Credit Agricole: Investors Still Confident of A Deal - FJElite

While oil prices are higher, investors are broadly shrugging this rise off. Firm earnings continue to support the AI investment boom. The upward pressure on UST yields coming from higher oil prices has also been eased by soft US labour market data.

Investors remain optimistic that the US and Iran can reach an agreement on the Strait of Hormuz. Their logic likely remains that President Donald Trump is being pressured to make a deal ahead of the US mid-terms. At this stage, however, Trump appears willing to allow the economic pressure on Iran via the US’s naval blockade to try and force a deal rather than a return to military strikes. This strategy is not re-opening the Strait of Hormuz, however, so investors will keep an eye on developments in the Middle East.

US CPI data will also be important for sentiment. FOMC Chair Kevin Warsh has signalled that a “trend increase” in inflation would put a rate hike as soon as September on the table. Our US economist expects headline CPI and the more important core print to edge down a little to 3.4% and 2.5% YoY respectively. Such outcomes would boost sentiment.

The outperformance of cyclical stocks by defensive stocks and higher gold prices were the main contributors to the rise in our Risk Index over the past week. Capping the rise were falling equity market volatility and private credit spreads.