Morning Wrap: Fragile, but still. Investors are confident that U.S.-Iran talks are making progress⏰

🌍 GEOPOLITICS

• US–Iran: progress in Switzerland, but still fragile. During the summit at Bürgenstock on Lake Lucerne, the mediators – Qatar and Pakistan – announced “encouraging progress” following 18 hours of talks. The parties agreed on a 60-day timetable for reaching a final agreement and on the establishment of a High-Level Committee to oversee the mediation. Despite the Iranian delegation’s walk-out, triggered by Trump’s threats on Truth Social to resume bombing, the talks were not broken off.

• The Strait of Hormuz: tensions escalated, then eased. On Sunday, the IRGC announced the re-closure of the Strait of Hormuz; tanker traffic fell to just 5 vessels (compared with 26 the previous day). Following a statement by the mediators, the situation improved – a dedicated communication channel was established to ensure the safe transit of commercial traffic. Iran. Foreign Minister Araghchi announced the lifting of the blockade, the reopening of oil and petrochemical ports, and the launch of a plan for Iran’s reconstruction; Israel is absent from the final communiqué, which leaves a clear gap in the sustainability of the ceasefire.

• Qatar: explosion in Ras Laffan.  A major explosion occurred at the world’s largest LNG terminal during the commissioning of the facility – 54 people were injured and 18 are still missing. QatarEnergy has not commented on the extent of the damage to the infrastructure. The incident serves as a reminder of how fragile the physical energy infrastructure in the Gulf is.

• China: retaliation against the Pentagon.  Beijing has added 10 US military entities to its export control list (including MP Materials and USA Rare Earth) and excluded 46 US companies from government contracts – in response to the Pentagon’s update of the 1260H list (which added Alibaba, Baidu and BYD). Analysts view the move as largely symbolic, aimed at safeguarding bilateral relations following the Trump–Xi summit.

• UK: Starmer on his way out.  The Guardian has reported that Prime Minister Keir Starmer is set to confirm his departure this autumn; the backdrop to this is Andy Burnham’s landslide victory in the parliamentary by-election. Burnham is regarded as the favourite to take over the leadership, whilst the gilt market is uncertain about his approach to fiscal discipline.

📊 MACROECONOMICS

• Fed: the market is increasingly pricing in a rate rise.  Following last week’s hawkish FOMC meeting, the market is now pricing in a 75% chance of a rate rise as early as September and a 41 bp tightening by the end of the year. Yields on 2-year Treasuries have risen to 4.2276% – their highest level since the start of 2025.

• Key reading of the week: PCE on Thursday.  May’s core PCE (the Fed’s preferred inflation gauge) is expected to rise to 3.4% – a result above expectations could accelerate the pace of rate rises. Also on this week’s calendar: Canadian CPI, the eurozone flash PMI and Tokyo CPI from Japan.

• China: LPR remains unchanged for the 13th time.  The PBOC kept the 1-year LPR at 3.00% and the 5-year LPR at 3.50% – another month of no change. The PBOC set the USD/CNY fixing at 6.8150 versus an estimate of 6.7733, suggesting deliberate weakness in the yuan. China is holding back on oil imports (according to the NYT), which could weigh on prices in the long term.

📈 MARKETS – REACTION TO EVENTS

• Wall Street / futures: slight downward pressure. S&P 500 futures –0.5%, Nasdaq-100 futures –0.6%, Dow –187 points / –0.4%, although at the time of writing these losses are being recouped. The previous week ended on a positive note, however: S&P +1%, DJIA +1%, Nasdaq +2% (the 11th winning week out of 12). The markets are awaiting the PCE figures and further developments in the US–Iran talks.

• Japan hits a record high.  The Nikkei 225 jumped +1.95%, breaking through the 72,000-point mark (JP225 CFD: 72,777). The Topix rose +1.29%. The rally was driven by relief following progress in the Iran talks. South Korea: Kospi +1.22%, Kosdaq –0.99%. Australia (ASX 200): a slight rise. Hong Kong (Hang Seng): –1.74%; mainland China (CSI 300): +0.28% – the divergence stems from geopolitical tensions and regulatory risks.

💱 CURRENCIES

• The JPY is under pressure. USD/JPY at ~161.66 (CFD +0.24%) – not far from a two-year low; a break below 161.96 would pave the way for the weakest yen since 1986. Japanese Finance Minister Katayama has announced a readiness to intervene “at any time”, but the market remains sceptical – intervention against the backdrop of a hawkish Fed would be costly and risky. BOJ Deputy Governor Himino has warned that delaying policy adjustments could trigger inflationary overheating, but PM Takaichi is calling for restraint.

• EUR/USD neutral. The pair is trading at ~1.1457, with a change close to zero (–0.01%). On the currency heatmap, the biggest fallers include: NOK (–0.6%), JPY (–0.9%), SEK (–0.4%–0.5%). The ZAR is the strongest (+0.9% vs. JPY).

🛢️ RAW MATERIALS

• Oil: dramatic fluctuations, ending lower.  Brent (Brent CFD): 78.97 / –1.72%; WTI (OIL.WTI CFD): 75.25 / –1.66%. Earlier, oil prices had jumped +3% on news of the closure of the Strait of Hormuz, before giving up those gains following a statement from the mediators. 

• Gold and silver on the rise.  Gold CFD: 4,185 (+0.73%) – Goldman Sachs reported structural demand from central banks of 59 tonnes in April alone. Silver CFD: 65.55 (+1.17%). Natural gas (NatGas): 3.316 (+2.41%).

🏢 COMPANIES

• SK Hynix overtakes Samsung. For the first time in its history, SK Hynix (000660.KS) has become the highest-valued company on the Seoul Stock Exchange, overtaking Samsung Electronics. Its shares have risen by over 340% this year thanks to its dominance in HBM chips for AI (clients: Nvidia, Google). The company is considering a listing in the US, which could broaden its global investor base.

• Tesla under pressure over its reputation. A woman was killed in an accident involving a Tesla using its driver-assist system in Texas – the car veered out of its lane and crashed into a building.

₿ CRYPTOCURRENCIES

• Bitcoin: 64,099 USD (+0.75%) – a moderate rise following an improvement in market sentiment after progress in the Iran talks. No clear domestic catalysts.

🔭 EUROPEAN SESSION – WHAT TO LOOK OUT FOR

• Trump will sign executive orders at 15:30 EDT / 20:30 BST – the market will be on the lookout for any comments regarding Iran.

• Speeches: Fed Governor Waller (opening remarks), ECB President Lagarde and Commissioner Dombrovskis.

• Data: EU consumer confidence for June, Canadian CPI for May (relevant for the CAD and the global inflation picture).

• Key risk of the week: Thursday’s core PCE reading – if it comes in above 3.4%, it could accelerate expectations of a Fed rate rise, hitting bonds and putting pressure on equity markets.