It’s been a hectic session with many US-Iran related headlines. The session started on a negative note after reports of Iran’s Supreme Leader forbidding uranium removal leading to speculation of a more prolonged US-Iran stalemate.
The mood then picked up a bit after an Iranian official denied the Supreme Leader report saying they are “propaganda by the enemies of the deal”.
What sent markets sharply higher though was a claim on Al-Arabiya TV saying that US and Iran have reached a draft agreement which included “guaranteed freedom of navigation in the Gulf, Strait of Hormuz, and Sea of Oman”.
Markets obviously bought into these claims with major stock indices reaching daily highs, oil prices falling sharply, and the US dollar and Treasury yields paring earlier gains.
Lastly, near the end of the session, Iran’s President said on state TV that they won’t back down in talks and we got a “high-level source” telling Al-Arabiya that the Pakistani Army Chief would not head to Tehran tonight. That triggered some unwinding of previous positions because the Pakistani were supposed to head to Iran only when the reach of an agreement was in sight.
Markets then consolidated after Al Jazeera reported that “intense mediation” was underway with Pakistani officials in Iran. The report added that negotiators were very close to reaching a deal and were currently working on a draft text. At the same time, another source told Al Jazeera that it was too early to judge whether a serious, final agreement was within reach.
In less important news (from a market-moving perspective), we got BoE’s Taylor and Fed’s Barkin reiterating their neutral stance. Both the policymakers think their current policy is well-positioned and they maintain a heavy data-dependent approach. Fed’s Goolsbee, on the other hand, reaffirmed his hawkish stance by highlighting his focus on the inflation mandate.
On the economic data side, the US jobless claims once again beat expectations underscoring the resilience of the US labour market. The US housing starts and building permits data was higher than expected which is kind of surprising given the surge in long-term Treasury yields and mortgage rates.
Lastly, the US Flash PMIs showed further improvement in manufacturing which was countered by a sluggish service sector. The agency noted that “factory growth was again in part supported by temporary stock building and both sectors reported that order book growth had been somewhat subdued by the ongoing war in the Middle East, most notably in terms of export sales”.
Moreover, they found that input costs jumped in May at the steepest rate since late-2022 on the back of rising war-related supply constraints and steep energy cost increases. Costs were not only cited as causing lower sales but also contributed to steepening job losses and a further rise in selling price inflation to its highest since August 2022.
