Hopes that the U.S.-Iran conflict might de-escalate in an orderly fashion were always cautious, even after a memorandum of understanding was released last week. Fresh threats over the weekend kept the situation volatile, but a seemingly constructive start to talks held in Switzerland helped calm energy markets on Monday.
Brent crude futures eased early in the European session, slipping back below $80 per barrel as traders reacted to the Swiss negotiations. The reduction in near-term energy risk followed Tehran's weekend claim that it had re-closed the Strait of Hormuz - a development that initially pushed oil prices higher. Movements through the strait did decline on Sunday relative to an uptick on Friday, though market participants assessing shipping data see traffic recovering to roughly a quarter of pre-war volumes as the new 60-day ceasefire and talks begin.
The positive diplomatic signals fed into Asian equities on Monday. Major indexes in the region closed higher, with Japan's Nikkei and South Korea's KOSPI registering gains. U.S. equity futures were slightly lower ahead of the opening bell, while European shares showed little net change.
Political shockwaves from London added another layer of market focus on Monday. British Prime Minister Keir Starmer resigned, deepening a political crisis that escalated last week following a by-election victory by his prominent Labour challenger, Andy Burnham. Starmer will remain in office until the Labour Party selects a new leader and prime minister - a successor widely expected to be Burnham - and that successor will mark Britain's seventh leader in the past ten years.
UK equities moved lower on the news, while sterling and gilt yields were broadly steady through the session. Investors will be watching the leadership contest for signals about the new government's economic team, including who may be appointed finance minister, and for any policy shifts that could affect markets.
In the United States, markets continued to digest two other developments: the first policy meeting chaired by Federal Reserve chief Kevin Warsh and the week-old initial public offering of SpaceX. A hawkish tone taken from the Fed meeting sapped some of the earlier enthusiasm surrounding the rocket maker's market debut late last week, although major Wall Street indexes still ended the week higher and SpaceX remains more than 30% above its listing price.
Currency markets also drew attention. The Japanese yen remained weak, trading beyond the 160-per-dollar mark and hovering close to a four-decade low. Market participants are watching for signs that Japanese financial authorities may be preparing to adjust their communications strategy ahead of any further intervention in currency markets.
Looking ahead, the economic calendar is relatively light. Key releases to watch this week include U.S. personal consumption expenditures (PCE) inflation data for May, scheduled for Thursday, and a series of June business sentiment surveys due from various economies.
Chart of the day
Sterling remained broadly unchanged on Monday after the resignation of the prime minister, a development that sets Britain on course to name its seventh leader in the decade since the Brexit referendum, which took place ten years ago tomorrow. Andy Burnham is widely expected to succeed Starmer as Labour Party leader and prime minister. Relative to levels seen before the Brexit vote, sterling is around 10% lower against the dollar and about 15% weaker versus the euro.
Events to watch
- Canada - May consumer price index (8:30 a.m. EDT)
- EU - June flash consumer confidence (10 a.m. EDT)
- Federal Reserve - Governor Christopher Waller speaks (9 a.m. EDT)
- European Central Bank - President Christine Lagarde speaks (11 a.m. EDT)
These scheduled data releases and central bank remarks will be monitored for signals about inflation, growth momentum and policy direction that could influence asset prices across regions.
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