MUFG’s Derek Halpenny highlights that President Trump’s ceasefire extension has offered only limited relief, with Oil near USD 100 and risk sentiment deteriorating. He warns that failure to resolve disputes over the US blockade and Iranian demands could trigger another surge in crude prices and a more pronounced risk-off move, which would likely support a stronger US Dollar.

Ceasefire uncertainty underpins risk-off potential

"President Trump’s extension of the ceasefire yesterday has brought limited relief for financial market participants with crude oil prices remaining elevated close to USD 100pbl as both Iran and the US accuse each other of breaches to the ceasefire deal. "

"President Trump has refused to end the blockade that Iran describes as a breach while UK Maritime Trade Operations reported that a container ship had been attacked off the cost of Oman. US equities finished lower yesterday and Asian equity markets are mixed today with definite indications that risk conditions, while resilient, have deteriorated with prospects of progress in negotiations looking bleak."

"So for now the financial markets remain in limbo, awaiting news on whether there will be progress or whether another wave of military attacks lie ahead. Iran has threatened energy production facilities in the region stating its neighbours can “wave good-bye” to oil production in the region if the US resumes military attacks."

"We are surely on the cusp of another surge in crude oil prices of this ceasefire does not hold and that will most likely have a more notable knock-on impact on risk assets."

"While the US dollar has not strengthened to the degree we would have expected, a more meaningful risk-off would likely see a more significant rebound of the dollar."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)