- The US and Iran signal nearing an agreement to reopen the Strait of Hormuz, causing Brent crude futures to drop over 4%, falling below the $100 per barrel mark.
- Kevin Warsh officially assumes the role of the 17th Chairman of the Federal Reserve, leading to a comprehensive reevaluation of the tightening path in the swap market, with a 25 basis point rate hike in January 2027 fully priced in.
- The MSCI All Country World Index (MSCI ACWI) rises by 0.4% to a new record high, as Uber (UBER:US) proposes a €10 billion takeover offer, boosting major European stock indices.
Expectations of Reopening the Hormuz Passage Trigger Oil Price Retreat
Driven by statements from senior US and Iranian officials about lifting the shipping blockade in the Strait of Hormuz, the geopolitical risk premium in the commodity market saw a temporary retreat. On Monday, Brent crude futures plummeted, dropping over 4% in a single day, with prices nearing $99 per barrel. Senior Washington officials revealed that both parties are working towards a 60-day extended ceasefire memorandum framework, during which the strait will be cleared of mines and commercial navigation gradually restored. Although the Iranian Foreign Minister later stated that final approval is not imminent, and US President Donald Trump emphasized no rush to sign the agreement, the spot and futures oil markets have already priced in the potential supply recovery. Barclays, in its latest assessment, maintained its forecast for Brent's average price at $100 per barrel in 2026 but acknowledged that short-term supply disruption risks are easing. Garfield Reynolds, head of Bloomberg Markets Live, pointed out that given the previous rapid decline in US crude inventories, the eventual reopening of the strait is crucial for the global energy balance.
Warsh's Inauguration Triggers Extreme Rate Reassessment in Swap Market
The marginal easing of geopolitical risks has not translated into signals of monetary policy easing, as the fixed income market faces a historic transition in the Federal Reserve's leadership. With Kevin Warsh officially sworn in as the Fed Chairman and pledging to initiate the largest reforms in decades, the forward rate swap curve has undergone a disruptive shift. Due to the US consumer confidence index hitting a historic low in May, driven by high gasoline costs from previous oil surges, and inflation persistently exceeding expectations, traders have completely abandoned previous rate cut bets, instead fully pricing in a 25 basis point rate hike by the Fed in January 2027. This change represents a dramatic correction compared to the market's expectation of two rate cuts within the year before the outbreak of hostilities in late February. The European bond market responded positively, with the German 10-year bond yield sharply retreating by 5 basis points to 2.987%, hitting an 18-day low, indicating an immediate response to short-term inflation pressure peaking.
Active M&A and Risk Appetite Resonance
The restructuring of liquidity pricing and easing geopolitical tensions have jointly boosted global risk assets. The MSCI All Country World Index rose by 0.4%, setting a new all-time high. Even though markets in the UK, Norway, and other countries were closed for holidays, leading to relatively light overall trading volume, the European Stoxx 600 Index still recorded its sixth consecutive day of gains, reaching a recent intraday high. On the individual stock level, Uber's €10 billion (approximately $11.6 billion) takeover offer to German food delivery giant Delivery Hero (DHER:GR) spurred the latter's stock price to soar over 10%. During the US spot market closure, the S&P 500 futures still recorded a 0.9% gain. Additionally, the digital asset market also showed signs of capital inflow, with Bitcoin (BTC) rising 0.8% to $77,210 amid the backdrop of Hormuz Strait reopening talks. If the supply chain in the Middle East oil-producing region is smoothly restored in the coming weeks, the valuation recovery space for global equity assets may further open up.
