Last night the USA and Iran announced an agreed text for a memorandum of understanding which will be signed on Friday, sending risk appetite firmly higher.
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- The big story in the markets today as the new week gets underway is the announcement a few hours ago from both the USA and Iran that a draft MoU has been agreed between the parties with finalized wording, with a signing scheduled for next Friday. The initial provisions include a re-opening of the Strait of Hormuz and a new 60-day ceasefire during which there will by nuclear and other negotiations. The basic idea is that Iran receives sanctions relief for rolling back its nuclear program and maybe on some other issues. There is much speculation about the exact terms, especially whether Iran will be allowed to enrich uranium beyond a certain percentage (Trump has said 3%), and whether there will be a full ceasefire in Lebanon, although Israel is not a party to the MoU and has already announced it will not be bound by it.
- The apparent agreement on the MoU paves the way to a deal, although it looks very likely to me to be a "bad" deal under the very terms Trump himself defined as such before the war. I would assess Iran has accepted a multi-year setback to its progress towards nuclear status and will simply rebuild itself financially and militarily and wait for a more compliant US President before secretly working back towards a nuclear weapon. The US public has no appetite for war and can't see that an Iranian nuclear weapon threatens the USA as well as allies of the USA.
- Risk assets have gotten a strong boost from the MoU news, with the Nikkei 225 Index and the South Korean KOSPI Index, both tech-heavy, up by about 5% on the day. Major US indices are also up by more than 1%. Tech stocks are leading the stock market higher.
- Crude Oil has fallen quite sharply, also by about 5%, with WTI now approaching its 3-month low price, trading at about $80.
- Bitcoin is doing little after making a minor recovery last week. It may have found some support at around $60,000.
- In the Forex market, the USD/JPY currency pair is doing little following last week's bullish breakout, although trend traders will still be long of it. Since the weekly open, the strongest major currency has been the Australian Dollar, while the weakest has been the Japanese Yen, putting the AUD/JPY currency cross in focus.
- There are no high-impact economic data releases scheduled for today, but there will be five major central bank meetings over the rest of this week, meaning markets are likely to be active and volatile.
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