Nick Twidale, chief market analyst at ATFX Global, said that he expects the market to embrace more risk on Monday but not to surge higher until there is confirmation that the Strait of Hormuz will reopen.
“We will need to see an agreement out in place in the coming sessions as we know there are still some major sticking points,” he said.
The most important issues for financial markets are when the Strait of Hormuz will reopen, Commonwealth Bank of Australia strategists said in a note.
“Under what conditions the Strait will reopen and how long it will take to repair production facilities and infrastructure to ramp up production of energy and other goods to pre‑war levels,” they said.
MST Marquee analyst Saul Kavonic said: “Notwithstanding all the caveats and risks that remain to the peace deal and Strait of Hormuz, there is now some light at the end of the tunnel, which will bring some near-term oil price relief.”
However, analysts expect that it will take months for oil flows through the strait to return to normal and for damaged oil and gas facilities to be repaired.
Investors will also be keeping an eye on how the US Federal Reserve and its new chief chair Kevin Warsh react to Personal Consumption Expenditures (PCE) data this week, as well as European inflation metrics.
“The inflation story remains central to the entire setup,” said SPI Asset Management analyst Stephen Innes.
“Investors will receive another critical read on Thursday with the release of the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation gauge.
“After several hotter-than-expected consumer and producer inflation reports earlier this month, markets are increasingly concerned that elevated oil prices and supply disruptions tied to the Middle East conflict are beginning to seep into the broader inflation pipeline.”
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