflation concerns and rate hikes have been reined in. Prices are nearing the 200-day SMA at $4,428.

Regarding oil, we saw another big drop on the peace deal agreement. But as we noted in our weekly, restarting infrastructure and logistics flows could take time, while some shipping operators may remain cautious about returning to the Strait in the near term. Meanwhile, inventories and strategic stockpiles will need to be rebuilt after recent disruptions, which should keep prices supported even as flows gradually resume.

Day Ahead – BoJ & RBA Meetings

The Bank of Japan is widely expected to hike the policy rate 25bps to 1%, for the first time since 1995. Sustained domestic inflation with services inflation above 1%, plus real wage growth back in positive territory and the economy holding up in the face of an energy price shock all point to the bank being ready to move again. Hawkish commentary from voices on the policy board have also become more prominent. That means focus will be on any guidance around more policy tightening. Markets currently price in just under another 25bps rate hike by year end.

Consensus predicts the RBA will leave rates unchanged at 4.35% after three straight rate hikes. Recent data has been softer than expected, with Q1 GDP weaker and job market figures deteriorating, while the bank’s preferred measure of inflation, trimmed mean CPI, matched forecasts at 3.4%, still just beyond the RBA’s target range. This likely gives time for rate setters to pause with markets at present only seeing around a coin flip chance of another quarter point hike by the end of this year.

Chart of the Day – AUD/USD bounce

Risk sentiment is key for the aussie, and yesterday’s positive up leg caused the cyclical currency to outperform. Carry and terms-of-trade improvements have also been pointing higher, which could help AUD continue to best its peers in the weeks ahead.

That said, any Fed rate hike would possibly trump any action by the RBA, as Fed policy tightening typically has a bigger impact on high-beta currencies. Prices in the major printed a weekly doji candle denoting some indecision between bulls and bears. This week has kicked off in positive fashion with the 100-day and 50-day SMAs above at 0.7082 and 0.7141. The long-term top from early 2023 sits at 0.7157 with the May high at 0.7277.