Global Market Update

By Nell Mackenzie and Wayne Cole

Overview

LONDON/SYDNEY (Reuters) – World shares slipped on Monday while oil prices rose towards five-month highs before retracing gains. Investors awaited possible retaliation from Iran following U.S. attacks on its nuclear sites, raising concerns for global trade and inflation.

Market Movements

• Equities: Remained restrained, with a modest safe-haven bid for the dollar and no rush to bonds.
• Oil Prices: Experienced volatility, rising to early January highs during Asia trading, then falling back. Brent crude was last up over $82 and U.S. crude rose to around $74.68 per barrel.
• U.S. Futures: Pointed towards a muted open on Wall Street. S&P 500 futures ticked up 0.1%, while Nasdaq futures steadied.

Analyst Insights

Paul Jackson, Invesco’s global head of asset allocation research, commented on the market’s calmness, expressing skepticism about whether it is due to naiveté or a proper assessment of the situation.

European shares fell over 0.3% by midday, and market participants speculated whether Iranian nuclear ambitions might be curtailed or if regime change could lead to a less aggressive government.

Geopolitical Risks

Charu Chanana, chief investment strategist at Saxo, warned that any sign of Iranian retaliation could shift market sentiment and force a re-evaluation of geopolitical risks.

The Strait of Hormuz plays a crucial role in oil trade, with significant amounts of global oil and liquefied gas passing through. Analysts from JPMorgan noted that past regime changes in the region led to significant spikes in oil prices, which Goldman Sachs forecasted could hit $110 per barrel if the Strait is closed for a month.

Regional Market Performance

• World share markets, particularly in Asia, struggled. MSCI’s broadest index of Asia-Pacific shares outside Japan fell 0.9%, primarily due to a 1.42% drop in Taiwan shares.
• Japan’s Nikkei eased 0.1%, even as Japanese manufacturing data showed a return to growth in June after prolonged contraction.

Currency and Treasure Market

The dollar firmed 1.25% against the yen and the euro dipped 0.5% to $1.1466. There was no significant movement towards the safety of Treasuries, with 10-year yields rising about 2 basis points to 4.389%.

Federal Reserve Outlook

Markets are currently forecasting a slim chance of a Fed rate cut at its upcoming meeting on July 30. However, with varying sentiments among Fed officials, a cut is anticipated more likely in September. This week, at least 15 Fed officials are set to speak, including Chair Jerome Powell who will testify on U.S. tariffs and the recent Iranian nuclear site attacks.

Economic Data to Watch

Upcoming releases will include U.S. core inflation data, weekly jobless claims, and early readings on global factory activity for June.