Markets Look Beyond the Middle East

• With the US-Iran agreement now in effect and shipping resuming through the Strait of Hormuz, markets are becoming more comfortable that a broader disruption to global energy supply can be avoided, at least for now.
• The easing in tensions has seen investors shift focus back toward the outlook for inflation, growth and central bank policy over the second half of the year.
• Bond markets were relatively steady overnight. The US 10-year Treasury yield eased 1bp to 4.46%, as investors paused for fresh catalysts following Governor Warsh’s first Federal Reserve meeting.
• In the UK, the Bank of England left rates unchanged at 3.75% in a 7-2 vote, while lowering its forecast peak for Q4 inflation from 3.60% to 3.25%, reflecting a more constructive inflation outlook.
• A quieter end to the week awaits, though focus is already turning to next week’s inflation data, which should provide a clearer read on whether higher input and energy costs are flowing through to broader consumer prices.