Written by Jimmy McGiv
Orlando, Florida (Reuters) – Trading Day
Understand the forces that lead global markets
Written by Jimmy McGiv, a column writer on the market
The morale of the investors and the appetite risks was sharply revived on Monday, as concerns about the Israeli conflict fell, which led to the removal of the spotlight from geopolitical risks and the return towards a group of the central bank’s policies this week.
In my columns today, see the reason for the state of the dollar to vanish as a safe origin in times of increasing geopolitical uncertainty in the world of “cancellation of installation”. More about it below, but first, the main market round moves.
If you have more time to read, here are some of the articles I recommend to help you understand what happened in the market today.
1.
Main market movements today
* Oil slides up to 4 % in one stage on Monday, the future of the future butbrent only by only 1.35 % at $ 73.23/bbl, indicating that the risk remains chunky in the price. The oil increased by 7 % on the legs. * Wall Street, with S&P 500 Backabove 6000 Points and Nasdaq gained 1.4 %. * NVIDIA shares rise by 2 % to the highest level since January 24, in full view of the 313.3.13 record. The shares increased by approximately 70 % of the post -weakness. * The US cabinet returns rise and the curve is very declining at a strong bond auction for 20 years. Long -term returns 5 BPS. * Gold restores the gains on Friday, and slip more than 1 % to 3,386 dollars/ounces. The dollar rises 0.5 % against the yen before the interest rate decision in Japan on Tuesday.
Consider the armistice to recover a spark
The signs of removing the escalation between Israel and Iran – or at least hopes for canceling the escalation – included that the markets have started this week more positively than last week. Whether this optimism is justified to be seen, but the bounce was very strong, as Wall Street and the world return to its highest levels in the last highlands.
It is a very fluid position, so it may be a short -term investor. Iran has called on US President Donald Trump to obtain Israel to stop its attacks, but both countries continue to launch missiles on each other. Meanwhile, a US official said that Trump will not sign the draft statement of the Group of Seven calling for the cancellation of the conflict’s escalation.
Optimism seems to be stronger in the truce in stock markets than anywhere. Gold regained Friday gains, but not before it reached $ 3,451 an ounce, it reached another level when it set a record on April 17, and in volatile trade oil is 1.7 % less, after more than 7 % rose on Friday.
Perhaps investors in stocks. The price of oil has a less impact on global growth or asset prices more than it was, and the markets have been very flexible with conflicts in the Middle East in recent years, while proving shallow and short -term sale.
Unless there is a real shock in oil prices, a similar story is likely to be this time, although superior inflation will be a problem for central banks.
Economists in Oxford Economics draw an extreme scenario where the closing of the oil hormonal strait leads up to $ 130 a barrel, which may raise inflation in the consumer price index to approximately 6 %. Oil is not anywhere near that yet.
Henry Allen also notes from Deutsche Bank, perhaps the story of the year is how the stock markets were flexible in an inexplicable confrontation of the big shocks – the appearance of Deepseek that casts doubt about American technical assessments; The transformation of the financial system in Europe, which has led to the largest daily leap in German revenues since 1990; The United States loses its triple credit rating. Trump’s tariff and the fifth largest day in S&P 500 for two days since World War II.
However, we are here, with global stocks at the highest levels ever.
Regardless of political geography, the focus on investors this week will often revolve around central banks. The Bank of Japan will submit a policy decision on Tuesday, and economists expect to separate from raising prices again due to uncertainty about the customs tariff.
Later this week, we have decisions from Indonesia, Brazil, Switzerland, Sweden, Norway, Britain and the American Federal Reserve.
The Israeli conflict highlights Iran, highlighting the safe call of the dollar
It is usually expected to raise a dramatic rise in the possibility of a comprehensive war between Israel and Iran with an immediate and strong gathering in the US dollar, as investors seek the safety and liquidity of the world’s reserve currency.
This did not happen on Friday.
The dollar’s response to Israel’s strikes on Iranian nuclear facilities and military leaders, followed by Tehran’s initial threats and revenge, was very weak. The dollar index, a scale of currency value against a basket of their main peers, has ended today about 0.25 % today.
Certainly, the dollar was better than American stocks or cabinet, which decreased sharply on Friday. But with the increase in the oil more than 7 % and gold by 1.5 % solid, the strong flow of “journey to quality” would have raised the dollar more than one percent.
The US currency move was especially weak given the starting point of the dollar on Friday. This was at the lowest level in three and a half years, after 10 % decreased a year so far, with feelings and locations to drop significantly. However, the important geopolitical shock was barely born knee.
For comparison, the dollar rose by more than 2 % in each of the first week of the 2006 Israel War of Lebanon and the following week Israel invaded southern Lebanon last year.
The weak dollar’s response to this recent conflict in the Middle East supports the narration that investors are now returning their high exposure to the dollar, in light of some unconventional policies offered by US President Donald Trump in recent months.
The dollar fell slightly early on Monday, and gold and oil were returning some gains on Friday as well, as the markets regained a foothold at the beginning of a crowded week, taking into account the meetings of the main central bank.
A painful smile
The dollar was historically one of the best hedges against fluctuations in the short term ignited by the geopolitical risks, behind gold and on an equal basis with oil, according to the research published by Joe Sidel, the chief economist of JPor Private Bank.
In fact, the Magazine of the Cash Economy Culture Magazine clearly said, “The dollar is a safe and estimated currency and is estimated when global risks rise,” a trend resulting from “the primary asymmetry in a global financial system concentrated around the dollar” that has been built over several decades.
This last part of this argument has not changed.
The dollar represents approximately 60 % of the FX reserves of $ 12 trillion, with its nearest competitor, euro, which represents about 20 %. Nearly two -thirds of the global debt is denied in dollars, and about 90 % of all FX transactions all over the world have Greenback on one side of the trade.
This means that merchants, financial institutions, companies, consumers and governments still need to be more exposed to the dollar than any other currency, even if they doubt the current American policy.
However, the “structural” risks of the dollar are increasing. Investors are now looking to hedge from their large exposure to dollars more than ever.
If this weakens their instinctive demand for dollars during the sudden geopolitical tension, uncertainty and fluctuations, then the so -called “dollar smile theory” can be challenged.
This “smile” is the idea that the dollar is estimated in stress periods in the financial market as well as “risks to” strong global growth periods and invested optimism, but it declines between them. This idea was identified for the first time in more than 20 years by currency analyst at the time and the director of hedge funds Stephen Jin is now.
If Israel’s conflict continues to escalate, this smile may become somewhat unbalanced.
What can the markets move tomorrow?
* Israel-Iran opposes the decision and directing the Bank of Japan * South Korea Commerce (May) * Germany ZEW Investor Sentiment Survey (June) * US retail sales (May) * US import prices (May) * American industrial production (May)
Do you want to have a trading day in your inbox every morning? Subscribe to my news message here.
The views expressed are the views of the author. It does not reflect the opinions of Reuters news, which, according to the principles of confidence, is committed to integrity, independence and liberation from bias.
(Written by Jimmy McGiv; Edit Nia Williams)
