Macro update
Global markets rally on hopes of a US-Iran peace agreement: Risk sentiment improved sharply after the US and Iran announced a preliminary deal over the weekend aimed at ending the conflict and reopening the Straits of Hormuz, with a memorandum of understanding expected to be signed in Switzerland on Friday followed by a 60-day ceasefire period.
Brent crude tumbles to a two-month low: Brent futures dropped to below $83 a barrel, their weakest level since mid-April, as investors unwound the geopolitical risk premium built up following the closure of the Straits of Hormuz in late February, while US crude fell to $80.50.
Asian equities post strong gains as risk appetite returns: Japan’s Nikkei advanced 4.9% and South Korea’s Kospi climbed 5.4%, while European markets were set for a higher open with DAX futures up 1.7%, FTSE futures gaining 0.7% and S&P 500 futures rising 1.2%.
Dollar weakens as inflation concerns recede: The euro strengthened to $1.16 and sterling rose to $1.3440 as easing inflation expectations weighed on the US dollar, while the yen traded close to ¥160 ahead of an anticipated Bank of Japan interest rate increase to 1%.
Gold extends its recovery despite improved risk sentiment: Spot gold gained 2% to $4,300 an ounce, on track for a third consecutive day of gains, as lower oil prices and a softer dollar improved the outlook for the precious metal.
Attention turns to major central bank decisions: The Federal Reserve is widely expected to leave interest rates unchanged at 3.50%-3.75% at Kevin Warsh’s first meeting as chair on Wednesday, with markets reducing the probability of a December rate hike to around 48% from 69% a week earlier, while the Bank of England is also expected to keep rates on hold at 3.75% on Thursday.