Monday’s trading session brought a marked sense of relief to global markets, with investors regaining their appetite for risk in droves following the weekend’s political decisions relating to the conflict in the Middle East.
The main factor of variability
The main driver behind today’s gains was President Trump’s decision to call off the planned attack on Iran, which calmed investors’ nerves following weeks of mounting fears over an escalation of the conflict. The market reacted with a classic ‘risk-on’ pattern, with shares rising and oil prices falling sharply, although commentators stress that a ‘been there, done that’ attitude prevails, as similar declarations have been made repeatedly without leading to a lasting solution. Sentiment was further bolstered by the easing of selling pressure on artificial intelligence-related companies following last week’s sell-off.
Geopolitics
The situation regarding Iran remains shrouded in uncertainty, as Trump maintains that talks with Tehran are ongoing, whilst the Iranian Foreign Ministry has denied the existence of direct negotiations with Washington, limiting discussions solely to shipping issues with Oman. The President described the Iranian authorities as incredibly duplicitous and reaffirmed the US Navy’s full control over the Strait of Hormuz. The risk to shipping remains very real, as the UK Maritime Trade Operations (UKMTO) reported an incident involving an explosion near a tanker off the coast of Oman. Analysts at Fitch Solutions have raised the probability of a scenario involving further escalation to 35 per cent from 25 per cent, warning of recurring military incidents despite diplomatic progress.
Macroeconomic data
Sentiment was buoyed by a strong ISM Manufacturing PMI reading for July, which stood at 55.6 points – the highest level since May 2022 and well above the consensus forecast of 54.0. The manufacturing employment index returned to expansionary territory for the first time in over two years, whilst production recorded its fastest growth in nearly five years, although price pressures remain high despite a slight decline. The yield on 10-year US bonds fell by 7 basis points to around 4.67 per cent, reflecting a slight easing of inflation concerns.
Iindices
US indices closed the session with solid gains, with the Nasdaq Composite leading the rise by around 2 per cent, driven by the technology sector, whilst the S&P 500 gained 1.3 per cent and the Dow Jones rose by 0.9 per cent.
Shares
Amazon was the undisputed star of the day, as its market capitalisation surpassed $3 trillion for the first time following a rise in its share price of nearly 5 per cent, capping off its best week since 2015 following excellent quarterly results and accelerated growth at AWS. Meta gained nearly 7 per cent, whilst Alphabet and Microsoft each rose by around 5 per cent, reflecting a rebound in the Big Tech sector following earlier pressure on AI companies. Investors’ attention is also turning to SpaceX’s earnings debut on Tuesday – the company’s first report since its June IPO – which will be a test for its ambitious valuations following the loss of over $500 billion in market capitalisation since its debut.
Currencies
The US dollar rose slightly, thereby easing some of the pressure it had come under following the latest meeting. The dollar index is up 0.17 per cent, the EUR/USD pair is down 0.37 per cent, and the USD/JPY pair is down 0.29 per cent.
Commodities
Crude oil prices fell sharply, with WTI futures dropping by over 7 per cent to around $78.59 to $79.49 per barrel, and Brent slipping by nearly 6 per cent to between $83 and $83.73. The fall in oil prices was a direct result of the cancellation of the attack on Iran and the announcement that negotiations would resume, which reduced the geopolitical premium factored into oil prices. Gold remained stable at around $4,034 per ounce, showing minimal fluctuations against a backdrop of declining risk aversion.
Cryptocurrencies
Bitcoin recorded a moderate rise of 0.48 per cent, trading in the range of $63,700 to $63,888, despite a slowdown in institutional buying. Michael Saylor’s Strategy sold 1,638 BTC for $104.7 million, allocating the proceeds to dividends on preference shares and STRC buybacks. US Bitcoin ETFs recorded net outflows of $265.37 million in the final trading session of the week, resulting in total weekly outflows of $61.5 million.
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