Brent crude drops below $80 per barrel

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The price of Brent crude dropped below $80 per barrel, reflecting a considerable sink in oil markets, as markets anticipate that interim peace deal between U.S. and Iran will lead to the re-opening of the Strait of Hormuz, which means a larger supply of the commodity across the global supply chain over the coming months. 

According to Bloomberg, Iran is potentially being offered economic support as a result of the peace deal, although final details are yet to be confirmed. So far, the U.S. and regional allies could be offering $300 billion in financing, an unlocking of its frozen assets, and the permission to sell oil immediately. 

That being said, the global monetary policy has been one of hawkishness, as the ECB and the Bank of Japan increased borrowing rates. 

Japan’s increased its lending rate to 1%. While still relatively small, the new increase reflects a change in the country’s approach to handling borrowing rates, ending a more-than-twenty-year period where rates were either negative or zero. 

With the recent rate hike, the lucrative spread commonly earned in carry trades between Japan’s relatively low rates and returns from government bonds in America, India, Turkey, and other countries has become slimmer. 

In the view of the SGFX research desk, the reported news of the re-opening of the Strait of Hormuz, is not expected to shift the FOMC’s stance to one of dovishness overnight.

Potential shifts in Federal Reserve leadership philosophy, combined with U.S. administration growth-focused policy priorities, could make a sustained rate-hiking cycle harder to achieve, though this remains speculative. 

Therefore, our view is that the Federal Reserve may lean towards taking a view of hiking rates but not immediately in today’s FOMC meeting. 

Tuesday’s movement for stock prices showed a mixed outlook for American markets which carried onto Wednesday in Asian stock indexes. 

American stock indexes 

• S&P 500 (SPY): (−0.60%) 
• NASDAQ (QQQ): (−1.90%)
• Dow Jones (DIA): (+0.58%) 
• Russell 2000 (IWM): (−0.87%) 

Asian stock indexes

• ASX 200: (+0.54%) 
• NIKKEI: (+0.72%)
• NIFTY 50: (+0.29%) 
• HSI: (-0.92%) 
• SHANGHAI: (+0.12%) 

The figures above represent index and ETF performance data sourced from public markets for informational purposes only. They do not constitute a recommendation to buy, sell, or hold any of the instruments listed.

Summary

A re-opening of the Strait of Hormuz would create a positive outlook for inflation. In the view of the SGFX research desk, month-by-month data suggested a broadly bullish equity environment even during oil price peaks, supported by a pipeline of anticipated AI-sector IPOs and continued capital expenditure among major technology firms. This reflects internal analysis and does not constitute investment advice.

A successful peace-deal and its positive effects still depend on how central banks handle inflation and the future set of negotiations by both countries after the final signing of the peace deal. 

Research references 

• Stock Market Today: Dow, S&P Live Updates for June 17 - Bloomberg
• The Hormuz Peace Dividend Goes to Stocks, Not Bonds - Bloomberg
• Russia's Oil Exports Near-Record Pace as Ukraine's Drones Target its Refineries - Bloomberg
• US-Iran Deal Set to Offer Iran Broad Financial Gains to End War - Bloomberg
• TIKR data
• Bloomberg data
• CNBC data

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