US President Trump’s withdrawal from the Iran nuclear treaty had little impact on US equities overnight but did manage to jolt the oil markets and encourage a brief flight into safe haven currencies. Despite a big build up to the announcement the markets have pretty much shrugged off the news, with Europe pointing to a rather lacklustre start.
The US pulling out of the agreement, will now almost certainly see Trump reimpose sanctions aimed at Iran’s oil industry, despite pleas from allies in Europe to preserve the deal. Oil markets experienced a roller coaster session in the lead up to the announcement amid rumours and second guessing as to what Trump’s decision would be. After falling 3% on false reports that Trump was looking to remain in the deal, crude rallied hard across the rest of the session, paring earlier losses and charging over into positive territory, above $70 per barrel once again. With Venezuela still firmly in crisis and now Iran potentially facing sanctions, we could easily find that plus $70 per barrel becomes the new norm in a market which has already been tightened by OPEC.
Flow Into Safe Havens Short Lived
Oil stole the show overnight but there was also a brief pick up of flows into safe have assets. Concerns over how Iran will respond to Trump’ provocation and the impact that the move will have on stability in the Middle East was sufficient to see investors jump into the yen, pulling USD/JPY down before dollar bulls and higher US 10-year yields drove the pair sharply northwards in the Asian session, targeting 110.00.
Hard hand towards North Korea?
The move by Trump is a fresh blow to allies in Europe who had been trying to convince the US President to stay in the Iran deal and comes hot on the heels of the steel tariff issues with the EU. Trump is certainly leaving his mark as his US protectionist policies leave him driving a hard bargain. Most likely the same hard approach that we will see him take with North Korea when he meets Kim Jong-un.
Dollar Rally Continues
Amid all the drama the dollar remained well supported, dipping to 93.00 on optimism of Trump remaining in the deal, before charging to 93.2 overnight and looking to retest the earlier 4 ½ month high of 93.28. The stronger dollar and a sparse economic calendar have ensured that the pound and the euro continue to trade around multi month lows, although the pound bears have been unable to break $1.35 suggesting that the recent bear run could be losing steam.