Michael McKenna
Head of Editorial Content, Saxo Bank
US president Donald Trump has withdrawn the US from the 2015 nuclear deal with Iran, stating that Washington will deploy the "highest level" of sanctions against the Islamic Republic with companies being given 180 days to scale back trade with Iran.
"Trump's decision moves us away from the previous $60-70/barrel range in crude oil, and into a new $70-80/b range," says Saxo Bank head of commodity strategy Ole Hansen, who adds that Tuesday's American Petroleum Institute report showed major declines in oil and refined product inventories, adding to the bullish theme animating the crude oil trade.
"If we see a similar situation in today's Energy Information Administration release, expect the theme to extend," Hansen notes.
With the 2018 midterm elections coming up in November, any pronounced rise in petrol prices would be negatively received by voters; Trump has said that the US has talked to other producer nations about this issue. The estimated supply drop from Q3 onwards stands at 200,000-700,000 barrels/day, with Europe hardest hit as it currently imports 500,000 b/d from Iran.
Contagion across asset classes was limited in the immediate wake of the Iranian decision, but Saxo Bank head of forex strategy John Hardy reports that the bullish dollar trend remains very much in effect as the US two-year yield pushes to cycle highs.
"We have also seen Japanese earnings rise at their fastest pace in 20 years at 2.1% year-on-year," says Hardy, but the dollar remains firm against the yen with USDJPY bouncing from support late Tuesday to the 109.60 area.
In stocks, Saxo Bank head of equity strategy Peter Garnry says that the weakening of the euro versus USD has resulted in a massive bid for European shares with the STOXX 600 index likely to push 10 points higher to over 400.
"This is not a situation that is friendly to shorts," concludes Saxo's equities head, adding that the bounce appears highly linked to EUR weakness given the relatively soft performance of European earnings (3% revenue growth and 4% earnings-per-share growth, y/y) versus their US counterparts (8.3% and 24%, y/y).
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.