Sunset Market Commentary – ActionForex

Markets

Brent oil slid to a new post-war low today. One barrel currently sells for $74.65, the first sub $75 print since the Middle East conflict erupted end-February. This compares to a $120 peak end-April and the $60-$70 range prior to the war. Prices have dropped dramatically in anticipation of flows restoring rapidly through the Strait of Hormuz. Official tankers vessel crossings have indeed picked up in recent days, following the interim peace deal between the US and Iran, but remain well below the levels seen before (15 vs roughly 60 on average). The US and Iran meanwhile are working their way towards a permanent deal (that amongst others deals with the nuclear issue). Negotiations are likely to be time-consuming and prone to setbacks but markets are willing to look through. Core bonds extended gains after the oil break lower with US Treasuries outperforming German bunds. US rates drop 3.2 to 6.2 bps in a flattening move. We note that for the 10-yr yield the inflation expectations component recently (June 22) turned below the real yield. Such a cross-over is rare (happened only a handful of times the last 15 years+) and gained further traction since the Fed policy meeting of last week. Warsh’s pledge to deliver on price stability has compressed inflation expectations further. Real yields meanwhile have also climbed higher in what can be seen as a vote of confidence in the US economy. European (swap) yields drop 3.1-4.1 bps in similar flattening fashion. The 10-yr tenor is trading at the lowest level since mid-March. The US dollar confirms yesterday’s technical push higher against the euro with EUR/USD sliding towards 1.133. This 13-month low offers negligible support (38.2% retracement on the 2025-2026 EUR/USD rally) before the 1.12 area and more important 1.11 zone pops up. DXY soars to 101.77 with targets from a technical point of view seen at 102.86 & 104.59. USD/JPY grinds higher, testing the patience of Japanese officials. Finance minister Katayama yesterday said he and his US counterpart Bessent agreed on taking “bold” steps if needed. Stock markets trade with caution. The EuroStoxx50 sheds 0.4% towards first support at 6200. Wall Street opens little changed. The Nasdaq rises 0.2% after yesterday’s 2.5% beating. After-market results from chipmaker Micron will help shape sentiment tomorrow.

News & Views

The Czech composite economic sentiment indicator rose 1.6 pts in June as both of its components improved. Business confidence improved only slightly (+0.8 pts to 99.8). The gain in consumer confidence was more outspoken (+3.1 pts to 106.5), coming after two monthly declines. The share of consumers expecting a deterioration in the overall economic situation in the country decreased. More households expect an improvement in their financial situation. Concerns about rising prices & higher in unemployment stayed unchanged. Regarding business sentiment, confidence increased in industry, but decreased slightly in trade and in selected services and significantly in construction. Better confidence in June comes as the Czech National Bank (CNB) last week raised its policy rate by 25 bps to 3.75%. CNB assessed that especially core inflation remained too elevated on a range of domestic factors including accelerating credit growth, public expenditure, a tight labour market and rapidly rising wages and household spending. At 4.12% the Czech 2-y swap rate currently trades 3 bps higher compared to after the CNB decision. The krone is losing ground to EUR/CZK 24.24, partially driven by a stronger dollar.

The Swedish Riksbank today published the Minutes from its June 16 policy meeting when it kept the policy rate at 1.75%. The post-meeting statement indicated an increased probability of a hike later this year due to upside inflation risks for the supply shock of the war in the Middle East. The Minutes today showed divergence between the MPC members on the degree of the upside inflation risks. In its assessment on the upward risks to inflation, governor Thedéen in particular addressed the importance of the koruna exchange rate as a factor which in an unfavourable scenario could strengthen the inflationary impulse. Last year’s strength of the koruna had continued to the Swedish context of low underlying inflation. However, the Swedish currency in the previous months declined from a cycle best near EUR/SEK 10.50 end January to currently trade near EUR/SEK 11.09. If this trend continues, the currency could gain weight as a factor in the Riksbank decision making process. For now governor Thedéen concludes that the Riksbank decision means that they are shifting the earlier course in a slightly tighter direction, but that the rudder angle remains small as it can increase or decrease depending on the risks.