Markets Rebound on Oil Drop, Risks Still Loom

• Global markets saw an improvement in sentiment overnight after oil prices dropped sharply, following news the US and Iran had agreed to a two-week ceasefire, easing immediate supply concerns.
• Despite the lift in confidence, uncertainty remains. Disagreements over the scope of the ceasefire – particularly around Lebanon and Hezbollah – along with reports Iran has closed the Strait of Hormuz, suggest the situation could still shift quickly.
• The fall in oil prices has also influenced rate expectations, reducing concerns the conflict could lift inflation, leading markets to scale back how aggressively central banks may need to tighten policy.
• In the US, markets are now leaning toward the possibility of a rate cut before year-end, with a small amount of easing beginning to be priced in.
• In Australia, expectations for further RBA tightening have eased slightly, with markets now anticipating around 54bps of additional rate increases by year-end, down from roughly 60bps earlier in the week.