The MoU That Wasn't

The US-Iran Memorandum of Understanding (MoU) signed last month has proved to be anything but. The two sides are once again exchanging military strikes, and they hold completely different views on the state of affairs in the Strait of Hormuz. While the US insists the waterway is open, Iran claims it is effectively closed. With shipping around the Gulf becoming increasingly fraught with danger, traffic flows are declining once more.

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Energy infrastructure across the region could either be directly targeted or caught in collateral damage, and oil prices have taken off higher this week as the geopolitical risk premium re-embeds itself in the price. Brent crude, the international benchmark, is up more than 10% this week, reminding everyone how quickly sentiment can swing when the world’s most critical energy chokepoint is in play.

Risk assets received some welcome relief from the June CPI data, which showed headline inflation cooling from 4.2% to 3.5%, better than the 3.8% the market had expected. The retreat in oil prices during June helped take some heat out of inflation, but with crude rising again this week, there is a risk that CPI could follow suit if elevated energy costs persist. The tamer-than-expected CPI print helped pull the Dollar Index (DXY) back below the 101 level, although rising oil prices limited the greenback’s slide. Overall, the data makes a July Fed rate hike unlikely, while September remains firmly in play for a possible move.

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Gold got a modest reprieve from the softer CPI print and the pullback in the DXY, allowing the metal to reclaim the $4,000 level after falling earlier in the week on the back of the oil price spike. However, gold’s immediate upside still looks limited while oil retains its upward bias, given the inflationary implications of higher energy costs. Levels to watch for gold include support at $4,000 with resistance at $4,120.

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US earnings season for Q2 is now well underway, and the big financial stocks delivered solid results. JP Morgan Chase, Goldman Sachs, and Bank of America all beat expectations on Tuesday, helped by strong trading revenue and increased capital market activity. The focus now shifts to the tech and AI names in the coming weeks, where investors will be watching closely to see if earnings momentum can continue amid renewed scepticism over lofty valuations.